Category: Pricing

In children’s resale, stores can and should expand profits by offering a complement of 1) new items obtained from vendors and 2) better quality “play” items (slightly worn) from customers along with 3) regular gently-used and never-used items from customers.  But in doing so, it’s important that the customer is able to readily distinguish these three offerings.  To this end, NextGen recommends using different price endings to distinguish “play” items from “regular” and “new.”

Specifically, we recommend ending the selling price of play items in 7, e.g. .47 or .97, and regular and like-new items in 9, e.g. .49 or .99.  Otherwise two pairs of Levi’s jeans, one in “play” condition (slightly worn at the knee) and the other in “regular” condition will appear to be inconsistently priced to uninformed shoppers. Similarly, NextGen recommends ending the sales price of new merchandise in 8, e.g., .48, or .98. Otherwise, customers will have a difficult time distinguishing new items purchased from vendors–typically more expensive—from items bearing original tags purchased from customers–typically less expensive.

The different price endings clarify what otherwise could appear to be inconsistent pricing to the shopper.  Better customers understand a price than question it.  A confused and questioning shopper is not a content and confident shopper, and is less inclined to buy.  Of course, it is important to communicate what these endings signify to our customers through signage (NextGen provides the copy on request).

The NextGen Pricing System suggests the best price for an item, specifically, the price at which an item can be expected to sell within 75 days.  Initially, NextGen obtained these data from a limited number of stores around the country.  But in the 2 yrs since, the data base has grown to include stores in most  states and provinces in North America, most of which had been in operation for years before procuring a Nextgen Pricing System.  The addition of these stores has allowed Nextgen to examine prices, controlling for area income levels and competition.

What have we learned?   Far more stores under-price than over-price

In the vast majority of stores, prices fall short, often far short, of the prices at which the same items are selling in markets with like incomes and competitive situations.

Why do stores tend to under-price?  The fear that higher prices will turn away buyers

Underlying this fear is the assumption that buyer decisions are based on price more than value.  This is to say that buyer decisions are driven more by item-specific price ceilings, i.e., “I would never pay more than ten dollars for a pair of sneakers” than on Value, i.e., I would never pay more than $10 for a pair of Converse” sneakers.”

Is the fear justified?  No

While the ‘price ceiling” mentality may be common among thrift shop customers, our analysis clearly demonstrates that it is the ”Value” mindset that reigns in better consignment and resale shops.  Simply put: Customers pay more for better brands than lesser brands.

Give our customers credit.  They are value conscious and knowledgeable.  Even those who may not have been in times past, are now, thanks to Google and other internet shopping and price-comparison sites—accessible at the press of their smart phone buttons.

What’s to be gained by raising under-prices?  Customers, Sales and Profits.

Right pricing is not what the market will bear, but what the market will embrace, as manifest in timely sales.  Dollar sales will increase.  Margins—bottom-line profits—will likewise increase.  Item sales may not, but should not decline.

Raising the price of under-priced items allows a corresponding increase in the amounts paid for these items.  To get better brands , we must pay for them.  The more we pay, the more we get.   Right pricing is Fair pricing meaning fair to seller/consignor as well as buyer.  In the end, it’s a win-win-win.  The sellers earns more, we owners earn more, and buyers have access to valued items they would not otherwise see.

The Good news?   While under-prices cannot be abruptly changed for fear of alienating longstanding customers, prices can be nudged up (optimized) gradually and imperceptibly over a number of years.   Clients use the NextGen Pricing system to manage these changes.

NextgenResale consults with hundreds and hundreds of aspiring business owners each year.

The words we’ve long used to characterize the mentality of the vast majority of these aspirants is “they don’t know what they don’t know.”

Their level of knowledge is limited, level of naivete, high.   This is understandable.  The knowledge and tools required to be successful in any business today are considerable, and resale is no exception.  It’s what the franchises, increasingly chains, and yours truly, NextGen Resale, advertise—know-how.

We enjoy exploring the resale world with folks, sensing their excitement, exploring the possibilities, and introducing a measure of the real world of resale.   We’ve been in this business long enough–20 plus years each –to predict with a fair degree accuracy who is likely to succeed and who is not.

A telltale sign.  Those likely to succeed “know what they don’t know.”

They have their ideas, like everyone, on what they would like to do with the business, but they’re not locked in.  They look for, and listen carefully to concerns, limitations & problems relating to their ideas, and facts that don’t square with their vision.   We have a lot of respect for owners who’ve been in business for decades.   It means they’ve continued to learn and keep pace in an industry that has changed significantly over the years.  They’ve learned to take advantage of the technology to manage their sales and inventory, to keep themselves visible in their communities and to compete with the growing number of competitors, on-line and off.

It’s the reason—here comes the NextGenPricing System plug—we’ve been so pleased and excited that the Pricing System is proving so popular among savvy, longtime Owners.   They recognize the value of this tool even though they’ve been operating without it for many years.

 

 

NextGen currently tracks the pricing on over 4,000 children’s brands in order to keep its suggested resale prices in tune with the children’s retail prices.  This involves the timely identification and valuation of brands—new, old, rising, fading, fallen; and distinguishing the many labels continually introduced to appeal to different markets.  It’s a demanding task in normal times, and especially now as the rate of brand/price change is as high as we’ve seen.

Why?

The significant change we’re seeing in children’s pricing, specifically the growth in the boutique brands at the top, and discount brands at the bottom, reflects the broader shift in income distribution.  To quote Schwartz in his recent New York Times article (2/2/14) entitled The Middle Class Is Steadily Eroding. Just Ask the Business World.

“As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there     really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.

The top 5 percent of earners accounted for almost 40 percent of personal consumption expenditures in 2012, up from 27 percent in 1992. Largely driven by this increase, consumption among the top 20 percent grew to more than 60 percent over the same period.”

John Graubard’s graphic observation in the same article sums it up “In a few years the consumer choice will be Neiman Marcus or WalMart.”