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Secrets Of the Big Box Stores

November 26th, 2006 · 2 Comments

With another Black Friday (the Day After Thanksgiving) having just passed and millions of Americans looking for sales and deals, I’d like to share my insider expertise on what Wal-Mart, Target, Best Buy, Circuit City, Toys-R-Us and plenty of others do not want you to know. My insider knowledge comes from a relative who worked in the industry for over two decades.

I looked through my local newspaper inserts for all of the Thanksgiving sales and oh my there were deals to be had. Computer deals, household deals, clothing deals, home improvement deals. It literally made me want to jump out of my house and into the car to those stores. But I did not. Here’s why:

Loss Leaders

If you have not heard the term, a “loss leader” is something that the store literally takes a loss on just to get you in the store. Yes, they lose money on every item sold. The marketing departments of these multi-billion-dollar corporations know that getting you into the store is 90% of the battle. Once you’re there what are the odds that are you going to just buy that one item you saw in the newpaper insert/circular? About a zillion to one against you buying just one item. “Oh yeah, we need batteries….milk….and a George Foreman grill.” I just read recently that the largest cash-reserve-in-the-bank company on the planet (Microsoft) has not made one single penny of profit EVER selling the XBox and the Xbox 360. And, yes, this is a $500+ item. It’s in its second generation and they have yet to make a dime on the actual consoles. Their desire is to make money on the licensing of the games, the online game service, etc. But I digress. However, even this XBox unit is a loss leader of some form. How many people buy the console unit and not one single game? Um, no one.

Rebates

Where do I begin with this brilliant marketing genius ideas? I am speaking completely from the vantage of the businesses that offer rebates, of course. I myself cannot stand them and neither can you I would wager. One statistic I read said that 41% of people forget to send in rebates. Now how many of us have bought a product and mentally justified the purchase because you were thinking of the after-rebate price? Probably a lot of us. When you don’t send in the rebate you are essentially letting the manufacturer get maximum profit, full-sticker price and enormous satisfaction of you “taking yourself the cleaners” on that purchase – yeah, them cleaning out your wallet!

If you are part of the 59% of people who actually send in the rebate, then you’ll find this wonderful site called rebatestatus a great resource for actually finding when you can get your rebate.

The Warranty

Full disclosure: I think paying for extended warranties is a rip-off. Yes, I understand your Aunt Betty had a toaster that blew up after four months of use and she got a new one free of charge from the manufacturer. But guess what? She likely would have gotten one free-of-charge without buying that extended warranty from the Best Buy salesman. When bought new from a big box retailer electronics, kitchen appliances, computer games and parts and many household items should give you years of great use without the need for an extended warranty. My relative in the business who worked at an electronics store for several decades told me that he took home around a 90% commission when he sold a warranty. For those of you who are reminding me that Best Buy/Target/Circuit City/Wal-Mart employees are not paid on a commission then who do you think profits from their warrant sales? That’s right…the company itself. Don’t buy warranties.

Store-Branded Credit Cards

Yikes, here’s another doozy that makes me turn red. OK, let me admit I have signed up (and then promptly canceled) a department store credit card for the initial 10% or 20% discount off my purchase or $25 gift card. But what happens if you don’t cancel that card and then carry a balance on it? Want to know what it sounds like? It sounds like the tune of 22% interest on the credit card. If this scares you, read How To Save Money On Credit Cards.

I’ve been reading more of that wonderful financial-Zig-Ziglar called Dave Ramsey and he tells an amazing story about Sears. In 1985 Sears launched its own credit card called the Discover card. Several years later the credit card division of Sears was more profitable than Sears itself. It then sold off the whole Discover card unit for a massive profit. Now once again it has a lucrative Sears credit card. As Dave puts it, Sears is merely a financing company with a couple tools and household items out front.

Using the facts and figures you’ve learned from this article you will now have a loaded arsenal of consumer ammunition each time you walk into a big box store to make a purchase. A quick summary:

  • Sale items in the flyers are designed to just get you to the store…and spend way more.
  • Rebates are extremely profitable for the store unless you actually mail it in.
  • Warranties make salespeople and corporations very happy…and profitable.
  • Store credit cards have nearly double the interest rates of other credit cards.

Tags: Money

2 responses so far ↓

  • 1 Macy’s Credit Card Dark Little Secret // Jul 23, 2008 at 8:44 am

    […] Why not give everyone another card to add to the pile of potential consumer debt. Sears did this so well in the 80s with the Discover card that they ended up spinning off the whole division into another […]

  • 2 Carnival of Shopping #5 // Apr 3, 2009 at 6:58 pm

    […] old Matt Hutter has some big-box retail secrets that you might not be aware of unless you’re […]

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