It Doesn't Count if you Give it Away

Posted: Dec 15, 2011 12:01 AM

If you run a grocery store, you understand certain rules of the game. 

First, and most important, your margins will be razor thin.  Therefore, you’re looking to sell a lot of items. 

You position goods strategically, in aisles and on shelves, in such a way as to entice the shopper to buy more than they came for. 

You create tasting stations to introduce consumers to items they may not be aware of. 

Finally, you hope and pray the consumer enters your store hungry, so everything will appeal to their taste buds, not necessarily to their pocketbook.  However, you always, always, always, remember that you’re operating on razor thin margins. 

Most non-grocery retailers cannot delve into their bag of marketing tricks and pull out tasting stations, or special aisle placements. 

Nor can they hope the consumer will buy additional items on a whim because they’re hungry. 

However, their advantage is much larger margins. 

Emerging from Black Friday, the enthusiasm and jubilation that the “consumer was back” was rampant.  Analysts, T.V. pundits, industry experts, and government officials declared a corner had been turned. 

Thanksgiving signaled the turning point, or so it seemed. 

No longer would shoppers have to wait until Black Friday to charge the retail counter.  They could now line up Thursday evening and forego their traditional turkey sandwich for the opportunity to purchase yet another high-definition widescreen television. 

The CEOs salivated as sales became almost overwhelming. 

A few techniques of grocery sales had been merged with high margins to give the appearance of a long awaited turnaround. 

Unfortunately, like cash-for-clunkers, the Thursday night Thanksgiving shop-and-love fest had simply pulled forward sales that would have been made later in the season. 

To take people away from the confines of hearth and home, the retailers such as Best Buy enticed shoppers not with sales, but with giveaways. 

Thus, larger margins turn into razor thin margins, and then become no margins.  The media makes great noise about increased sales, just as they do about increased employment. 

The reality, however, is far different than the headlines would have you believe. 

Losing ten jobs and creating eleven jobs would seem to be a major event.  However, when the difference in annual salary drops from $50,000 to $20,000, the impact is not positive but dramatically negative, even though the job creation was up 10%. 

Likewise, if retailers are simply giving away the store, and yet continuing to pay the overhead necessary to be in business, the end result will most assuredly be bankruptcy. 

It seems strange the CEOs should have been rooting for a little less success in giveaway programs, but the reality is Best Buy ain’t no grocery store.