An up and coming merchandise manager asked me recently of the pros and cons of merchandise purchased on Sale or Return (SOR) versus purchased outright. I asked her the reason for the question and it went something like this. She has a supplier who desperately wants their merchandise in her stores but they are invariably stonewalled by the buyer (who likes the merchandise) because there is no Open to Buy (OTB). They therefore said to the buyer that if she was happy, they would discuss SOR
with her merchandise manager which they did. Anything not sold at the end of the month would be swapped for other merchandise or it could simply be returned for a full credit.
This sounded particularly attractive and clearly the supplier had great confidence in their range.
But the merchandise manager had to refuse the offer. Why?
Each month management looks at stock levels keenly and one of the merchandise manager’s KPI’s is the level of inventory. She is therefore keen to control this carefully, because a bad review means little or no salary increase. If she agreed to SOR her stock levels would go up and she would be overspent.
I argued that surely sales would increase as a result of the SOR merchandise which the buyer liked and in which the supplier had such confidence.
And here is the rub.
The merchandise manager said she had tried SOR in the past from a different supplier and the stock had flown out. Because the merchandise was better than similar stock in the stores, sales of the other stock had suffered and while sales had increased, so had inventory to a larger degree. Therefore, she had come to the decision that if there was no OTB, whether or not the stock was on SOR, it couldn’t be bought.
In other words if it sold, it was immaterial whether or not it had been bought outright or not.
I couldn’t fault the logic. SOR is simply an insurance policy and the supplier wouldn’t insure if they thought they would get bitten.
This is partly the reason for suppliers getting into retail. They know that they can do a better job than a lot of retailers can. So shops within shops spring up and retailers become landlords with clumps of disparate merchandise and decor in their store.
In many stores in Asia they have gone the whole hog. Just about everything is on consignment, and the supplier not only owns the merchandise, but the staff too.
Is this the way we are going, and if so, is this the way we want to go?
I do not usually comment on rumours, but since it is pertinent, I am making an exception without naming names until I can verify the report. I understand that there are a couple of major retailers who are changing their payment terms from 60 days from invoice, to 60 days from the first sale.
It is not clear at this stage whether this means they will pay for the entire delivery once the first item has sold or whether they will pay as the merchandise sells.
If the latter, this is for all intents and purposes consignment, but with the retailer still keeping control of the buying. If the former, why should the supplier be at the mercy of the internal logistics of the retailer? Either way, at best it borders on an unfair trading practice. Watch this space.
Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702
