D.Yates. wrote, but provided an invalid email address, and stated I was completely out of line with my comment. That a 20% discount was way too high and unreasonable. She stated that Haverty's pricing was completely fair and was evidenced by the fact so many furniture companys are going out of business because they can't make a decent profit. She questioned what type of business I worked in and whether I would ask for a discount at a grocery store, the doctor's office, a retail store such as Walmart, when purchasing a new car, or whether the customer of the business I work for would ask for a discount. Here is my response ...
Obviously you are connected to Haverty's ... Lets see ... I bought the same Aspen Home Furniture from Charter Furniture for $3, 000 vs $5, 000 at Haverty's ... The only difference was the two hutches I bought did not have a pull out light feature which was a Haverty's exclusive option from Aspen Home. Charter also provided zero interest financing just like Haverty's.
So $3, 000 at Charter furniture is a 40% discount from Havertys price of $5, 000 ... I have to believe that Charter Furniture is a for profit enterprise also. I know the pull out light feature does not add $2000 to the cost of the furniture.
Looking at Haverty's financial statements their gross profit is approximately 50% ... incredible! Most companies could only dream of gross profits in the 50% range. I worked 20 years in the IT Services industry and the gross margins were in the 15 - 20% range with a net margin of 6 - 8% and I currently in the airline industry with gross margins of 8% and net margin of 6% The problem is Haverty's has SG&A that exceeds their gross profit. If you read their financial statements, store rents and occupancy costs area constitute a significant portion of SG&A. The financial statements discuss changes in the various items that make up SG&A but fail to give you the beginning or ending amounts of each item in SG&A. I am sure investors would like a little more disclosure in this area in Haverty's financial statements.
No doubt SG&A is high due to occupancy costs ... the stores are fantastic ... spacious, well laid out, and glitzy ... the problem it consumers don't want to pay for that ... consumers want to pay the bare minimum for goods and allow a company to make a REASONABLE profit and consumers do not want to (and will not) pay for a company's poor management decisions.
I looked at several furniture stores and all of them except Haverty's had their showrooms packed with goods and were not glitzy like Havety's ... granted these stores were family owned enterprises who need to make a profit because a loss comes out of the owners pocket ... such as Charter Furniture ... who again was 40% less than Haverty's.
Now for whether I would ask for discounts at:
- a grocery store ... no ... because competition in intense and you can always go to a low cost provider like Walmart ... not to mention margin in the grocery business are some of the lowest in business.
- Insurancy Companies - absolutely ... I have negotiated discounts with insurance companys by using competitive pricing
- Doctors offices - not directly ... my employer does that when selecting a health plan for its employees .. have you ever seen the hugh discounts provided to the health plans by the doctors on your EOB statements? The discounts are much more than 20%. I had minor surgery recently ... The bill before discounts was $10, 000. The health plan negotiated discount took $4, 500 off that ... thats 45%.
- Walmart ... no ... again, a well known low cost provider ... thats why they are the largest and one of the most profitable retailers in the world. Consumers know they are getting a fair price for the goods they are purchasing. The goods may not be top quality but they are fairly priced ... that is what consumer expect ... fair price for the quality purchased.
- other retailers ... Sears, JC Penneys for example - absolutely .. I have negotiated discounts on appliances. Oh and guess what they run "sales" all the time to attract consumers. Just purchased a $50 pair of levi jeans from JC Penney for $20 ... lets do the math on that ... 60% discount ... do you think they lost money on the sale ... don't think so ..
- Do my business customers ask for discounts ... Absolutely ... Large business are expects at leveraging their buying power. When I was in the ITServices industry .. 20% discount off our published prices was low ... customer usually ask for higher discounts and ongoing productivity discounts. When the company off-shored thousands of employees to India to lower compensation costs ... guess who came knocking at the door ... the companies customers ... they said ... you lowered your costs by using low cost labor in India, we should share in that cost reduction ... guess what .. the company shared the cost reductions. I now work in the airline industry for a low cost provider ... guess what, when sales are slumping, the company has to offer discounts to attract customers.
Perhaps Haverty's is not making money off its 50% gross margin business because its poorly run and wants consumers to pay for a broken retail model .. consumers as a whole are too smart for that ... that is why Haverty's is doing poorly. I guarantee if the losses Haverty's is experiencing came out of the management teams pocket (instead of investors) the SG&A expense would change dramatically.