Buying groups deliver discounts – includes related material on selecting a buying group

Christopher Rauen

Small firms use buying clubs to get merchandise discounts that they typically could not negotiate on their own.

When Jessie Karadsheh opened Filco in the early 1970s in Sacramento, Calif., he didn’t command the buying clout of larger, established appliance and electronics retailers. To keep his prices competitive, he would drive 350 miles to Los Angeles on weekends and shop for the lowest prices and best terms to fill thousands of dollars’ worth of orders. On Sundays, he would deliver the merchandise to his customers.

Today, through Filco’s affiliation with the Selective Consolidated Dealers Co-Op (SCDC), a buying group in Glen Ellen, Calif., Tony Saca, Karadsheh’s partner, buys competitively priced goods without leaving town. The buying clout that Saca gets from SCDC allows Filco to obtain prices and terms from manufacturers comparable to those of the largest retail chains.

Buying groups are helping retailers of all sizes, but they are especially useful for small retailers. Members usually pay an initiation fee upon joining and then pay monthly, quarterly, or annual dues. For small retailers, initiation fees can range from a few hundred to a few thousand dollars. Rebates generally depend on the volume of purchases. And some buying groups require members to make minimum purchases.

Through buying-group memberships, retailers get merchandise discounts or rebates that they typically could not negotiate on their own. For Filco, rebates on major appliance lines through SCDC range from 4 to 6 percent of total purchases. “We received over $100,000 in rebates from Amana last year,” says Saca, “and about the same from General Electric.”

Buying groups operate in industries ranging from hardware to medical supplies. They are most active in competitive retailing businesses such as appliances and consumer electronics. In these areas, buying groups help members expand product selection and improve their standing with manufacturers.

Don Blevins, president of Star Furniture, a buying group based in Salem, Va., says Star gives small retailers access to prices comparable to those available to large chain furniture stores. “Buying groups offer the only way for the independent merchant to compete,” says Blevins. Star charges members monthly dues of $100 to $200, depending on store size. The rebates that members receive on orders average 2 to 5 percent, with some rebates reaching 10 percent.

Manufacturers too reap certain benefits from buying groups. Mel Hunger, a former marketing executive for consumer electronics companies and now president of Key National Corp., the parent company of the Key America buying group in Wayne, N.J., says that buying groups help manufacturers expand distribution while reducing costs. “The small retailer is becoming more difficult to approach due to rising costs,” he says.

But buying groups do more than just save money. “My primary benefit is the sharing of information with other successful retailers,” says Ed Knodle, owner of Knodle’s Appliance and Electronics Center, in Sycamore, Ill. He is a member of Select Business Associates, a buying group based in Winston-Salem, N.C.

In addition, many buying groups offer their members training sessions and educational seminars. Duke Bloom, president of Duke & Slim’s, a retailer of consumer electronics and appliances in Lancaster, Calif., learned how to comply with a new federal safety regulation by attending a seminar sponsored by his buying group, Key America. “When I first heard about the law,” says Bloom, “I never thought I’d have the store ready for it.”

The regulation, issued by the Occupational Safety and Health Administration, required that employees receive instruction on workplace safety. The buying-group seminar interpreted the compliance requirements so that Bloom could implement the rule effectively.

Darrell Chabino, owner of Sight & Sound, an Oklahoma City retailer of consumer electronics and appliances, says that his buying group, Nationwide, based in Pittsburgh, helped him boost margins. A group member told Chabino how he could almost double his margins on home audio equipment.

“Before joining a buying group, we were at the mercy of the manufacturer and distributor,” says Chabino. “Now, we know more about the different programs that are available. Working together, we can definitely get better deals.”

Buying groups also can enable small retailers to offer next-day delivery of goods anywhere in the country, says Chuck Stadell, president of Paramount Stationers in Paramount, Calif. For example, when Stadell receives an order from a company with headquarters in Southern California and regional offices around the country, he contacts his buying group, Basicnet, in Acton, Mass. Basicnet arranges for another member to deliver Stadell’s orders to the regional offices. And Basicnet handles the paperwork.

Buying groups also can help retailers expand product lines or departments. Appliance retailer Knodle, in Illinois, describes the time that he wanted to pursue a “tremendous opportunity” in home-office products but didn’t want to tackle that market alone. So he joined the North Carolina-based Select Business Associates because of its computer and home-office division.

Other retailers affiliate with different groups for different markets. Ron Inkley, owner of the Inkley’s retail photo and electronics stores, based in Salt Lake City, belongs to two buying groups – the Marta Cooperative of America, in Scottsdale, Ariz., for consumer electronics products, and the Photo Research Organization, in Fairfield, Conn., for photographic equipment and supplies.

Although many members tout the benefits of buying-group affiliation, only a minority of small retailers have joined. In the office-products’ marketplace, for example, fewer than 15 percent of respondents to a 1991 survey by the trade magazine Office Products Dealer said they belonged to a buying group.

A 1989 survey by Intercounty Appliance Group, an 82-member regional buying group based on New York’s Long Island, found that only 300 of 1,600 appliance dealers in three Eastern states belonged to a buying group.

Some retailers just aren’t familiar with buying groups. Others aren’t interested. Yet many group members contend that without the purchasing leverage they get from buying-group affiliation, they couldn’t survive in an increasingly competitive marketplace.

How to Pick

A Buying Group

Carefully evaluate a buying group before joining. Try to arrange a trial membership for the first year. Keep in mind that buying groups differ greatly. Many restrict membership by geographic area, or sales volume, or both. The questions below can help you select a group that fits your company’s size and needs:

* How many years has the group been in operation? How does it calculate rebates or discounts? Does it have minimum purchase requirements? Are there any charges in addition to initiation fees and monthly or annual dues?

* Does the group’s mix of products complement yours? Does the group require you to buy certain products? How much flexibility would you have for negotiating purchases on your own?

* Does the group offer warehouses for storing merchandise? Does it offer private-label merchandise?

* Does the group offer members educational or marketing services, credit cards, health insurance, product catalogs, advertising, or other marketing support?

* Does the group hold annual meetings featuring educational seminars and booths for vendor displays?

COPYRIGHT 1992 U.S. Chamber of Commerce

COPYRIGHT 2004 Gale Group

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