If you are an independent retailer, then you undoubtedly have at least one to two conversations per week with someone who wants a "hook up" (discount.) After all, you are the owner, so you have final say on this anyway. It's amazing how large one's family gets when he opens a store - especially an apparel store or restaurant.
First, everyone thinks you make about 90% off of every dollar. And those "reasonable" ones who know better still think its about 70% So, when they ask you for a discount, they honestly don't think they are hurting you. (Bless their hearts.) Whether you track gross profit dollars or percentages, the amount of profit is always much less than what people perceive.
There is nothing wrong with the friends and family (F&F) discount, but here are some rules to help guide you as you craft your policy for this issue:
- Never let anyone use their discount on new merchandise. Put a 30-day rule in place meaning that no one can use the F&F discount until 30 days after the merchandise has been in the store. Often, the family buys the coolest new item as soon as it hits. First, it hurts the store's freshness factor since the merchandise is gone so fast. And second, it hurts your GMROI (gross margin return on investment) since if a product is "hot," it will sell for IMU. You just left a bunch of money on the table, but your sister really likes you.
- Friends and Family will shop with you if they are your friends and family. There is no need to give them a huge discount. You are not their "supplier" they are your support. While giving them a discount is respectful and honoring to them as your family, don't get taken advantage of in this process.
- Treat your F&F list the same s the rest of your customers. In other words, if they use the discount to buy for someone else (like their friends), CUT THEM OFF! They took advantage of you, and that is not what friends or family do. (at least not what they should do.)
- Have them earn it. There is nothing wrong with saying, "you may have the F&F discount if you work inventory with us this year." Or have them help set up for the big clearance sale in the store. In other words, they give to your business once, and your business gives back all year.
- Don't give merchandise away. Keep the discount low enough that you can still cover your costs on the merchandise. Remember, costs include freight and processing.
- Cleary define who is family and who are friends. Essentially, everyone could be considered friends and family to you. But be careful lest you become your own version of "six degrees of Kevin Bacon" discount game. If you are clear with everyone from the start who qualifies and who does not, then no feelings will get hurt, and arguments and grievances can be avoided or at least minimized.
- Track your F&F sales. Make them a demographic group in your POS so you can see what this program truly costs you each year. Often, you will be very surprised. It's hard to see it add up little by little, but solid reporting and tracking can help you maintain a happy F&F list and a happy bottom line.