Specialty retailers must work to protect reputation
Thomas Russell -- Casual Living, May 13, 2005
The question is: Should we specialty retailers sell our customers lesser quality import products? To answer, we ask another question: In what direction does specialty retail need to go? If we want to compete with mass merchants head on, then we should continue to go down the path of imports. If we want to exceed the quality shopping experience mass merchants offer American consumers, we should go down a different path. We should continue to buy, promote, and sell American design, technology and workmanship.
The general consensus in the specialty market is imports are here to stay and to compete, you had better get on board. As one successful specialty retailer, I am here to tell this could not be farther from the truth. While having some import quality product may be necessary to show the consumer the bottom of the market so they can differentiate it from higher quality, it should definitely be the minority product on your floor. In addition, it's good advice to buy it through American companies as you will get greater service should serious problems arise. They offer greater protection in matters of warranty and product liability.
If we sell the same product, what differentiates us from the mass?
If you are selling import quality, you are giving specialty retail a black eye. Consumers go to specialty stores for greater quality, selection and to be able to buy with confidence. If products you sell will not meet the consumer's expectations, they will remember you sold them defective merchandise. They will not remember that you had higher quality products on the floor. As a specialty retailer, your lowest quality product needs to be something on which you are willing to stake your name and reputation.
What is the real profitability of dealing with direct container programs?
Is paying up front a better deal for seasonal retailers than the generous terms we get from American manufacturers on early buy? Consider when you buy container goods, you must pay up front. When purchasing from U.S. manufacturers, I get financing terms for up to 10 months. If I am doing my job, I can turn a large percentage of product before I have to pay for it. Is there a cost associated with this? Of course, so if you want to prepay for U.S. goods, manufacturers give you anticipation, which saves you between 0.5% and 1% per month. If I ordered my container goods and my U.S. goods in September, I am able to save as much as 9% with anticipation. Roll this into margin, and suddenly the U.S. program looks pretty good. In addition, retailers lose actual profit by selling lower priced goods. You will never make up in margin what you lose in volume.
What are your back end costs of dealing with lower quality product?
Every specialty retailer who looks strictly at margin when deciding what quality level of product to sell needs to take a pen to paper and figure out the tangible costs of dealing with lower quality product. Additional administrative, operational, delivery and sales costs are needed to contend with warranty and customer satisfaction issues. Intangible costs include loss of repeat sales and bad word-of-mouth associated with selling items the consumer believes did not provide value.
How good are you at dealing with other countries' cultures and laws?
While this may sound like an obscure issue, what do you really know about dealing with a company from China that has mass product failure, and to which U.S. laws do not apply? What are your responsibilities legally or ethically to your customer? In addition, business values and cultural issues play a role. The model for doing business in the United States is different from a quickly emerging and changing model like China.
U.S. companies look for longer and more permanent relationships in business than Chinese companies. My company has a specific example of this. We made a very clear business arrangement with a popular Chinese manufacturer. After five months of warehousing and flooring the product, the president of the Chinese factory changed the arrangement, which shocked us because it went against the initial agreement. We went into the original arrangement based on American business culture and ideals; by his own set of business conduct and ethics, he may have felt he did nothing wrong. Clearly, it was not his goal to have a long-term relationship. I am absolutely convinced the same situation would never have happened with one of our U.S. vendors, mainly because our expectations of how business should be conducted are the same. This is not to say that all American companies deal with issues the same way, or that Chinese companies are not as ethical in their approach to doing business, but it would be wrong to say there are not clear cut differences in cultural approaches between nations.
The bottom line in promoting our industry:
If you are a specialty retailer, be a specialty retailer and not a mini-mass. We are a fashion industry, and as such, we must be willing to support the manufacturers that make our industry great. We must support design, innovation, invention and quality. If we constantly educate our customers to know specialty products are better, then it becomes easy to sell superior products. Mass merchants sell price, we sell quality, service and value.