Retailer's Discount Dilemma

Q: I've been a retailer for nearly eight years, and the problem of discounts is still a little vexing. We have a pretty good program in place: employees get 20 percent off on items in stock, and pay wholesale on special orders. We have good relationships with most of our former staffers, and extend them a 10 percent discount. We charge immediate family members wholesale. Even more important than the dollars lost on these purchases is the idea that if my sister buys the most exciting new arrivals there won't be a good selection left for my customers. How do other retailers handle these issues?

A: You're generous to offer a discount to family, staff members, and even former employees, and I'm sure it's frustrating to feel that doing so may be harming your business.

Your main concern seems to be that the newest and best items are being purchased at a discount, depriving you of the opportunity to get a full profit. You might consider ordering a bit deeper on new merchandise, especially now that you have the benefit of eight years of experience. Happily, retailers have the option of selling off the odds and ends left over at a discount, so placing an initial order for a few more of the new items shouldn't hurt your bottom line. You may even increase it by having more stock to sell.

I like your idea of offering a discount to former employees, and I think 10 percent is an appropriate amount. Many retailers offer a similar discount to employees of neighboring merchants, or to senior citizens one day a week, or to customers attending a store-sponsored event. It's important, however, to help your staff know who is entitled to this discount. You may want to use your store computer to create a 10 percent off card to issue to those eligible. Be sure to spell out any exceptions, such as gift wrapping services, clearance merchandise, and gift certificates.

Some retailers offer a deeper discount than 20 percent for employees, although the fact that you offer the option of paying wholesale on special orders is very appealing. Perhaps you could simplify things by averaging the two and offering 30 percent off. A good employee discount serves three purposes: it rewards employees for their work, encourages them to get to know your products, and discourages employee theft. Have a written policy regarding employee discounts to prevent misunderstandings.

The issue of discounts for family members can be a bit awkward. Again, it helps to be clear: explain to your mother or sister what the price will be, and ring up family sales yourself to avoid confusing employees. I'd think that being asked occasionally to wait for a new shipment would be a small sacrifice for family members to make for such a generous discount, especially if you know when the reorder might arrive.

Q: Every day it seems we receive a shipment that includes something defective or different from what we ordered — or we're missing an item that's listed on the purchase order. Is breakage the responsibility of the shipping company? What about shortages?

A: This is a frustrating situation, and one in which the small retailer is at a distinct disadvantage. Rumor has it that it's common practice in our industry for some big stores to deduct a flat percentage from every order for breakage, which gives the vendor little incentive to pack every order perfectly. (There are exceptions, of course, and I can name several companies that have not made an error in 30 years of shipping to us.)

What's a small retailer to do? First, make sure you know what you've ordered. I'm alarmed to hear from sales reps, especially at shows, that some buyers don't take copies of their orders, and others don't look them over right away for mistakes. Catching order-writing errors early, before they get entered into the “system,” can save a lot of headaches later.

When an order arrives, check it carefully against the purchase order. Look at the packing list to see if anything is listed as being sent that was not. Make a note of the shortage, and also any breakage or items of unacceptable quality. We use a two-part, carbonless form, with the second copy placed on the broken or defective items while we're dealing with the paperwork.

The purchase order should then be checked against the invoice to see if the pricing is accurate, and if any items that were not received are included in the billing. We have a rule that problems with an order must total $10 or more before we file a claim. This recognizes the fact that pursuing claims does take up valuable time. Set the limit at whatever is comfortable for you.

We start the claim with the vendor, not the sales rep, usually making contact via phone and then fax. Most companies have a customer service department that's used to handling these problems, and many will offer a credit or replacement right away, usually without asking for the return of the defective or broken item. We often take credit instead of replacement, recognizing that processing a small shipment is time-consuming both for us and the vendors.

Occasionally, a supplier will want us to file a claim for breakage with the shipping company, but that's very rare. I don't miss the days when you had to keep the outer carton and all the packing materials on hand until the carrier's inspector could come to our store to conduct his examination, writing up his findings in triplicate on a portable typewriter.