Summer 2011

Buying Power Like the Big Box By Emily Lambert

Group-buying websites leverage the buying power of gift retailers leading to a winning situation for all players involved.

Carolyn Vincent is a buyer at Boyds Drug Mart /Boyds Gift Shop in Rapid City, SD. Recently, Vincent tried a new way of sourcing product for the store and bought a whole bunch of Wellspring’s Flip Notes at bargain prices from a new online group-buying program for the gift industry. “It’s something I normally carry that has sold well in the past. I know it’s a good deal,” she says. “I’m always looking for things I can get a better markup on and can use for an ad.”

While wholesale buying online is routine, what’s relatively different here is the idea of retailers like Vincent pooling their buying resources and getting the deals from wholesalers that traditionally only the big box stores could finagle. This is precisely why the company that enables such buying is called Bigger Box—it allows independent gift retailers to level the playing field somewhat.

Andy Cykman, VP of Sales & Business Development for the San Mateo, CA-based company, says: “This is a revolutionary new business model in an industry that’s needed a solution to help small independent retailers compete against big box stores.”

Groupon model

The concept can be looked at as the equivalent of the hugely popular Groupon, a group-buying site for consumers.

Just as in Groupon, deals offered through Bigger Box don’t last long. The Wellspring one for instance, ran for four days. Also similar to Groupon, is the concept of a tipping point—in other words, a certain minimum number of buyers is required to activate or tip the deal. When that point is reached, the deal goes “live” and orders are processed. The deal ends when time or the limited quantity of product runs out. Bigger Box takes a commission off of each sale. To get retailers familiarized with the concept, Bigger Box launched with low tipping points—20 or 30—for recent deals. Cykman says future deals will have higher tipping points.

While this buying model has many similarities with Groupon, there are some differences. For example, unlike Groupon, Bigger Box does not have daily deals—although it does plan on getting close eventually.

To keep retailer interest high, Bigger Box encourages wholesalers not to repeat offers. “We don’t want to train retailers to wait [for the deal to return]. We want an element of urgency,” says Cykman.

Retailers can receive notifications of deals by signing up with Bigger Box, subscribing to the company newsletter, following them on Twitter or becoming fans on Facebook.

Wholesaler participation

The idea for Bigger Box came about when the principals of seven gift sales agencies across the country came together and answered the question: “How can we help the independent retailer?”

The seven gift sales agencies involved include: Southeast Marketing in Coral Springs, FL; Lori Minden & Associates in San Francisco, CA; Philip David & Company in Hamilton, NJ; DNA Sales in Livonia, MI; Dick Krysan & Associates in Urbandale, IA; B. L. Rogers Associates in Northborough, MA and Cliff Price & Company in Dallas, TX.

These seven founders not only come with a wealth of experience, but a vast database of existing relationships with wholesalers. Most of the deals offered thus far have been from wholesalers represented by one or more of these seven agencies. “As we go forward there will be many deals that go up for vendors that are not represented by any of the seven agencies,” Cykman says.

The first two deals to debut came from SWIBCO in Lisle, IL and Blue Mountain Arts in Boulder, CO.

As an example of a recent deal, SWIBCO offered jewelry made with real gemstones. Retailers could buy a line of healing and astrological gemstones consisting of 144 bracelets, pendants, key rings each in addition to 48 necklaces; all were priced at 45% off. Every Bigger Box deal is between 40-50% off regular wholesale prices. So the deal that would normally cost $1,200 was offered for $660. A merchandising rack valued at $120, 30 additional pieces, and a waived shipping cost, were also part of the deal.

In most cases, deals are designed so that the wholesaler can break even. The number of participating wholesalers, fifteen, is expected to grow.

In today’s retail, building a strong customer base is important and group-buying sites allow wholesalers to do just that. While the discounts they offer on such group-buying deals are steep, the cost is pretty much offset by the new accounts they receive and by the potential for reorders, Cykman says. Case in point was the deal offered by Wellspring, which tipped in roughly two hours and sold out 42 hours after launch. Wellspring offered its Flip Note countertop displays at 50% off.

The success of this Wellspring offer proves that Bigger Box has a very compelling value proposition for vendors in addition to retailers—a quick and efficient means of acquiring new business, says Cykman. “Bigger Box came to us with an opportunity to look at the marketplace a little differently and we generally like to try different things,” said Trip van Roden, Wellspring’s President, in a press release put out by Bigger Box.

According to Wellspring, 80% of the 100 counter displays sold were purchased by stores that have not bought Flip Note assortments in the last two years, while 41% were from retailers who have never purchased from Wellspring before. “We think Bigger Box gives us an opportunity to reach out to new customers and acquire significant store real estate that our road reps can follow-up on,” van Roden said.

“We all had great faith that we would get to a point when deals would be selling out, but none of us imagined for a second that it would happen on our third deal,” says Cykman of the Wellspring success. “We are only putting up the best and fastest turning items on Bigger Box, as this is all about our stores getting fast turns, selling the product at regular retail and reordering from their local rep,” he adds.

Weighing pros and cons

Retail expert Lynn Switanowski, president of Creative Business Consulting Group in Boston, MA, wholeheartedly supports sites such as Bigger Box. Sourcing today comes from many different parts and this could be a way to supplement a retailer’s market trips, she says.

Switanowski reminds retailers to watch what the competition is buying. “Gift shops differentiate themselves on the basis of unique merchandise. If everyone buys the same stuff through websites like these, don’t they lose their niche?” she asks. On the flip side, she is quick to add: “It could be very different merchandise from the store down the street, and with a price advantage.”

Cykman alleviates these worries by saying that if vendors offer exclusive lines to gift shops, they wouldn’t be posting those same deals through Bigger Box.

As with any reorders, retailers also need to keep inventory in mind—especially when deals involve a large amount of merchandise. “It might be a good price, but not if it is taking up limited stock areas and not selling,” says Switanowski.

Other things to pay attention to, says Switanowski, are the age of inventory, seasonality of merchandise and selection. Bigger Box assures retailers that participating vendors offer current merchandise—often new product introductions from brands retailers are already familiar with.

Retailers may also want to inquire about return policies for defective merchandise. At Bigger Box, return policies vary by vendor. The vendor’s return policy for any other order is the same as it would be at Bigger Box.

While all of these factors are important to take into consideration, they are simply points of caution. In fact, in many cases, retailers are too wary of taking that first step. “‘I don’t know how to use social media,'” is a common statement from retailers, says Switanowski, and they need to move beyond this. “I’m all for [group buying sites]. It’s just a matter of asking the right questions before you buy.”

Other group-buying options

GroupPrice, a recently launched business-to-business daily deal site, in Redwood City, CA, offers discounted services targeted at retailers with an online presence. “GroupPrice sells software services and supplies to help a business grow revenue while cutting their costs,” says Van Jepson, CEO/Founder of GroupPrice.

An example of a deal at GroupPrice comes from Fotolia: $49 for $79 worth of stock photos. Retailers can choose up to 66 images from a database of over 13,000,000 to make their websites, promotional materials and projects pop.

Customers buy vouchers or coupons to redeem through the merchants GroupPrice works with. These coupons can be redeemed for services such as public relations coverage or to craft a human resource handbook.

Members receive time and quantity-limited daily deals, from 40-80% off, through email, affiliates and social networks. “We limit the supply to make sure we have happy customers, and [that] merchants don’t get flooded with orders they can’t service profitably,” says Jepson.

Unlike Bigger Box, however, there is no tipping point. Instead of offering deals by maximizing the number of units sold, GroupPrice’s merchants offer lower prices by saving the time and cost of acquiring new customers. GroupPrice’s 100-plus merchants are finding their cost of customer acquisition is reduced by 50-60% over the other methods they have been using, says Jepson.

GroupPrice works with merchants in crafting the deal—establishing not only the price, but wording the deal so it is easy to understand and buy within five minutes.

There are other group-buying sites for retailers seeking a deal that aren’t based on the Groupon model. Switanowski recommends Purchasingpowerplus.com, a site catering to hospital gift shops. “This is a fee-based service and retailers receive a discount on the goods offered by the vendors that belong,” she says. There are over 200 vendors who participate, including Russ Berrie, Enesco and Ganz.

As always, retailers need to be comfortable with whatever supply channel they pursue. With the Groupon model moving into the retail market, retailers have greater options and buying power.

“This new model presents a win-win-win situation,” says Cykman. “Retailers win the ability to increase their profit margin and the opportunity to try new products with a low investment, wholesalers win instant placement in new stores and sales reps win new accounts to service.”

Emily Lambert

Lambert, a regular writer for GIFT SHOP, resides in Philadelphia. She can be reached at emilylambert@comcast.net.