RINKER ON COLLECTIBLES — Column #1486

Copyright © Harry Rinker, LLC 2015

Is There a Dealer Price Point at Which Discounting Makes No Sense?

As “Rinker on Collectibles” approaches Column #1500, I plan to email a number of leaders in the antiques and collectibles field and ask for their response to this question: “If you had the power to change one thing and only one thing in the antiques and collectibles trade, what would it be?”  Why limit the concept?  I want to know what the regular readers of “Rinker on Collectibles” think this “one” thing should be.  Email your candidate to harrylrinker@aol.com

Although not wishing to prejudice my readers’ responses, I received a July 19, 2015 email from a dealer who raised a question about one of my pet peeves – discounting.  The email reads: “I have been buying and selling for almost 30 years, and I still am stumped.  I set up at the Iowa State Fair in its little antiques show, more of a better quality flea market.  I pay parking, admittance fee, insurance, and 15 percent of sales.  I really cannot afford to discount under $20.00 but hate to post a sign to that effect because not everyone expects a discount and I do not want to encourage them to ask.  I have tried pricing the low end items higher so I can discount.  This seems to kill the sale on them entirely.  Any ideas?”

My first response is that you are selling on too tight a margin, especially for lower priced items.  When teaching the buying and merchandising seminar at the former version of my Institute for the Study of Antiques and collectibles, I encouraged participants to adopt the following principle – in order to sell right, I need to buy right.

Participants were shown how to identify the quick sale price for an object.  A quick sale price is the value that sells an object in three months or less.  The ideal goal is a sale in four to six weeks.  If successful, this policy represents a steady turnover of merchandise and continuing inventory freshness when returning to the same sales venue annually or several times a year.

Another goal was to have dealers average a three times inventory cash flow annually.  This approach allows for shorter profit margins on more expensive pieces and higher profit margins on lower priced items.  The corollary rule is – double your object cost, pay your expenses; triple your object cost, pay yourself.

Applying these concepts, if a seller prices an object at $15.00, the initial cost of that object should be less than $5.00.  If the object is priced at $50.00, the purchase cost should not exceed $16.67.  If the object cost $3,500.00 and can be turned with two months at $4,500.00 or $5,000.00, a short margin approach works.

Sellers cite competition for merchandise as the reason why these concepts are unrealistic.  They argue that they do not have control over buying costs.  The truth is they do.  If sellers’ current sources for merchandise do not provide this level of buying, they need to search out new sources.

Buying is hard.  Traditional sources such as antiques malls, auctions, estate attorneys,  flea markets, seller-to-seller sales, and private treaty sales usually do not allow for a three times profit margin.  Although more attractive, estate sales also are difficult buying sources.  Now that eBay has established its “Buy It Now” policy, eBay as a viable dealer source for merchandise has all but vanished.  In conversations with dealers, I still find a few who are able to use eBay successfully.  Their number is decreasing.

Historically, dealers beat the bushes.  [Author’s Aside: Yes, I known the latter part of the sentence is an idiom/cliché and as a professional writer, I should not use it.  Yet, it is to the point and suggests the mental image I wish to convey].  Dealers advertised and made house calls.  Goodwill, the Salvation Army, and similar organizations were regular haunts.  Auction box lots were a principal source for lower priced merchandise.  Given the right neighborhood, garage/yard sales had potential.

In 2015, some of these sources are no longer profitable inventory hunting grounds.  Due to the public’s growing awareness of the potential value of their things and the aftermath of the 2008-2009 Great Recession, bargains/steals became harder and harder to find.  All is not lost.  There are new, untapped sources.  Nursing home administrators, senior move managers, funeral directors, and real estate agents are potential referral sources.  In the past, sellers did not tap these sources.  They did not want to compete with the auctioneers, estate sale managers, and others from whom they bought.  This is less true in 2015.

I cannot remember the last time I talked with a seller who works the rubber chicken circuit, a name for those individuals who are desirable speakers on the civic and service organization luncheon or dinner circuit.  Individuals facing the necessity of disposing of material tend to call and trust people they know or those who are recommended by friends.  I worked the rubber chicken circuit for over a decade early in my career.  I still accept an occasionally invitation.  I never want to lose touch with those who institutions who played a critical role in the launch of my professional career.

As attorney Walter Peters, now deceased, from Nazareth, Pennsylvania, once told me when we were attending an auction with material we collected, “there are no friends at an auction.”  In today’s competitive buying environment, there is little room for friendship as well.  Buying aggressiveness is critical to survival.  Waiting for objects to find a seller is a kiss of death.

Sellers get in ruts.  They become too comfortable in respect to the merchandise they offer.  Two critical questions that need to be asked in the 21st century are:  (1) is the merchandise I am offering for sale desirable and (2) how many buyers are there for it?  These questions need to be asked on an annual basis.  The market is fluid.  What was desirable a year ago may no longer be desirable today.  Same old, same old is no longer a viable business practice.

Raising prices to cover a potential discount request makes no sense.  It may discourage customers, especially when this practice is obvious.  When a seller’s favorite pricing numbers are $33.00, $44.00, $55.00, and so forth, it is clear the amount has been raised to cover a discount request.  If the object has a three times or greater profit margin, there is no problem offering a 10 to 20 percent discount.  If the object has been in inventory for a long time, even a 50 percent discount is not disastrous.   The initial purchase price is recovered along with a little left over to offset expenses.

Signs offering a discount on merchandise should be forbidden in any antiques and collectibles sale environment.  They send the wrong message in respect to the rest of the merchandise in the seller’s possession as well as disparage the pricing of the merchandise of other sellers at the same location.  The perception that merchandise is overpriced in the antiques and collectibles trade already looms in the back of the public’s mind.  I cringe when the first words out of a seller’s mouth are “I can do better.” The trade needs to do everything it can to discourage the furtherance of this point of view.

As long as a seller is consistent, there is no problem adopting a “no discount” policy for items priced under a certain amount.  This also assumes the merchandise is attractively priced, especially if priced below 75 to 80 percent of perceived market value.  Nothing sells an object better than a bargain price.

Further, sellers should not assume that their discounting/negotiated pricing policy is secret.  The antiques and collectibles trade is a small, big town.  Swearing someone to secrecy is equivalent to an invitation to spread the word.  No person can resist telling another of the “special deal” he/she received.  It is far better for a seller to create a discounting policy and apply it to everyone.

As to my own opinion about discounting, I will hold it in reserve for the moment.  The practice was well established before I started buying antiques and collectibles in the 1960s.  Buyers love it.  Changing it would result in a story similar to that experienced by Coca-Cola when it messed with the classic Coca-Cola formula.

Harry L. Rinker welcomes questions from readers about collectibles, those mass-produced items from the twentieth and twenty-first centuries.  Selected letters will be answered in this column.  Harry cannot provide personal answers.  Photos and other material submitted cannot be returned.  Send your questions to: Rinker on Collectibles, 5955 Mill Point Court SE, Kentwood, MI  49512.  You also can e-mail your questions to harrylrinker@aol.com. Only e-mails containing a full name and mailing address will be considered.

You can listen and participate in WHATCHA GOT?, Harry’s antiques and collectibles radio call-in show, on Sunday mornings between 8:00 AM and 10:00 AM Eastern Time.  If you cannot find it on a station in your area, WHATCHA GOT? streams live on the Internet at www.gcnlive.com.