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Small Business Center

3 Tips for Negotiating with Vendors

October 6, 2021

By Dan Jablons, Retail Smart Guys

Vendors represent some of the most important relationships any retailer has. The right vendor or sales rep relationships help to put product lines in your store before competitors do and get important industry insights and perks and benefits that retailers like you need to maximize your potential. Sometimes, the vendor relationship becomes more complicated than the typical salesperson/buyer dynamic, and the power in that relationship skews toward the vendor because it seems as if the retailer has to appease the vendor to keep the product lines. Of course, maintaining these relationships is an important part of what every buyer does, but how do you do that without coming off badly, without doing any damage and while still getting what you need the most for your business? Here are a few ideas.

Negotiations work best when everyone gets what they want

Good negotiating does not mean that you have beaten down the other side to the point where they feel they have lost and cannot win. The best negotiations happen when both sides get what they want and sacrifice a little to the other side. At the end of the day, both sides get to advance their businesses. As such, it is always best to strategize a little before you talk to the vendor. What does he or she need and want?  What elements of that can you accommodate, and what elements could you accommodate with some concessions? Put yourself in their shoes and see things from their perspective.

At the same time, you need to think about the things that you need and want and make sure you have communicated those well. You might also need to help the vendor see that by providing those things, the vendor accomplishes its goals, too. As you strategize, consider the steps you will have to take to get there. There are some vendors who will honor your request immediately. There will be others who’ll say no to your first request and yes to your second request, which means you have to plan what you’ll ask for first. I have been most successful when I played out the conversation in my mind before I talked to the party I was negotiating with. That helped me predict and think through their responses and to have well-developed replies to their objections so that I got what I wanted and they didn’t mind giving it to me.

So take the time to plan what you want, predict what they want and figure out how you can both win.

Using the numbers

Vendors can offer special things to retailers, such as price concessions, trunk shows, prizes for sales contests and — dare I say it — markdown money. But they don’t give that away freely or easily, as it certainly affects their bottom line. So who gets these perks? Yes, larger retailers certainly have an advantage, but many single-store, independent retailers can get this, too, if you know how to ask for it.

You cannot say to a vendor, “I had a rough season with your goods,” and expect to get anything. They’ll give you a generic reply, then rush to show you next season’s goods and try to get you to buy again. If you want price concessions, markdown money or anything else, you need to show them the actual results. Larger retailers develop vendor scorecards that shows what they bought, what was sold, whether they maintained their margins or not and what they are stuck with. Those are numbers that a vendor can work with to determine their need.

Here’s how this works. Let’s say that you purchased $1,000 of inventory from a vendor and marked that up 2.5 times. That means that you bought $1,000 of inventory and expected to sell it for $2,500 and to use the $1,500 to pay for rent, utilities, salaries and other costs. But in reviewing your actual performance, you had to mark half of the inventory down, got very little full-price business and still have a chunk of the goods left over. Your total sales were only $1,600 and you still have $300 at cost left to sell.

You can say to the vendor, “I spent $1,000 with you, expecting to sell $2,500, and as such expected a cash margin of $1,500. Instead, I sold $1,600, which means I only got $600 of the $1,500 that I needed. I am $900 short. What can you do for me?”

Notice that the above statement does not insult them, make them out to be bad people or make them wrong. It is a simple statement of what occurred. And you are asking for help, not demanding anything. In some instances, it is also best to follow this with, “Here are my results. Please share that with your boss and see what he or she wants to do.” This gives them a way to politely go back and think about what they want to do, without feeling pressured or embarrassed at that exact moment.

When you do this, you have to show the numbers, preferably by style. Show them the styles that worked and didn’t work and also make sure you validate what worked well. Sometimes when doing this analysis, you will find out that some vendors do better in certain classifications of merchandise but not others. This will improve your buy and will also let the vendor see that you are making buying decisions based upon statistical analysis, which they can only defeat by offering other analysis or concessions, not just whimsy. The key to all of this is to make sure you use actual numbers that represent real results, ideally pulled straight out of your point-of-sale system, and not just conversation or opinion without showing the facts.

I also want to set the proper expectations here. It has been my experience that showing these numbers enables the sales reps to go back to their bosses and fight for your store, and great things can happen. Having said that, there are times when we have presented these numbers and the vendor has done absolutely nothing. It happens. But now you also know that for the future, and that certainly should govern how you buy from that vendor and how much they will participate in the risks with you.

Be an open book

It’s great to get information from the vendors, and I encourage you to ask tons of questions when you see them. Find out who else they are doing business with, what is and isn’t working and where their line is succeeding and failing. Because the sales reps are in different stores every day, they get a unique perspective on the marketplace, and it is definitely useful to find out what they know. Before you meet with the rep, think about the industry information you’d like to learn, as well as the information you want to know about their line, and prepare your questions before your meeting.

Conversely, remember that those same sales reps have bosses that they answer to. And one of the things that they often have to do is contribute to the next year’s designs for the line. They want to hear from you to help them contribute. They want to know what is and isn’t selling and what worked and didn’t work. If you provide meaningful insight as to how their goods are performing on the floor, they will value your relationship beyond the typical vendor/customer relationship, and that can help, too.

In conclusion, I believe that one of the most rewarding and meaningful types of relationships that you can have is with your vendors. Remember that you both have to win, and if you do your homework, that can easily be accomplished.

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