Is it really a SALE or are they playing games?

The furniture business is rife with ! SALE ! SALE ! SALE ! and consumers are at this point trained to look for them. When is it a real sale, and when is it smoke and mirrors? It's ridiculous, and you should not get sucked into the marketing. Let me explain how it all works. Basically its all math!

First off, let's explain margins so you understand how a store has to price goods. A margin is a percentage over and above the landed cost of goods that the store needs. It's done for pricing purposes as Gross Margin (GPM) which determines profit before overhead and taxes. GPM Margin is a simple formula : Retail - Cost / Retail.

Example : $ 2,000 (retail price) - dealer cost of $ 1,200 - divided by $ 2,000 (retail). That margin is 40 %. Most retail furniture stores MUST price at 40 % to stay in business, if margin deteriorates much below that the business becomes unhealthy and likely to fail. The easy way to figure it out for the store is to take that cost which again is $ 1,200 and simply multiply by 1.67 % and you get $ 2,004, which is going to round down to a $ 1,999 selling price and voila! You have your 40% or close enough to it.

MSRP is fairly uniform across the business and MSRP is a joke - no store sells at MSRP. MSRP is generally 3x cost in the industry (some manufacturers add another 10% on top of it) . Using our $ 1,200 example the MSRP becomes $ 3,600. Since the store has a goal of $ 2000 margin they will routinely publish: SALE - 45% off MSRP!. We take the $ 3,600 and multiply it by 55 % and we get .... <ta-da> $ 1,980. Again, close enough to the GPM margin point of 40%.

So, you know now that for most marketing material trumpeting "X" percent off MSRP in the neighborhood of 40 to 50% off MSRP it's the day in and day out selling price they need to maintain to stay in business. It's not really a sale at all, they are playing games with the numbers.

When is a sale a real sale? When the manufacturer lowers the price to the dealer and the dealer will pass it on to the consumer. And when manufacturers have sale periods, its a small amount, usually 5% or so. That doesn't get anyone really excited and you may ask why so little? Well, that 5% is actually half their net profit, which is generally 10% in the industry. (net, not gross) Yes, that's right...furniture manufacturer's profit after expenses and cost of doing business and paying their labor force is around ten percent. So a 5% sale is actually pretty painful - but it helps move product and keep their cash flow going and the supply chain going. Most people are stunned when I tell them the numbers, and it's why domestic (USA) factories are always running lean, and also why many have failed.

There are always deals working where a maker can offer a special based on quantity of a specific item. As a dealer, I don't see these too often but once in awhile they come up. Or they do a special program like Taylor King's Portfolio or Hancock and Moore's JUST IN TIME program where they are committing to their vendors to buy large quantities of a cover to get a volume buy and therefore lower the overall cost to the dealer and consumer.

The # 1 way to boost margins for a manufacturer of course, is to substitute cheaper labor or components to make a piece look more expensive than it really is and hope to sell for more profit (margin). They do this by downgrading the product interior where you can't see how its made, or by using a less skilled or cheaper labor force (i.e., China). This is where YOU as the consumer have to get that sharp eye and know what you are looking at and buying, not what the salesman is telling you. That's why you see so much here on this site about construction and tailoring, that's the key to quality. And you have to be able to recognize it yourself when shopping.

The average furniture shopper comes into a store and shops using four criteria in order of importance: 1) Price - needs to be "on sale" 2) Color 3) Style/Size 4) Comfort. Few are interested in construction details or pay attention to how it's put together, or if it's going to have any degree of durability to it. They do not know what to look for in a quality piece, and it will be more than buying a "name brand". What's the better buy? A $ 1,500 sofa that is ready for the landfill in 5 years or a $ 4,000 sofa that will go 30 years? The cheap sofa costs more per year of useful life because you have to constantly replace it.

My advice then is this:

* Don't get hooked in having to see a red sale tag.
* Learn the value in the build of a given piece, how its made.
* A real 5% off sale is better than a made-up 50% off MSRP sale.
* Don't assume the furniture salesperson is knowledgeable. Many are not.
* Re-order your shopping priorities. 1) Durability first, 2) Cost/value for useful life span 3) Size / Style 4) Comfort. Color is easy, there are thousands.

Hope that helps explain all those "Sales" that you see, all the time.