“Please Mr. Vendor: Don’t Hold a Gun To My Head!”

A while back I stopped by a local car dealership to check out a car I had seen advertised. The general manager informed me that the particular model I was inquiring about was not allowed to be sold at that location. That seemed odd to me, as the dealership represented only one line of vehicles. So I inquired as to the reason.

I was told that unless the dealership was willing to “invest” money (translation: spend it) to add an additional level onto their building, along with other costly improvements, the dealership would not be allowed to carry the model I was inquiring about. The manager was frustrated by the automobile maker’s policy, since he felt his company had always supported this manufacturer through a sizeable inventory investment. Add to that the expense of the existing building and all of the advertising they had paid for over the years to promote the brand and build a customer base. The rules of the game were clearly changing, nobody at the corporate level seemed interested in his concerns, and there was nothing he could do about it. To make matters worse, the manufacturer was spending huge amounts of advertising dollars to generate consumer interest in a vehicle that the dealer wasn’t allowed to carry. Feelings of resentment were growing.

Does any of this sound familiar?

I believe most vendors want to provide a good product at a fair price and want the buy/sell relationship to be mutually beneficial. However, certain vendors offer incentives from time to time as coercion to buy other products or lines that they want to sell. I advise retailers not to let vendor incentives, dating, aggressive discounting, threats, intimidation, deadlines, or ultimatums force them into making decisions that are inherently negative for their business. I find it a better business practice to buy products that sell well on their own merits because they are good products.

When incentives must be applied to motivate the buyer to buy, be wary. As a general rule, things do not end well when buying decisions are made under “pressure” circumstances. Below are just a few “sales” techniques you might want to be skeptical of:

“If you don’t increase your order by X% over last year, we will have to offer the line to your competitor.”
“If you don’t buy this special program, you won’t be considered a ‘Five Star’ retailer.”
“If you take delivery by X date, you won’t have to pay for it until Y date.”
“You have to buy X of specific product in order to maximize marketing dollars.”
“If you don’t get the order in by a certain date, you will lose a certain discount/delivery time, or the product might be sold out.”
“If you buy a certain quantity, you will get free freight.”
“We’ll even guarantee the sale.”
Let’s examine these sales ploys more closely and discuss options.

The threat of losing a line to a competitor strikes fear in the hearts of most retailers. It happens all the time anyway, so don’t worry about it. Do you really want a vendor thinking that they have that much control over your business? If you feel pressured to concede to this sales tactic, you don’t have much of a relationship to begin with. Also, you might as well plan on being bullied again in the future, since it worked this time. Course of action: Turn in the order that you feel comfortable with, and let the chips fall where they may.

In their understandable push for consistency of both product presentation and image, vendors for years have come up with programs designed to recognize their top dealers. On the surface, there is nothing at all wrong with this – unless you are striving to become a “Five Star,” “Diamond,” “Titanium” or some other coveted, precious element dealer for the wrong reasons. These levels of distinction often are accompanied by perks – greater discounts, return privileges, increased marketing allowance, payment terms, seats on advisory boards, and freight allowances, to name a few. If the size of your orders puts you into this category anyway, fabulous! You deserve the perks, and the dealer recognition is nice. On the other hand, if your ego has taken over your good sense and you are buying more than you should for the sole reason of achieving this distinction, you might want to rethink your priorities. Course of action: Buy what you can sell, and forget the gratuitous designations unless they make economic sense.

Oftentimes vendors offer special dating if you take early delivery. The pitch is great: Take delivery by such and such a date and you might get several extra months to pay for the merchandise. The idea here is that you will get a longer time in which to sell the product, perhaps even all of it before the invoice is due. Isn’t this retail heaven? Not really. Vendors want to keep factories operational and they want the product shipped to you as soon as available for a couple of reasons, primarily: (A) so you won’t buy from another resource, and (B) so you can’t cancel the order if sales slow because you already have it. The reason I don’t care for dating programs is simple: Once the merchandise is received, it begins to sell because of the power of fresh new merchandise. This means the goods you had planned to sell at this time may not sell as quickly, potentially leading to higher markdowns and slower turns. Remember when you are enjoying the extra months that there will be a day of reckoning: the date the invoice is finally due. Course of action: Though there are numerous exceptions and many cases where dating is favorable, it is best to buy the quantities you want as close to time of need as possible.

Sometimes you might receive an extra advertising allowance if your order reaches a certain level. This just might work for you, because if you have purchased more than you can sell profitably, you will need the extra ad budget for all of the sale ads you will be running. Course of action: Stick to your open-to-buy plan and buy what you can sell profitably. If you happen to qualify for the advertising allowance, great — but don’t reach too far, or the “free” advertising won’t be free after all.

One of my favorites is the enticement of getting the order turned in by a certain date or lose a certain discount percentage. Sometimes, you may be told, the product may even be sold out. It takes a lot more than a few discount points to make up for a 50% markdown if you have hastily submitted an order without thorough preparation. Also, I never understood how the product in question could be sold out when there were several more shows left in the selling season. Course of action: Take your time, do your homework. If the discount makes sense and you have seen all of the competing lines you need to in the category, pull the trigger.

In some categories free freight is a huge deal and obviously something to be considered. Course of action Know what the savings will be, prior to committing to quantities you can’t handle.

Having a vendor “partner” with you on goods they think you should buy can be a positive. Make certain all parties are clear regarding all terms – including any markdown money, return goods allowances, credits on your account, ending dates, etc. Oftentimes, these programs can leave a retailer with even more slow-moving goods the next season if not executed properly. Course of action: Make sure you have a vendor prenuptial agreement prior to embarking a partner program. Get it in writing by someone in authority.

I am not suggesting that sales incentives aren’t worthwhile. They are often very valuable. What I am saying is, don’t get greedy. Don’t let the “deal” coerce you into making a bad business decision. Always ask yourself: Would I be buying this if it wasn’t for the particular incentive(s)?

Setting goals and striving to reach them is admirable. However, when achieving a goal benefits one party while putting the other at a disadvantage, the purpose of the relationship comes into question. And the biggest danger that creates is losing the larger objective of mutual benefit to selfish, short-term motivation.

Posted in General Management Practices.