Last week, I found an email in my spam box from Naomi Nomi, a brand I’ve recently become an enthusiastic customer of. This is what it said:
“Heads Up: No Sales. Our clothes are pricy because we have fancy taste in fabric, manufacture locally, and never have excess inventory to offload.
To make up for this, we have low margins. That means you can shop year round knowing that you’re getting the best possible deal without misleading artificial sale prices. Don’t risk something selling out while waiting for a Black Friday sale that isn’t coming”.
And that, my friends, is what radical transparency actually looks like.
This time of year, I read many of the hundreds of promo emails in my spam box through the lens of a retailer. How can they afford to have such a big sale? If I do the math, what does that mean their manufacturing cost is? Have I really been ripped off by paying full-price all this time? Is “retail” just one big manipulative hoax? Yes, and no.
Allow me to break down how this works in the different areas of big retail:
Big manufacturers:
Products are priced with the largest possible profit margin
That large percentage of profit goes back into things like advertising, funding growth and paying $$$$ to those at the top of the food chain.
Because the profit margin is so large, they can afford to make massive price cuts during promo periods, which makes people feel like they’re getting a great deal.
This trains people to believe that they are only getting a good deal if something is “on sale”, and not to evaluate the actual value of the product itself.
Example: a clothing brand manufactures a shirt for $5. The MSRP on that shirt is $30. When that shirt goes “on sale” for 50% during a Black Friday promo, it costs $15, which is still a normal retail mark-up for them, but the customer buys more because they think it’s a bargain even though the item was over-valued to begin with.
Bottom line: manufacturers build the ability to make massive discounts into their retail pricing.
Big resellers/multi-brand retailers:
Products are priced cheaper than the MSRP to begin with
Big resellers/retailers can do this because they’re playing the volume game. They sell the product cheaper than the manufacturer’s suggested price so they can sell more of it to those looking for the best deal.
Because they are selling more of it and therefore buying more of it from the manufacturer, they have more power to negotiate a lower price.
Even though their price is cheaper than the MSRP, their margins might be higher because of their buying power.
This creates more room to offer big discounts during promo periods because they rely on volume, not high margins.
In some cases (the most well-known one being Amazon’s books) the retailer will take a strategic loss on an important product category to gain the trust of the consumer so they believe that everything they are buying is a great deal.
Example: a big box retailer sells 5000 units of a product for $35. A small retailer sells 50 the same product for $40. The MSRP is $40, and the wholesale price is $20. The big box retailer is able to negotiate a wholesale price of $10 per unit because they buy so much of the product, while the smaller retailer is paying $20 per unit. The big box store is making more on the same product, while charging less for it.
Bottom line: big box stores have tremendous power with manufacturers when it comes to wholesale pricing. Large manufacturers build in margins for this, while smaller ones simply can’t compete because they can’t afford to play the same volume game.
And outlet stores? They exist to offload inventory that never should’ve been manufactured in the first place, or to sell lesser quality made-for-outlet clothing that you’re tricked into believing is the same thing that you’re seeing at a 400% markup at the regular store.
How do they get away with this? Well, the simple answer is: cheap labor, and cheap materials that are also made with cheap labor. That, and a manipulative and inflated pricing structure. Shockingly cheap products always come at a cost to someone — often the underpaid person making it or selling it to you.
The problem with this whole system is that it makes it impossibly difficult for the average consumer to know the actual value of the thing they’re buying. Even brands that claim to be “transparent” employ shady pricing and marketing tactics. This is exactly why it’s important to prioritize small brands and shops with trustworthy and transparent ethics when you can afford to, and especially to re-evaluate how much you’re consuming and why. Can you buy less but buy better?
All of that said, no one’s perfect and we certainly can’t expect to be when we exist in such a complicated system of capitalism. Just this morning, I purchased a DVD on Amazon for $5.99 because I couldn’t find it anywhere else and needed it quickly. My point in writing all of this is: the more you know, the better you can be in whatever way works for your personal circumstances.
For the seven years that I ran my shop, I felt conflicted about running promos, especially during holiday season. How was I supposed to compete with larger retailers if I didn’t? My prices were set at MSRP or sometimes a little lower all year round, and with NYC rent and overhead, it was a stretch to even offer 10 or 20 percent off. My only solution was to build trust by being transparent about how we did things and why.
And free shipping? Forget about it. That’s the biggest trouble with online shopping. It’s exhausting getting emails and messages about if/when there will be free shipping. Small retailers don’t get the same discounted shipping rates that larger, higher volume ones do and simply can’t afford to do free shipping because their rates are too high, and they don’t have the margins to do it.
These are the things I most want you to remember in the coming weeks, and always:
Everything costs money in a retail shop. The packaging that your order comes in, the time spent explaining something to you, the responses to unnecessary emails, the time spent gift-wrapping your purchase.
Retailers do not have special power with shipping companies (USPS, FedEx, UPS, etc). If there’s a problem with the arrival of your shipment after it leaves the shop that sent it, contact the shipping company first.
Be nice to retail workers and customer service this time of year. It’s a really hard job, and they don’t get to take as many days off to rest and spend time with loved ones as most of us do.
And if you don’t have the means to shop small, or are looking for a free way to support your favorite brands and retailers, here are some ideas:
Leave a great Google review for some of your favorite places. Most people tend to only leave reviews when they have an extreme experience on either end of the spectrum, but rely heavily on them when deciding where to eat or shop.
Send them a nice note or postcard. This is a small and thoughtful gesture that goes a long way.
Share your favorite indie products and retailers with your followers, friends and family on social media channels.
Do you appreciate the experience of going shopping and walking into a lovely physical store? Do you lean on the expertise of a real person when buying the products you cherish? Do you prefer the peace of mind in knowing that your hard-earned money went to something that will benefit the livelihoods of people in your community and that you actually got what you’re paying for? These are all great reasons to shop with small brands and retailers this holiday season, and to not expect them to play the Black Friday/Cyber Monday game.
This is an awesome peek into the realities of small e commerce businesses. Thank you for taking the time to write it. I know it may not be as popular as some of your other fantastic postings, but it's an important thing for people to understand.
I agree with you about small retail shops and why they cannot offer the big bargains that the large retailers can and do at this time of year. I always try to shop small, and I love to support my local small businesses. I had a part time shop with a clothing brand that has many retail stores around the country, and they were able to offer the big deals. I think that there are sometimes good reasons to shop at these stores as well as the small shops, and remember that these stores often employee your friends and neighbors who work hard to make your experience a good one.