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What happens to unsold items at a store?

Discussion in 'Classic Menswear' started by MilanoStyle, Dec 22, 2004.

  1. MilanoStyle

    MilanoStyle Senior member

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    This may be trivial question to most of you, but I cannot seem to figure out. For small medium sized private men's clothing store that does not have it's own outlet store, how do they get rid of unsold items even after huge sales?
     
  2. johnnynorman3

    johnnynorman3 Senior member

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    Well, I can at least give anecdotes. Mr. Sid here in the Boston area sells their merchandise to Filene's Basement, most likely for about 20% of Sid's retail price. FB starts the stuff at about 50% of Sid retail (which is overpriced to begin with). I have also seen small store labels at Marshalls. For example, I saw a Samuelsohn suit in Boston that had a tag from Mills Touche, a smallish men's store in Tucson and Phoenix, AZ. Don't ask me how that thing got to Boston.
     
  3. MilanoStyle

    MilanoStyle Senior member

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    uh? Lets say we have a $1000 retail taged suit Mr Sid sells. According to your statement, Mr Sid sells the suit to FB at $800. FB then sells the suit for about $500? Shouldn't FB needs to sell the suit more than $800 if they want to make any sort of income? What would be the best way of finding out on this? I wish I can just ask into a men's clothing store and just ask the owner .. [​IMG]
     
  4. marc237

    marc237 Senior member

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    No, I think I understand him to be saying that we have a $1000 retail taged suit Mr Sid sells. According to his statement, Mr Sid sells the suit to FB at $200 (20% of Mr. Sid's retail.). FB then sells the suit for about $500? FB still makes a nice profit.
     
  5. Eric

    Eric Senior member

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    (johnnynorman3 @ 22 Dec. 2004, 08:52) Well, I can at least give anecdotes. Â Mr. Sid here in the Boston area sells their merchandise to Filene's Basement, most likely for about 20% of Sid's retail price. Â FB starts the stuff at about 50% of Sid retail (which is overpriced to begin with). Â I have also seen small store labels at Marshalls. Â For example, I saw a Samuelsohn suit in Boston that had a tag from Mills Touche, a smallish men's store in Tucson and Phoenix, AZ. Â Don't ask me how that thing got to Boston.
    uh? Â Lets say we have a $1000 retail taged suit Mr Sid sells. Â According to your statement, Â Mr Sid sells the suit to FB at $800. Â FB then sells the suit for about $500? Â Shouldn't FB needs to sell the suit more than $800 if they want to make any sort of income? What would be the best way of finding out on this? Â I wish I can just ask into a men's clothing store and just ask the owner .. [​IMG]
    Milano, 20% of 1000 is 200. [​IMG] Eric
     
  6. joseanes

    joseanes Senior member

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    Milano: I think he meant the opposite.
    Sid has a suit for sale at his store with a price tag of $1000.
    The Suit is not selling, so he sells it to FB for $200 (20% of retail).
    FB starts selling it at 50% of Sid's retail ($500).
    With automatic markdowns, FB may have to let it go for $400.

    Now the question is... How much did Sid paid for the Suit originally? Is he cutting his losses? Almost breaking even? Or still making a profit?

    I do not even know Sid, and I am using his name simply because someone mentioned it in the forum.
     
  7. ernest

    ernest Senior member

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    Ask Bennie's........
     
  8. johnnynorman3

    johnnynorman3 Senior member

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    Sid has to be losing money on the specific deal, but may theoretically "make" money in the long run. Why?

    My sense is that Sid's and Louis refuse to mark down items below 50% of retail. So, let's say we have a $1000 suit; Sid's will not sell it in their stores below $500. But they will sell it to FB for $250 let's say. Obviously, Sid's may have been able to attract a customer to a $335 price and made more money than they would selling it to FB.

    BUT, in the long run, if Sid's were to start going below the 50% discount -- offering that $1000 suit for $335 at the final round of sales -- this may give some group of buyers that WOULD have bought at $500 but also WOULD HAVE been willing to wait for the final round of markdowns an incentive to in fact wait for that final round of markdowns. The method in which Filene's Basement takes and sells these goods largely discourages these buyers from simply waiting for Sid's to sell it to FB -- FB appears to ordinarly start things at exactly the lowest price that Sid (or Louis or whomever) offered the good for in his store. So, a buyer looking for an even deeper discount on a Sid good has to wait not only for FB to buy the good from Sid, but also for the good to become further discounted by FB itself. This is time consuming, and you run the risk of the good getting damaged or snatched up by someone else.

    Wow, that was long.
     
  9. imageWIS

    imageWIS Senior member

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    Hey Johnny, how this for long: For the following, take into consideration two pieces of information, that for the sake of argument we will consider as true, thus if I (or they) am incorrect, please clarify, I am willing to learn: FIHTies: "I buy 10 Polo suits for a dollar. I sell 5 at full price of 2 dollars. I have now covered my cost for these suits. Anything that I subsequently take in on the remaining 5 suits is "PROFIT". (Above my cost in this simplified understanding). I can now after covering my cost afford to discount these suits to .35 cents a piece and I am still making money on these suits." Topcatny: "Polo.com is owned and run by Polo Ralph Lauren. Polo.com and the Polo stores themselves sell items at similar retail prices that department stores and specialty stores would sell them for. The typical markup for retail stores is keystone, which is 2 times the wholesale price. Sometimes it is even higher than that but this will make it easier to explain. (In retail speak Keystone, or 2x wholesale, is 50% markup as they calculate the percent of the selling price that is profit and call that markup. So if you buy something at $1 and sell it for $2, that is a 50% markup, why regular math and terminology wouldn't work for the retail trade I do not know.) Manufacturers also work on a similar profit margin, anywhere from 40% to 60% of the price retailers pay for goods is profit to the manufacturer. But we will use the average of 50%. If you take your suit which had a retail price of $1195, the wholesale price would have been approximately $597.5. Polo then probably paid approximately $298.75 to Corneliani to have it made." In which case Mr. Sid loses money on every suit they sell to FB. Although, its not really a lot if you think about it, because if say a $1000 suit costs $500 wholesale and $250 at cost, which means that they lose $50 for every $1000 suit, when they sell them to FB, which one could equate to $750 of potential profit lost. Although, it is not that clean cut, because it's the average that makes or breaks the profit margin. Using what Jon (FIHTies) stated above as a primer: if Mr. Sid purchases, say 20 suits that retail for $1000 each ($20,000) and paid $250 for each at cost ($5000), and then sells 10 of the suits at full retail ($7500 profit), then holds a sale and sells 5 more suits at 50% off ($2500 profit) and then sells the rest of the suits (5 left) to FB for 20% of retail $200, at a loss of $50 per suit ($250 loss). Thus, we are left with: $10,000 profit $250 loss So at the end they lost $250 and made $9750 ($10,000 - $250) on $5000 ($20,000 retail) worth of merchandise. Grossly simplified of course. Jon.
     
  10. drizzt3117

    drizzt3117 Senior member

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    That's a pretty good summary Jon,

    The other point of course, is that shelf space is valuable, and keeping unsold merchandise in their shop takes up space that could be used to sell other items at full retail. So even selling at a loss is preferable to wasting the potential to sell new stock.
     
  11. topcatny

    topcatny Senior member

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    Better stores typically do not have bargain basement sales for exactly the reason Jon states.  The do not want to train the customer to wait for the rock-bottom prices before they buy.  The loss they take on the goods they sell off is worth it in the long run.

    This also works into what drizz said.  The space and dollars a store has invested in the merchandise is valuable.  Stores do not want inventory tied up in slow moving products.  They would rather cut their losses and move on to something that will give them a much better return on their investment.  

    Plus there are always new deliveries coming from the manufacturers.  If a store doesn't free up space and cash flow they will be unable to bring in the new product that will excite the consumer and again start that cycle of regular price sales generating more profits.

    Most of the retailers I have either worked for or dealt with have been concerned with improving regular price sales and increasing their turn,  (the number of times a year your inventory completely changes over).  The better you do those 2 things the more profitable the business is.
     
  12. Bradford

    Bradford Senior member

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    Mills Touche actually has gone out of business in both Tucson and Phoenix as of last year, so it's quite likely that the inventory they couldn't move during their closing sale was picked up by buyers from other stores throughout the country.

    It's also possible that Samuelsohn had already produced the suit and labeled it for Mills Touche before finding out that the store was closing.

    I used to do public relations for Factory 2-U, a chain of discount, closeout stores that has recently gone into bankruptcy once again. Oftentimes, our buyers were able to pick up name-brand merchandise from stores and manufacturers that otherwise would be stuck having it sit on their shelves. Sometimes the manufacturer would change the label to something generic so it wasn't obvious that they were dumping designer stuff, but not always.

    Bradford
     
  13. acole

    acole Senior member

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    topcat raises an interesting point about branding and expectation. I always like to go to the "B-93 sale" at the local REI, where unsold, remaindered, defective, and returned merchandise is sold to members at heavy discounts. The tag prices are already low, but about an hour from the end the sales staff begin applying further global markdowns: 25% off, 50% off, then 75%. So folks in the know get there early, shop quickly, and sit on the pile until 3:59. I got a $300+ pair of Merrell boots for $3 last time I did that. If NM's customers were trained to wait for this kind of price reduction, it might be disastrous. But I'm coming to believe luxury buying is a bimodal thing, in that there is a significant class of customer who will gladly pay top dollar for quality, and is most effectively seduced by: -- the appearance of opulence and wealth in the display infrastructure -- subtle intimidation and appeals to vanity (i.e., peer pressure, bargaining seen as vulgar, "If you have to ask, you can't afford it". My wife actually got this from a Draeger's butcher when asking the price of some unlabeled duck breast.) -- a level of service that approaches that of a butler or valet in an English country house -- the ultimate in have-it-right-now luxury (the good/fast corner of the good/fast/cheap triangle) Who else is keeping luxury sales afloat this Christmas, while lower-end retailers are reportedly contemplating "desperation sales"? The other class in my bimodal distribution is populated by the kind of people that frequent this board: inveterate bargain hunters who may or may not know quality but refuse to buy unless they are offered a deal. These shoppers are never going to walk into NM and just buy at full retail, but they'll break down the doors at Last Call and other markdown sales. This could be indicative of lesser financial means, but it may also just be the thrill of a bargain and the pride it engenders. If I snag a $3000 cashmere sportcoat for 5-10% of retail, I'm proud of it, and I'm reminded every time I wear it what a find it was. So I think of my own ingrained habits, and some of the arguments I've heard from friends who paid full retail, and I wonder how much overlap or mobility there really is between these two groups. I notice that many stores are now trying to have it both ways by opening "outlet" stores that sell mainly first-quality items that are relatively inferior, in addition to any slow-moving stuff they've offloaded from the main store. Oh, and not that it matters much, but I'm going to stick up for Milano's math skills upthread, and postulate that he misread "20% of Mr. Sid's retail" as "20% off Mr. Sid's retail". Which would be $800.
     
  14. A Harris

    A Harris Senior member Dubiously Honored

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    Huh?? Wholesale IS cost to most stores. For some with gigantic buying power like RLPL, the wholesale price they pay might be lower, but I'm not sure what you mean by this wholesale/cost distinction...
     
  15. joseanes

    joseanes Senior member

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    We haven't taken into consideration operation expenses: rent, AC, employees, etc, have we?
     
  16. johnnynorman3

    johnnynorman3 Senior member

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    $1000 suit costs $500 wholesale and $250 at cost
    Huh?? Wholesale IS cost to most stores. For some with gigantic buying power like RLPL, the wholesale price they pay might be lower, but I'm not sure what you mean by this wholesale/cost distinction...
    I didn't quite get this either. What I took away from it is that the "wholesale" cost that they claim is somehow higher than the actual cost of goods sold, with "wholesale" being a misused term of art.
     
  17. imageWIS

    imageWIS Senior member

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    (A Harris @ 22 Dec. 2004, 12:50) Quote $1000 suit costs $500 wholesale and $250 at cost
    Huh?? Wholesale IS cost to most stores. For some with gigantic buying power like RLPL, the wholesale price they pay might be lower, but I'm not sure what you mean by this wholesale/cost distinction...
    I didn't quite get this either. What I took away from it is that the "wholesale" cost that they claim is somehow higher than the actual cost of goods sold, with "wholesale" being a misused term of art.[/quote] A, yes, sorry...I stated Mr. Sid because everyone was going in that direction, but my math was based on the previous Polo thread. Jon.
     
  18. imageWIS

    imageWIS Senior member

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    What's why it was stated that all this is clearly oversimplified...obviously a store's operations consist of many more complex calculations.

    Jon.
     
  19. topcatny

    topcatny Senior member

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    I will try and explain the cost issue.  Wholesale cost is the cost to stores, but not to the manufacturer, which in this case is actually the same company.

    For a Polo suit that is $1000 at retail and sold to Saks Fifth Avenue, the most Saks paid for it was $500, the wholesale price.  Since Polo doesn't actually produce the goods themselves, they had to get a factory to produce it for them.  So they designed the suit and Corneliani produced it for them and they more than likely paid them about $250 for it.  Then Polo sells the goods at the wholesale price to their accounts

    In my experience with different brands the retail stores operate as a separate entity within the company and the goods are actually sold from the wholesale division to the retail division and in the process go through a similar markup as if they were sold to an outside company.

    The actual cost for Polo to produce a suit was about $250 and their retail stores are selling it for $1000, the same price as a department store would be selling it for.  If you find the same item in a full price Ralph Lauren store and Saks, i'll bet they have the same retail price.
     
  20. imageWIS

    imageWIS Senior member

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    There is something I don't understand:

    If in retail-speak a 50% markup means that $1 is sold for $2 at retail, then what would a 100% markup be, if cost is $1? Would it in fact a 100% markup of $1 mean that the store sells it at $4?

    Jon.
     

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