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It takes a lot of courage to release the familiar and seemingly secure, to embrace the new. But there is no real security in what is no longer meaningful. There is more security in the adventurous and exciting, for in movement there is life, and in change there is power.

~ Alan Cohen

 

Small Business- How it really works

Until I became a small/micro business owner I was ignorant of the way business operates. Obviously I knew that a retailer got stuff from somewhere at one price and then resold that stuff with a markup. I was dimly aware that the markup had to cover the costs and also provide an income to the business operator. There were times when I was happy to pay more for the quality of the shopping experience or for the assistance of knowledgeable and genuinely helpful staff but mostly I was simply looking for the best product at the lowest cost. However, now that I have been on the other side of the counter, so to speak, I have some deeper understandings of business that I would like to share...

In business there is a chain from production of items to purchase of those items in a retail outlet.

  1. The producer has the inspiration to create the item. The item may be a on-off original or mass produced but the producer is the initiator. The producer may package the item or employ others to do it.
  2. The distributer is employed by the producer to get the item into the market place. Sometimes a producer signs an exclusivity agreement with a distributer. Frequently the distributer is responsible for the marketing and promotion of the item. A distributer may also act as the wholesaler.
  3. The wholesaler sells the item to the retailer. The retailer must buy bulk quantities of the item or items to a minimum value (usually in the hundreds of dollars and often with payment up front). A wholesaler does not offer a shopping experience or decoration to the retailer. Sometimes a retailer is able to obtain an exclusivity deal with a wholesaler. A retailer is identified as a business whose intention is to onsell the item.
  4. The retailer unpacks and displays the item attractively for sale to the general public. The retailer prices the item to cover the costs of operating the business as well as provide an income. Costs of running a retail business include- taxes, rent & rates, power, telephone, advertising, staff wages, insurances, book keeping and accountacy, initial and ongoing shop fit out (shelving, painting, lighting, floor covering), initial purchase of stock items and then ongoing replacement of stock items. Other costs may include the creation and maintenance of a website, hosting of special events designed to enhance the business, research for new items or better deals and repackaging. Income is generated by the sale of items to the general public /consumer.

As far as being a retail customer goes, the key is that at each step the cost of the item increases. Each business in the chain seeks to make an income from the work that they do ie to create, package, market, distribute, wholesale and retail the item. Each step represents an income for those in business and their associated employees; couriers and transport drivers, cleaners, accountants, book keepers, sales representatives, insurers, etc etc.

As a retailer of candles, incense, herbs etc I am not able to use my business to purchase furniture or food at wholesale prices. I can only do this if I intend to onsell those items. Thus if I need chairs for use in my shop, I pay retail prices. I only pay wholesale on the items I intend to sell.

If a member of the general consumer public skips a step in the chain and approaches a wholesaler to purchase an item, they buy the item cheaper but the long term effect is that the retail cost is driven up and retailers are potentially put out of business. Most wholesalers are not interested in selling to the general public. They are set up to sell bulk to retailers however there are some who try to do both. In my opinion a wholesaler who also "sells direct to the public" is being greedy and seeking to take a slice out of two steps in the chain. I do not buy from wholesalers who do this.

This dual function has resulted in a blurring in the mind of some consumers. All they see is a cheaper deal; what they miss is the long term degradation of the retailer. Retail business is not designed to compete with wholesalers who can, ofcourse, undercut retail prices. A retail business is designed to compete with other retail businesses. In this way retail prices are driven lower and/or the standard of service is improved.

I believe each step in the chain has a right to make a living, not a killing! And this is best achieved if each step in the chain sticks to their business. To make a lving I do not inflate prices just because an item is in demand. Rather I mark up all items by similar amounts. This means that if I get a good deal I pass it on to my customers. It also means that when the price of an item increases for me I do not mark up the old stock to the new prices (many retailers do this), thus you may see the same item in my shop with two different prices. If you want the bargain- buy the older stock, if you want the new stock- you pay the new price. For these and other reasons (outlined in the next paragraphs) my prices are not negotiable.

As a general rule Australian business is not a bargaining environment in the way that Asia and the Middle East is, however many people travel and experience this type of retail environment and return home prepared to give it a go here. When you go somewhere that is happy to negotiate be assured that the negotiation amount is built into the ticket price so that if you don't negotiate you will be paying too much.

Buying items in markets is a sideways step in the chain. It is usually cheaper than a retail store because the cost of business is less for a market stall and because you are frequently buying direct from the producer. Many producers use markets to gauge the "saleability" of their item. Some producers only sell in markets because they do not wish to make their item in big enough quantities to supply distributers and wholesalers. Thus market prices are less than retail but more than wholesale.

I believe that as a retailer, it is not appropriate to offer anyone wholesale prices. I do however offer my staff a discount for their loyalty and enthusiasm. I offer regular customers discounts and I often just give them something to acknowledge their ongoing support. This is my gift, freely given and I do this when I choose to; it is one of the nice things about being "the boss". I work hard to price my stock competitively and appreciate knowing if the same item is available cheaper elsewhere but please consider elsewhere may have different buying power to me or different business costs.

So if all you are interested in is the cheapest possible price then by all means head off to the nearest warehouse selling direct to the public but do not come grumbling to me about the poor level of service or lack of knowledge or diminished community or limited range or closure of niche shops catering for specific specialised needs.... etc etc etc because I may well be out of business!!! (that was a joke, by the way! but you get my point... I hope)

I believe that in addition to the straightforward sale of items, we offer a service to our customers. A service that is worth paying for; knowledge of the items, their best use and storage, information on their maker and history. We provide information about related topics and practitioners, events and items we do not carry. We offer to locate items for customers at no extra cost, despite the time involved. We also offer a place which is relaxing, rejuvenating and just pleasant to be in and which enhances the overall shopping experience. The Sun Moon and Star is much, much more than just a warehouse or supermarket.

 
 
     
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