Is the Horse Dead Yet?

This will be the last blog about “free lunches” and the supposed good deals they represent! The last item I will tackle are the BOGO concepts – some are Buy One Get One 50% off – some are the Buy One Get One free version.

There is not time to go into all of the differences and mechanics in one blog, so I am going to pick retail store merchandise. Margins on goods purchased by stores for re-sale range from 500% (and sometimes more) to 200% (and sometimes a bit less if a store chooses to carry what they term as a loss-leader). An average retailer mark-up is in the 300% + range. They use this because they know some items will be returned as defective and some will be returned but can be re-sold. Retailers also have to cover staffing, buildings, etc. – which are expensive!

In the ideal world, the many buyers working on behalf of the retailers will guess “correctly” about future styles and demand – and well-trained ones get pretty good at it – but no-one bats 1000. The next issues shipment JIT – Just In Time – the manner in which automakers try to function. When customer demand underperforms the buyers’ purchase assessment, inventory remains on hand or in a wharehouse. If JIT shipping is not an option, then very large amounts of wharehouse space is required – particularly for large appliances and furniture.

Wharehouses are a pure COST item – they never generate revenue and neither does product inventory sitting on a shelf.

So as in many things, timing is everything. When timing is off – whether demand or shipping, costs are incurred and many times, it is cheaper to sell of items – allegedly at “below cost” to clear mis-calculated consumer demand items or unplanned shipments – hence BOGO came along – but remember the average 300% markup – so even BOGO 50% gives the retailer a 225% markup net over 2 items – so they are still OK. BOGO 100% still gives a profit, although it is down to 150% net over 2 items.

The point is, sale costs – even 50% off – are built in to their initial costing of items – no-one can get fashion, demand and delivery 100% bang on the numbers – so “fudge factors” are included along the way. Sales that are 60% off are still not $$ losers for the retails – although much better pricing for consumers! Take an item costing $10.00 – the 300% markup places it on the shelves at $30.00, BOGO 50 results in 2 items sold for $45.00 against 2-item cost of $20 – they still have a markup of 225%. BOGO 100 results in 2 items sold for $30.00 versus a cost of $20 – markup is now $150%. An 60% discount takes the $30 item down to $12.00!

Keep all of this in mind when looking at the next big BOGO sales!

Ian Whiting

Ian R. Whiting CD, CFP, CLU, CH.F.C., FLMI (FS), ACS, AIAA, AALU With more than 40-years of experience in the industry, Ian has qualified 3 times for MDRT, completed LUATC in 1979, the LUAC Financial Planning Skills Course and attended numerous Schools in Agency Management and Sales Management through LIMRA. He obtained his CLU in 1987 while also completed his IFIC qualification and completed his Fellowship in the Life Management Institute with a specialty in Financial Services in 1988. In 1989, he completed qualifications for his Chartered Financial Consultant designation. In 1992, he qualified as an Associate of the Academy of Life Underwriters (Head Office underwriter qualification) and in 1993 he completed his Associate, Customer Service designation program through LOMA. In 1997, he qualified as a CFP and also completed his courses and exams to obtain the Associate, Insurance Agency Administration designation. In 1999, he completed the study and examinations to qualify as a Trading Officer, Partner and Director for Mutual Funds with the BC Securities Commission. As a result, he is also qualified as both a Branch Compliance Manager and Head Office/Provincial Compliance Officer. He served for nearly 18 years with the Canadian Forces (Air) Reserve (reaching the rank of Captain) primarily working with Air Cadets and was award the Canadian Forces Decoration (CD) in 1982. Long known as a maverick and forward thinker in the financial services world, Ian enjoys the challenge of learning new material and planning for the future evolution of his chosen profession.