How to Lose Money Selling Earrings
A Story About Rack Merchandising
By Steve Gillman - August, 2013
Once upon a time I sold earrings. It was not something I had
previously wanted to do, nor had I ever even considered it. I
didn't even have sisters growing up, and none of my four brothers
wore earrings, so I knew nothing about allergic reactions to
nickel in jewelry or the value of surgical stainless steel posts
and wires. But a small classified ad suggested that I could make
big money with little jewelry, and I called for more information.
The man on the phone told me that he had earrings in stores,
barber shops, gift shops, and other locations -- more than 110
racks just in the Grand Rapids area. His racks averaged 13 pairs
sold per week, he said. And all he had to do was run the route
once a week to collect his money and refill the empty spots on
the racks. The owners of the various establishments where the
racks were placed kept $1.50 for each pair that was sold.
Being a smart salesman, he knew to let me do the math myself.
I had a calculator handy as we talked, and I punched in 110 racks
times 13 pairs at $3.50 per pair came out to $5,005 in gross
revenue per week. I figured he kept half of that as profit after
paying for the earrings and various other expenses. He ran the
business from home, so the other expenses were minimal.
As I said, I didn't know a thing about earrings, but I started
to get interested. Numbers will do that to me. If I bought 10
racks, as he suggested, and 1,100 pairs of earrings to fill them,
I'd be on my way to a decent income. He would charge me $1.75
per pair. Since they sell for $5.00 and the store owner keeps
$1.50, my gross profit would be $1.75 for each pair. Multiplying
that by 13 sales for each of the 10 racks, I arrived at a gross
profit of $227.50 per week, or about $200 after minor expenses
for my car. Then I could expand from there.
Now, you have to understand that this was back in the 1980s,
and I was about twenty, and was making exactly $3.40 per hour
working at an Arby's fast food restaurant. So $200 per week with
the chance to make double or triple that before too long was
enticing. Within a few days I had invested over $2,000 for the
racks and earrings. Of course, this was a big investment for
me as well, since the money had been saved from that $3.40-per-hour
Lessons in Rack Merchandising
I later learned that this sort of arrangement -- where you
leave merchandise in a store and get paid when it sells -- is
referred to as rack merchandising. I also discovered that I could
buy earrings that were the same or better than the ones I was
getting for a third of the price I was paying. In fact, there
were some nice selections of earrings with surgical stainless
steel posts and wires that sold for as little as 30 cents each
when bought in bulk. In other words I could have been set up
for a few hundred dollars instead of the $2,000 I invested.
Oh well, this man was going to help guide me in any case,
especially since he hoped to sell me more earrings as I succeeded
in selling a bunch of the ones I had (I didn't tell him I was
already buying earring from cheaper suppliers). At least that's
what I thought. The reality was that the owners of stores and
hair salons and other places weren't lining up to have the racks
in their establishments. The salesman had assured me that placing
the racks was easy, because the businesses didn't have to pay
anything up front. They just give you your share of the money
after they make the sales, so they are happy to take the racks,
I eventually got four business owners to agree, and my mother
helped me get another location, so I had five racks placed. Our
town had enough businesses that it should have been easy to place
forty or more racks, according to the salesman. Additional phone
calls and visits to forty or fifty more businesses didn't result
in one more placement. Perhaps I wasn't a convincing salesman,
although that was unnecessary according to the logic of the plan.
Then I discovered that the racks placed averaged only 3 to
4 pairs sold per week. It wasn't worth the time, and I realized
something else. The best earrings were going to sell, and some
might never sell, clogging up the racks and reducing sales further
at some point. The $1.75 gross profit per pair can't be achieved
if some pairs never sell. I had enough. It probably won't surprise
you that the salesman didn't want to buy back the earrings as
he promised he would, or that I did not have that promise in
writing. But believe it or not, I did get some of my money back
after filing a claim in small claims court locally, so he would
have to drive a couple hours to appear. He bought the earrings
back for a dollar per pair.
I've since talked to people with vending routes. The truth
is that if you make $25 or $50 gross profit per site per week
with pop machines or anything else, and you have 40 sites within
an hour of where you live, you can work a few days a week to
make over $3,000 to $7,000 net profit per month. It is also true
that it is a lot of work to get started, whatever a salesman
may tell you. If it were really easy, the salesman might be out
running his own route, instead of trying to get you to buy $6,000
worth of plastic gum ball dispensers.
Obviously it can work. The people in the business that I have
talked to were doing well. I'm sure it was entirely possible
to make good money with those earrings even. I was probably doing
many things wrong. So how do you do it?
Obviously I am not the expert to ask. My story is more of
a warning than a lesson for success. But you can start by avoiding
the mistakes I made. And I can tell you a few things I would
do differently knowing what I know now.
First, I would have talked to the owners of places where I
hoped to place the merchandise, to see how open they were to
the idea. As it was, I went to only a handful of places before
twice hearing the objection that earrings are easily stolen,
and since the owners pay for the empty spots on the rack as though
they are sales, they might be losing money if there are more
thefts than sales. This makes placement difficult. Jewelry targeted
to older women, who are less likely to shoplift, might overcome
this objection, but then would it sell? I don't know.
I obviously should have done some research into wholesale
suppliers of jewelry. Many of the earrings I bought for 30 to
50 cents were nicer than the ones I paid $1.75 for. Now, it might
have been true that the salesman, if he actually had much experience
(who knows) would have a better idea of what sells, but then
he probably was paying 30 cents per pair, so knowing what was
available I might have negotiated to buy them at 50 or 60 cents
each from him in order to also get his expertise.
As for the promise to buy back the earrings if they didn't sell
as suggested, obviously something like that should be in writing.
At the time the numbers seemed so reasonable (just 13 pairs per
week per rack, and the need to pace only 10 racks!) that it didn't
seem likely I would be asking for a refund.
The resources available today make it possible to research
everything so much more easily that there is no reason not to
do so. At that time there wasn't a single book on rack merchandising
in the local library, but now you can find articles and personal
experience stories like this online in seconds. At that time
I had to order a wholesale catalog and wait for weeks to discover
better wholesale sources. Now you could look online and see what
things wholesale for even as you listen to a fast-talking salesman
on the phone.
Finally, I accepted the numbers being thrown at me because
they sounded reasonable. But I could have asked some people in
similar businesses. Maybe 13 pairs per week was normal in other
locations, but maybe I would have discovered that 5 was more
common, and vendors were running their routes only twice per
month. Again, this is probably something you can even research
Learn from my mistakes.
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