Retailing – Sell at Cost to Tide over the Bad times.

As in all businesses, money is the life source. Once the cash has dried up, the business start to get into serious trouble. All successfully businesses has something call a reserved fund that they can fall back on during lean times. Now what happens, when even these funds have been drained up after prolonged bad times. One scenario is business winds up. Another scenario is the businessman goes to is bankers for an overdraft or a loan. Banks are always eager to give loans to businesses who have a good track record, but sometimes these processing period can drag on and by the time the loan is approved, they have gotten deeper.

Do a Grand Sale.

Holding a Grand Sale is a good way to get hold of fast hard cash and to make this Grand Sale successful, prices must really be cheap. It must be cheaper than all the competitors. So businessman in those big retail stores turn to slashing their prices until they are rock bottom. They are willing to sell without a profit.

How is selling without profit feasible.

First of all, they already have the goods. Some have been in stock for months. It’s a good time to dispose off old stock and regain their funds. So they have a store wide Grand Sale, mix the old stocks with the new and sell it at a flat price. Now this doesn’t mean he is going to make money, what he is going to get is hard cash to tide over the bad times. Lets say if he goes for a bank loan. The bank is going to charge him say, 4% interest. So for a 30k loan, he will have to pay 1.2k in annual interest.

Now let’s say, he holds a Grand Sale and he sells at cost. He managed a turnover of 30k a day, he will have his 30k gross taking. He forgoes his gross profit for a chance to gain back his much needed working capital and in the mean time disposed off all his old stocks. It won’t be feasible if you are going to take into account the money that he should be making from that 30k sales a day, but it was fast money in times of need and he certainly will not be making 30k a day without a Grand Sale on. Furthermore, the banks might not even approve his loan and if they do, it might take weeks and the businessman’s suppliers are already breathing down his neck.

This, no doubt is a desperate step to survive, and no sound minding businessman will take this step unless the are really desperate. What normal retailers do is to hold Grand Sales and makes lots of money in the process.

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