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Unit 3: Buying for Discount Operations

Life was wonderful at the company, but in the back of her mind her lifelong dream still Notes
wasn’t reached.

Three months ago she decided to make the leap and open a store of her own. With enough
money saved; she believed a small operation was within her reach. She considered opening
a small boutique that would carry high fashion merchandise, but unlike the company she
worked for, this was to be a discount operation. She would cover the domestic markets
with which she was familiar, and purchase products that would fall into the same price
point category offered by Damon’s. The only difference would be the prices she would
charge.
Ms. Stevenson decided that a 20 percent discount would entice shoppers into the store, and
that at this markup she would enjoy success. With the best of intentions, she decided to
discuss the venture with someone who was a professional in the fashion industry. Her
dream was almost shattered when Jim Martin, her confidant, said that her markup wouldn’t
be sufficient to turn a profit, and that her goal wouldn’t be reached. He also asked why
shoppers would prefer to patronize her store instead of the discount giants in the field.

Questions
1. How could Ms. Stevenson work on such a small markup and still operate a profitable
business?

2. How might she better serve her clientele than the major discounters in the field?
Source: http://wps.pearsoncustom.com/wps/media/objects/5808/5947551/MCH150_Ch03.pdf

3.5 Summary

 The major kinds of discount stores are merchandise generalists, specialty discounters, and
warehouse discounters.
 In the case of merchandise general stores, one is able to purchase anything to satisfy both
personal and household needs. There are separate departments that enable shoppers to
find what they are ready to purchase more easily.
 A specialty discount store is a retail chain that parallel to the traditionalists, but offers
discounts on all of its merchandise.
 Product acquisition vendors in a discount store travel far and wide to procure the best
available merchandise for their retail outlets, made from nationally known manufacturers,
lesser-known producers, and market specialists such as resident buying offices and
merchandise brokers, and developers of private brands.

 The Robinson Patman Act 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.
 In a discount operations store, the discounter works at a lower markup, often 20 to 25
percent less than traditional counterparts. By working at these lower prices, the sales
volume is generally greater than if the full retail prices were charged.
 In every wholesale industry there are specialists whose task it is to locate merchandise
from vendors that will satisfy the needs of potential clients. Their role is to bring together
buyers and sellers.

 These specialist companies are divided into two groups: the resident buying office and the
merchandise brokers.

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