Watching the profits sale away

OPINION: This year the customer was blessed with both pre and post Christmas sales.

When buying in the lead up to Christmas, some stores said that they wanted to reward their loyal customers prior to Christmas rather than let them guess whether there may or may not be a sale after Christmas. Clever marketing I thought, when clearly they wanted to get the jump on their competitors, or just maybe they had to get in as much cash as they could before the Bank stepped in.

Others reported a late rush to buy vouchers before Christmas.

Again, there were reports of booming Boxing Day sales.

All in all, it sounds like the retailers had a bumper Christmas, both before and after.

But hang on just a minute - aren’t many of those customers either cashing in vouchers they have already paid for, or exchanging presents they have already paid for, or at best, buying a heavily discounted product that the retailer had hoped to sell before Christmas at a bigger margin.

The stores are having to pay for extra staff both before and after Christmas, and at penal rates, all to make the same sale twice or even have it negated altogether.

The retailer is on a lose, lose, lose at Christmas.

They have to have just the right amount of stock to sell at full margin to survive. If they have under or over stocked, they either have to sell less than they could have and therefore will have made less profit, or be left with excess stock and have to sell off at a discount.....and make less profit.

To top it all off, the good businessperson has to compete with the bad or desperate businessperson, who is under-cutting them to get the sale.

As I have often said, discounting stock hits the bottom line directly, and if the retailer discounts 20 percent off the sale price, when they were only making 10 percent at the bottom line in the first place; then they are just paying last month’s bills with next month’s takings to stave off the bank manager; all a sure sign to receivership.

A number of businesses will not make it through the next couple of months before they have to close; and they won’t understand why, I mean they have been busier than ever both before and after Christmas haven’t they?

- Adam Davy is Managing Partner of BDO, Chartered Accountants and Advisers', Wellington Office