"Advanced" merchandise acquisition strategies

Last week I wrote about what I call the "standard" methods of acquiring merchandise for a perfume store. But I also suggested that while you could get a business started using these methods, you would be unlikely to earn more than a minimal profit. Yes, even a minimal profit means you'll be able to pay your rent but if your thinking is like mine, you'll be looking for ways to make more. Today I want to explore with you some "advanced" merchandise acquisition strategies. Whether or not you find any particular one helpful, they should get you thinking of possibilities and looking around for opportunities.

In acquiring merchandise, the maxim is "buy cheap, sell dear." The importance of this cannot be overemphasized. The spread between what you pay for your merchandise and what you can sell it for is what gives your your profit. If that spread is small, unless you can achieve dramatic volume, your profit will be small. To achieve dramatic profits, you are going to need a very healthy spread on one or more popular products.

Closeouts

There are dealers in a number of fields that buy closeouts and overstocks. Many of my own bottles come from a closeout source (McKernan). Depending on the item and its marketability you might get it for pennies on the dollar. But closeout sources will have minimum order requirements that you might find scary. With bottles, I've bought closeouts because I know that what doesn't get used for one project in time will be used for another. And I've always had room to store those cases of bottles I'm setting aside for future use.

The problem with closeout sources is that they lack continuity. Once an item is gone, it's gone. No restocking. If you need more of something you got through a closeout you might have to go to the original source and pay full price, or you may not be able to find it at all. It could be discontinued.

You can explore a number of closeout sources for perfume and scented products. Keep in mind you are not looking for discount sellers who sell by the (discounted) individual piece, but closeout lots, cases of merchandise. Keep in mind that because closeout dealers take advantage of specific purchasing opportunities, their inventory is constantly changing. What they have today might be gone tomorrow -- and they are hoping it will be gone! Again, be prepared to buy in bulk, getting perhaps a good deal more than you want at the moment. But, if the price is right... And you may be able to split an order with another shopkeeper.

Become your own closeout broker, sort of...

First time perfume marketers often fail. When they fail they fail with unsold perfume. Often their perfumes are quite good, developed and packaged by professionals, but the marketing didn't click. The marketer may not have the money or the will to go at it again. These ventures are too small to attract the attention of established closeout brokers but they can a ripe target for you. You will need some tact and negotiating skills but, if you can locate one or more of these failed ventures, there is a good chance you will be able to purchase some or all of their perfume that didn't sell. To find these situations, follow trade magazines and press releases. Look for perfume launches by new companies. Then, after a number of months, look to see if they are still in business. Many will not be and they might be happy to talk to you.

On a smaller scale there are creators of perfume who have produced what they cannot sell. They may be eager to sell their unsold inventory and, if a fragrance is good but selling skill is lacking, they might be willing to provide you with a continuous supply of their fragrance at close to cost – or, if motivated by ego, they might be willing to take a loss on every bottle you take from them, just so they can boast that their fragrance is a success.

Find one hot item and purchase it in bulk

If you start off with a good variety of merchandise, you may soon find one or two items selling better than the rest -- bringing in a significant share of your profit – but because you don't yet have a significant markup on these items they aren't yet doing anything dynamic for you. Here's where you have an opportunity.

Track down the best source for these items and find out what kind of a price you could get if you were buying them in bulk. Be prepared to put a big wad of cash into the selected item, knowing it might take a while to sell all of what you are buying but, as you sell it, you'll be getting your money back with juicier profits.

A friend with a small store competing against far larger stores adopted this strategy. He could sell the hot item for close to what big stores were charging because he had bought it in bulk. This brought customers to his store. When they came, they bought other items. His business flourished.

Have the hot item made for you

Sometimes you have the frustration of discovering you have a hot item but you can't find any source that, even in bulk, will give you a price that can make this item really profitable. Here's where – if you can deal with the complexities and risk the money – you can go to a manufacturer and have a similar product made exclusively for you. This can give you a very, very low price per unit which means a very, very good markup.

This strategy has two advantages. First, you already know from your sales reports that this item is going to sell really well. And you know you are getting it for less than what your competitors, who are buying through wholesalers, are paying for their version.

But there's another huge benefit. This product is now yours exclusively. A competitor could offer a similar product but, once you establish an image for your version, "similar" doesn't command the same price. Think of having a hot item you can sell for ten times what it cost you! Markups like this are what will make your business grow. In time you may be able to develop a number of products with markups like this. Then the profits from all your other products will be icing on the cake.

In my next article I will write about testing – a very important issue but difficult for a small retail business.

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Philip Goutell
Lightyears, Inc.