Special Buys and Other Tactics for Getting Full Price
Profit margins plunged in the first quarter at some outdoor apparel, footwear and snowsports equipment companies as they marked down prices on gloves, base layers, skis, snowboards, outerwear and boots to clear inventory in the wake one of the mildest winters in decades.
But as every retailer knows, today’s slow-moving merchandise can become tomorrow’s source of profits.
Retailers who set aside some of their open-to-buy budget for special buys this spring are in a great position to take advantage of vendor markdowns to prop up their margins come the fourth quarter. Many retailers will bundle special buys with full-price inline products to offer exclusive deals come the holidays. This long-used tactic may just be one of the best ways to compete profitably should big box retailers and department stores again resort to early and deep discounts to drive holiday traffic.
For instance, a winter sports dealer could bundle marked-down snowshoes, cross-country skis or gloves with a set of poles, boots and outerwear to offer a unique package that still allows them to earn full margin on inline products. Winter, cycling and paddlesports retailers have used the tactic for years to drive traffic to major sales events.
“Margins are super important,” said Chris Kegel, who has built Wheel & Sprocket into the largest bicycle retailer in Wisconsin by “using mass market techniques to sell specialty products.“ Theoretically, you are not supposed to be able to do that, but we maintain margins within 1 to 2 percent of industry standard,”
At its annual four-day expo sale in April, Wheel & Sprocket earned gross margins of about 40 percent on sales of $1.6 million by sprinkling special buys in with inline merchandise priced within 3 percent of MAP, or the minimum advertising price allowed by his vendors. The approach allows Wheel & Sprocket to drive traffic by promoting the event as a sale with deep discounts while still selling the bulk of its merchandise within 1 to 3 percent of standard industry margins.
“A lot of this is special buys and volume and marketing,” he said of his high-volume business model.
Such basic retailing tactics are gaining more attention these days as brands and their dealers look for ways to get consumers to pay full price after years of rampant discounting that has taught many Americans to hold out for sales. Other strategies worth considering in preparing for the 2012 holiday season include:
- Create a sense of scarcity: Lululemon Athletica rarely marks down products, thanks in part to limiting inventory of some colors and seasonal items. Burton Snowboards uses product segmentation and limited edition product lines to support its specialty dealers. Its “Restricted” line is available only at specialty ski and snowboard shops and cannot be sold online. In addition, Burton introduces exclusive products for its specialty retailers every season. Recent examples include its “Private Stock” and “Meat Eater” snowboard collections, as well as its “Local Color” program, which are all sold in extremely limited quantities to a small number of dealers that are hand-picked by regional sales representatives. By limiting quantities and not creating re-order stock for these exclusive lines, Burton creates a sense of scarcity and urgency that compels Burton’s core customers to visit dealers’ stores early in the season and pay full price for what they find.
- Customize. Nothing is more exclusive or scarce than products consumers design themselves. T-shirt shops have long understood this, but — thanks to the Internet — many brands and retailers can now offer custom products at a premium. For years, people have been paying premiums of up to 50 percent to design, order and buy their own boots on the Timberland website. Last month, Liberty Bottleworks announced it had partnered with Zazzle.com to allow consumers to upload their own artwork to design custom bottles. Princeton Tec now allows consumers to design their own Spectrum headlamps online and will promote the product during its summer dealer tour, when company representatives will make custom headlamps on site while customers wait.
- Leverage social media. One reason why brands and retailers have embraced social media is because it allows them to engage customers on a one-on-one basis. Customers who submit videos, participate in contests and provide feedback for product design become emotionally invested in a brand. In theory, this makes them much less likely to buy another brand just to save 15 or 20 percent. The “Build Your Dream Trip, Find Your Escape Contest” announced last week by Zeal Optics is an excellent example of these efforts.
- Discount sooner. When a product simply won’t sell at full price, you can often mitigate the damage by initiating small, incremental discounts earlier in the season rather than waiting to make 25 and 40 percent markdowns at season’s end. While this obviously will not help you sell at full price, it may free up cash sooner and buoy your overall margins. For more guidance on this strategy, check out the recent OIA Outdoor University® webinar “Shoulder Season Discounting Strategies – The Eight Truths of Markdowns.”