Updated: Jan 29, 2019
Your age often determines how people view your behavior. My daughter, 20, rarely agrees with me and so I call her a punk! At 55, I never agree with my father: which makes me a contrarian! Hopefully she’ll grow out of it! I’ve always been a bit of a contrarian in business too and I find myself behaving as one in my stores right now: at least contrary to my regular wintertime behaviors.
We had a good year in 2018, but now it’s basically over. We’ll have a few more decent weeks of selling but come Christmas the year will be done and we’ll count cans and rollers for the next few months. New York winters can be rough on paint stores. For some context, typically we will do about 50% in February what we will do in August. So, why am I buying so much paint now as we are about to get so slow?
I tend to be a transactional paint buyer. I keep what I need in inventory and if I get offered the right opportunity (and we are busy and moving lots of goods) I’ll load up. Now though, despite the fact that we are about to get slow, I find myself buying a lot of paint: strategically!
There’s a difference to me in buying paint transactionally versus strategically. Like I shared above, if I’ve got the money, space and market for goods and you want to sell me at a discount something I will be buying anyway, I’m inclined to take that deal. That’s transactional buying. Strategic buying happens at a higher altitude than that. When I’m buying strategically, I’m using my entire inventory as an investment tool looking to take advantage of a particular, perhaps more over-arching set of circumstances. I’m an investor, and my investment tool is paint.
Prices are going up. We’ve all seen the letters and gotten the emails from manufacturers and other vendors: “we have tried so hard to hold the line on prices that the Pope is looking to canonize our CEO, but despite his heroic efforts we must….”! No one likes higher prices BUT price increases are also buying opportunities. If you own $50K in paint and there’s a 6% price increase, you just made $3K without putting a single gallon in the shaker!
But there is more here than just the value of the price increase. At the end of the year we often get other buying opportunities (that generally I don’t take because we are getting slow) that now I can pile on, on TOP of the price increase! Placing an order on a 5% promotion and THEN holding it through a 6% price increase and your $50K just made you $5500! Some may be tempted to say that’s an 11% return and it IS! But if you sell the paint in 90 days, that return annualizes to 44%. Even if you have some costs for putting in that $50K, they’ll pale in comparison to how much you just made.
I also found that after a good year, we have several vendors that I was within striking distance of some higher volume level, which would earn me discounts on what I’ve already bought and paid for! Talk about easy money! Here’s some math for you on an order I just took.
Order Size: $35,000
Discount for reaching goal: $5000
Discount on this order: $1750
Value of price increase: $2100
Total Yield in $: $8850
Total Yield as %: 25%
Annualized ROI: 100%