I know I’ve discussed this before because this consistently comes up. Should I buy an entire lot or a trailer at a lower price or go through a jobber?
A couple years ago a friend and I analyzed this issue. We had a very complex Excel spreadsheet that analyzed very different scenarios. For the data, we had a few spreadsheets of Macy’s and Bloomingdale’s manifested trailers. At this time my friend was considering opening an off-price store and selling some items on eBay and we needed to figure out if it was worth her while. At that time, you could buy an entire trailer from Federated at 10% of original retail and the jobbers were selling it at 14% (a 40% markup — a lot of people say 4%, no it’s 4 percentage points, but 40 percent).
Anyhow, we looked at every scenario and what would be a safe retail price for each item. We even figured in items that would have to sell at or below cost and items that would have to be liquidated.
When it came down to it, it was only slightly more profitable than buying from a jobber. Because when you buy from a jobber, the jobber absorbs the financial hit for the items that are slow or non selling. Now when I say it was slightly more profitable, that is right, but the question was– is it worth the risk?
Yes you can make out like a bandit sometimes, but that involves a lot of risk. If you are small, you can’t afford bad buys and if your first load is so-so, well, you’ve just put yourself in a really bad financial situation.
I have seen people also do this with smaller store loads, buy the entire thing when they could have just been selective at a higher price. Another thing that creeps up is incredibly expensive items that you can’t sell above your cost. Getting a pair of True Religion jeans at 12% of retail is a steal. Getting a hideous $5,000 Dolce & Gabbana dress at 12% of retail makes you want to cry. Get enough of those pieces in your load and you’ve offset a lot of your profit with the loss.
When you’re big and huge and can afford risk, go right ahead, but when you’re small, it’s the kiss of death.