I’m Fine: Volume Based Discounts and the Impact to Small Shops vs. Box Stores vs. Online
By: Greg Koch
Think about a time where you asked somebody how they are doing and they looked you in the eye and said,
They tell you this even when you clearly know they are actually not fine.
Might mean they don’t want to talk about it, don’t want to burden you with their problems, or don’t think you’ll truly understand what is going on.
I know for a fact I’ve done this millions of times with my wife. Hey, we all got issues we are working on and not talking about things or in some cases talking too much about things, is my thing. Trust me, I am indeed not fine.
The point is that sometimes in life people can tell you one thing, but clearly mean something else. In the running industry this comes into play when I go into brand meetings and discuss our purchasing strategy. Now, on many occasions some of our best brands have looked me right in the eye and said that their selling strategy is not based on volume. This is the equivalent of,
Every single one of our brands operate on volume-based discounting. This common pricing strategy is used in wholesale purchasing. It involves offering customers a lower price per unit for purchasing larger quantities of product. Wholesalers (our brands) offer a sliding scale of prices that decrease as the quantity purchased increases. For example, a brand might offer a price of $82.50 (on a shoe that retails for $150.00) per pair of shoes for 100 pairs of shoes, but offer $80.00 per pair of shoes for 200 pairs of shoes.
Typically, we will be offered our best discount for what is known as “future” orders. These are orders that we schedule sometimes up to 12 months in advance. We will then get a different, less friendly discount for what is known as “fill-in” orders. This discount also applies to any special orders we might place for folks that want a different color or size option than what we forecasted. So, depending on when we purchase a shoe, and how many of those shoes we purchased, all impact our overall margin. This creates a complex task of shipping and receiving product, and forecasting what our market will buy including: style, color, price, brand recognition, comfort, functionality and purpose.
As a small store it can feel like the deck is stacked against us in comparison to larger box stores. Here is another,
Category from our brands. Our product is classified as run specialty, meaning you should only be able to find it in a store that specializes in running. However, our products are found in places like REI, Scheels, Dicks and other similar box stores disguised as specialty outfitters. That is a controversial statement, but the reality is that while these stores might be a step above JC Penny, Target, Wal-Mart or Kohls, they are in-fact box stores that cannot compete with the service offered from a true specialty outfitter.
So how do these stores get product? Big box stores have greater purchasing power due to their large size and higher volume of sales. This means they may be able to negotiate product into their stores and get better prices and pass these savings to their customers. And that is where the next,
Statement comes into play. This involves what is known as a MAP policy or minimum advertised price. In our industry this is supposed to be the equivalency to the law. These policies are in place to insure that even though we don’t pay the same price for shoes, small shops and big box stores alike, charge the same amount of money for shoes and gear. There are supposed to be penalties for breaking MAP policy. In 2023, with all of the access and power that is at each individuals’ fingertips, this law feels like it is fading away. Not even powerful box stores can compete with direct-to-consumer sales. Especially, when the brands selling product deliver what they call a,
And change their own prices to push product sales. Sometimes these come with little to no warning.
Maybe, it is time to reimagine the wholesale experience. When businesses over-purchase inventory to take advantage of volume-based discounts, it can lead to higher levels of waste and resource consumption, contributing to environmental problems such as greenhouse gas emissions and pollution. A box store might over purchase inventory and continuously move it from one store to the next based on sales performance – increased transportation. Direct-to-consumer websites package each individual shoe in an extra box with packaging and spend more money on shipping direct to people’s homes. This is all wasteful, and when truthfully examined, shameful.
This is where I’m going to write about the power of shopping local. When it comes to purchasing goods, consumers have a choice between shopping online, at big box stores, or shopping at local businesses. While big box stores may offer lower prices, added convenience of purchasing multiple items from several different categories at once (I.G. running shoes, fishing tackle, a purse and beef jerky), and *shopping online can be done from anywhere (I.G. at your work desk, on the couch, or in the bath); shopping local can provide several advantages that are often overlooked.
The key advantage of shopping local is the opportunity to support your local community. This doesn’t just create a sense of community pride. This actually supports local economies in a much more significant way than making that purchase anywhere else. I’ve previously written about the benefits of shopping local so I’ll link that post here to more clearly state this case. I cannot tell you the number of people that have talked to me about all of the great things my business has done for our community; while in the same breath they tell me that they bought shoes online or from a box store. It happens more often than you think, and it hurts every time. This doesn’t deter our work in the community or stop us from providing excellent service. In fact, it makes us better every day. Simply put the impact of just one shoe purchase has a significantly greater impact on me and the folks working with me than it does at a box store or online.
*You can shop us online or from our app and schedule a product pickup instore. The best of both worlds.
4/13/2023 12:26:32 pm
... and it's not like the Scheels or REI customer is paying a great deal less than the 605 customer. Supporting the local economy and a fantastic small business is worth the extra few dollars you'd spend. And who doesn't love the experience of shopping in-person at 605? I love that every time I walk in, I see something new, and that any question I have is easily answered right there, by one of your knowledgeable, friendly faces.
4/13/2023 01:45:23 pm
Greg, I appreciate you explaining these details as most of us (as consumers) aren’t aware of all of this. 605 Running Co. has been a huge asset to our community. This is a good reminder for all of us. Personally, I know I can do better. Thank you!
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