Network: October 1990
Charles Small's company manufactures guides for portable power saws, enabling the saws to cut with greater precision. He has sold more than 20,000 saw guides through direct mail, but -- despite trade shows, sales reps, and generous sales commissions -- his attempts to penetrate the retail market have failed (The Unkindest Cut, July 1990, [Article link]). How can he make his product attractive to retailers?
Retailers aren't buying because Mr. Small doesn't understand their needs. First, retailers almost always ignore single-item vendors. Each one costs the retailer money for tracking shipments, warehousing, receiving, and handling. One vendor dealing with several lines costs retailers less. Second, a large potential market doesn't guarantee sales. Mr. Small would have to persuade consumers to buy his saw. Stores don't see that as their job -- and it's not.
The best way to get retail distribution without advertising is to manufacture the product for a company that already advertises -- Sears's Craftsman label, for example, or TrueValue's private-label tools.
James F. Curley
Vice-President of Sales and Marketing
Sweeping Changes Inc.
Chicago* * *
Reading Mr. Small's query, I'm reminded of displays that have sold products at our hardware store. Black & Decker recently introduced a new line of professional cordless drills. It provided us with a display that allows customers to try the drills. Obviously, Small can't have customers playing with electric saws in the store, but he should think about a countertop demonstration of some sort.
Independent stores are the most likely to carry and demonstrate the product, but they won't want to tie up hundreds of dollars in inventory. And since it isn't available from warehouses, the retailer will have to buy direct. I suggest that Mr. Small provide for drop-ship purchases and prepaid freight in the $150-to-$200 price range.
William R. Heuser
Handyman Hardware & Supply
St. Cloud, Fla.* * *
Eighteen months ago Nick Tillman opened his first store, selling watches and sunglasses. Now he's planning a second and wants to know how much debt he should take on (Beyond a Reasonable Debt? July 1990, [Article link]). He figures his start-up costs are $85,000 to $100,000 -- $35,000 for inventory, purchased with company funds; $30,000 for leased fixtures; and $20,000 to $40,000 for construction, borrowed from his bank. Is that too much for a five-year deal?
Here's the answer to Mr. Tillman's question of reasonable debt: as little as possible. Don't go into debt for construction. Renegotiate your lease and ask the landlord to pay for construction in exchange for a higher rent. Let the landlord amortize the cost over the term of the lease; as an incentive, put $20,000 in escrow (bearing interest to you) for one or two years. And don't lease your fixtures; pay cash for secondhand ones. Once they've been installed, take the bill to your bank for financing. As for merchandise, why pay all cash? Put half down and finance the balance with suppliers.
Most ventures in the United States die of undercapitalization in the first year. But you can add $50,000 worth of staying power to your capital reserves if you use these methods.
A. Barry Kon
Director of Mergers and Acquisitions
The Keyes Co.