Page 45 - DMGT554_RETAIL_BUYING

Retail Buying

Notes
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Caution Although, the nature of these purchases might cause you to reason that they
should be rewarded with lower wholesale prices, the Robinson Patman Act, a key piece of
federal legislation, disallows price discrimination no matter what the size of the order.
This act was established to protect smaller purchasers and to make the playing field a level one
in which all merchants can do business. The law does have one provision that often enables the
discounter to gain a price advantage: if the manufacturer can prove that the size of a large order
saves money in the production of goods, the savings may be passed on to the purchaser.
You might wonder why manufacturers who sell to traditional merchants would sell to the
discounters as well, and perhaps jeopardize their relationships with traditional companies.
Aside from the fact that discounters generally purchase more than their conventional retailing
counterparts, the manufacturers are bound by law to sell to any qualified retailers; in addition,
they cannot force them to maintain predetermined prices. At one point, producers were able to
dictate the prices retailers had to charge their customers through the use of fair-trade agreements.
These agreements forced all retailers to charge the same prices for the same goods. The concept
was declared unconstitutional and prevented such price restrictions.
In terms of who is able to purchase from a particular vendor, the law is also quite clear that any
company may buy from any producer as long as it is able to pay for the goods in a timely
manner as stated on the purchase order. Many years ago, vendors were able to pick and choose
their retail customers and provide exclusivity for those they chose. As unfair trading became
illegal, so did the exclusive arrangements that were once prevalent in the industry.
The advantage of being able to offer those brands and labels that are nationally advertised and
immediately recognized by the consumer has given the discounter an edge that makes his or her
operation a place where consumers may find an abundance of quality items at value prices.

Lesser-Known Producers

Although, the inclusion of well-known brands in a discounter’s inventory provides the company
with instant product recognition and contributes to the retailer’s company loyalty, the markups
achieved on these items are generally low. To make up for these lower prices, most discounters
elect to augment their better-known brands with merchandise from lesser-known producers. By
doing so, the latter group of products may be marked at a higher percentage; so that their
inclusion in the inventory will help the company to bolster its average markup. This is not to
say that poor-quality goods should be merchandised along with the nationally advertised brands.
While the better-recognized product lines are easy to select, their unheralded counterparts are
often difficult to find. The challenge is for the company’s merchandising team to locate vendors
whose goods haven’t gained national attention, but at the same time make a perfect fit in its
merchandise mix. A great deal of scouting, both here and abroad, must be undertaken to locate
these potentially successful products. It is not unusual for the company’s buyers to venture off to
third-world nations that often produce goods of this nature.
Another advantage that is often realized in the procurement of such goods is the willingness of
the manufacturers to provide incentives to the retailer. It might be in the form of promotional
dollars that could be used to call attention to the items, free shipping, and better terms that
include extended payment periods.

It is the negotiation ability of buyers of these lesser-known products that often provides an edge
to the retailers they represent.

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