Too Much Margin!!!!!!!

[Dermot]

The person who drove the growth of one of the most successful business in Ireland, a retail business and not picture framing though they do have a big gift section……made the quote recently….. “if you have too much margin you only attract competition”…….I can think of a number of other businesses worldwide who appear to take this approach ………and of at least one Grumbler who posted recently who appears to have takes this approach also.

I just wondering if this approach has any relevance for the picture framing business……the quote again……..“if you have too much margin you only attract competition”

All views welcomed.

Rgs

[ 09-17-2003, 09:52 AM: Message edited by: Dermot ]

[Cliff Wilson]

I have seen this or similar quotes many times. The question is what is "too much?"

The basic premise is ... If an enterprise has a very high ROI, then more people will invest in that type of enterprise. It seems obvious to me.

However, it does not imply that a company should not be as profitable as possible. (note the double negative tongue.gif )

Cliff

[doylestownboy]

I'm willing to bet that when you decided to open your business you took a good look at the margins in this industry and it was a good part of your drive to proceed forward.

I find that competition is a good thing since there is usually enough business out there for everyone to share. The mouldings we offer are different that what my clients will find down the street. The selection of art we offer is different than what my close competitors offer.

I'm not in the business of attracting competitors, and none of us can prevent that from happening. My tendancy has always been to shop my competitors, stay on friendly terms with them, and at the same time see that we're not competing head on. If they show something that I have, I simply change or remove it. It's their perogative to sell an item for less than I do if they want to deny themselves some profit. I just keep doing what I have been doing for 23 years and I'm still in business.

I've seen lots of frame shop / galleries come and go over the years because they attempt to have price wars and under price themselves out of business. If someone thinks they can open a business down the block from me and stay in businees by lowering their prices for the identical merchandise, and remain in business for any period of time, I'll show you a business that will not be around long term.

Big margins can be a driving force to open a business, but you'd better be prepared to find out about the bottom line before you count on a fat paycheck!

[Bob Carter]

Dermot-Years ago we used to call that the "Bigger Fool" Theory. The attraction of larger margins, as in "Wow, look at all the money these guys are making" suggests that with some skillful buying and promoting, that the "new kid" can come in and undercut prices and capture market share.

It is certainly a valid premise with one big exception in our trade: The economies of scale don't benefit those with little scale, as is typical in our trade. Hence, the "Bigger Fool".

Nothing attracts success as much as success itself. In reality, most people that are successful have a little more than price going for them.


DT's Boy brings up an interesting point about being unique. Certainly it helps to have some things that are are different to set yourself apart from the crowd.But, make sure that is part of an overall strategy in product selection. Don't turn your back on those products that are time-tested and complete your line just because "everyone else carries it".

If you decide to be in the food business, you better carry Coke or Pepsi. Try and open a concept and only sell RC Cola or Root Beer. Items that are industry leaders are popular for a reason-because people want them. If they can't get what they want, some of them just might go elsewhere.

[framah]

Bob... What you said just reminded me of when I first opened my store. Our city is a go thru to get to Acadia National Park and the truth is that unless you are LL Bean, Burger King or a gas station, the tourists aren't going to stop here. I seriously considered selling burgers just to get people into my store or putting gas pumps out front. Luckily, it did pick up and I'm doing fine without those attractions.
tongue.gif

[Jim Miller]

Originally posted by Dermot:
...“if you have too much margin you only attract competition”... I recently heard a rumor that a cross-town framer is planning to open a new frame shop in our little suburban community. He probably has a similar mindset. Boy, is HE in for a surprise.

[Dermot]

There was a change of policy at the business I refer to an number of year’s ago……to a more upmarket and margin driven business…..result……the business has taken a huge hit…….one of there major stores is down 70% per week and the rest of the business is down 7% and this is in a business where a 1% shift is huge…… it allowed for two of the European low margin chains to enter the Irish market, they are now steamrolling with their expansion program in Ireland……the business I refer to has gone from the most feared retailer in Ireland to what is now considered a second rate business……….the former managing director of this business who was sacked by the rest of the family members who owned this business because he wanted to pursue the low margin approach….can only look on in despair at what has happened to the business……..what happened in my opinion is a restless pursuit of margin….at the cost of turnover which gave this business it’s synergy in the past.

PS
Jim….what is the surprise !!!! your statement means nothing to me….can you expand a bit…

[ 09-21-2003, 07:43 AM: Message edited by: Dermot ]