Discounts vs. Dating: A Retailer's Guide to Strategic Incentives

By Alan Miklofsky, updated 10/13/24

In the ever-competitive retail world, especially within the footwear industry, pricing strategies play a pivotal role in maintaining profitability and customer satisfaction. Two common tools that retailers encounter when negotiating with suppliers or planning promotions are discounts and dating. While both offer financial relief, they serve different purposes and impact cash flow and margins differently. In this article, I’ll break down these two approaches to help independent shoe retailers make informed decisions about which strategy fits their business model.

Understanding Discounts

A discount is a reduction in the price of goods, often offered by vendors to encourage bulk purchases, move older inventory, or incentivize early payment. Discounts can vary in structure—common types include:

• Preseason Discounts: Offered to retailers who place orders months in advance, allowing vendors to forecast demand more accurately.

• Volume Discounts: Encourages larger purchases by offering a percentage off the total when buying a specified amount of product.

• Prompt Payment Discounts: A reduction in price if the retailer pays the invoice within a certain period (e.g., 2% off if paid within 10 days).

• Seasonal Clearance Discounts: Given to help move products during end-of-season periods.

Advantages of Discounts:

• Immediate Cost Savings: Lower initial product costs can enhance margins.

• Quicker Cash Flow Recovery: Discounts allow for competitive retail pricing, which can generate sales faster.

• Sales-Driven Motivation: Customers respond well to promotional events that highlight "limited-time" or "special offer" discounts.

However, there is a trade-off: discounts can compress margins and, over time, train customers to expect markdowns, potentially devaluing the brand’s premium perception.

What is Dating?

Dating refers to extended payment terms offered by vendors, giving retailers more time to pay for goods. It’s often used during buying seasons to ease the pressure on cash flow, ensuring stores have fresh inventory without immediate financial burden. Common terms include:

• Net 30/60/90: Payment is due 30, 60, or 90 days after the invoice date.

• Extended Seasonal Dating: Often aligned with major retail seasons, allowing the retailer to sell through inventory before the payment is due (e.g., Fall merchandise due by January).

• Anticipation Terms: Some vendors offer a small rebate if the retailer pays before the agreed due date.

Advantages of Dating:

• Improved Cash Flow Management: Allows retailers to stock inventory without draining cash reserves upfront.

• Minimized Financial Stress: Aligning payment dates with sales cycles ensures that revenue can cover the costs of inventory.

• Inventory Flexibility: Retailers can take risks on more styles or quantities, knowing they have time to pay.

The downside of dating is that the total invoice amount doesn’t change. Without any price reductions, the retailer must rely on sales velocity to cover the full cost of inventory by the due date. Mismanaging this can lead to cash flow challenges.

When to Use Discounts vs. Dating

The choice between discounts and dating depends on the unique dynamics of your business. Here are a few scenarios where one might be more advantageous than the other:

1. High Turnover Products:

   • Use discounts to lower the cost of fast-moving inventory. This allows you to offer competitive prices and increase profit margins on high-volume products.

2. Slow or Seasonal Sales Cycles:

   • Opt for dating to secure inventory that may take longer to sell (e.g., winter boots ordered in July but won’t sell until November).

3. Limited Cash Flow:

   • If liquidity is tight, extended dating terms offer breathing room by deferring payments.

4. Vendor Relationship Building:

   • Discounts can be useful for negotiating long-term vendor partnerships. Vendors may appreciate retailers who pay promptly, which strengthens the business relationship.

5. Managing Clearance Events:

   • Leverage discounted goods for planned markdowns, ensuring higher margins even during end-of-season promotions.

6. Avoiding Debt Accumulation:

   • While dating offers time to pay, it’s essential to avoid over-leveraging your business. If inventory doesn't sell as expected, you could struggle to meet the payment deadlines. In such cases, discounts might provide a safer path by minimizing your upfront costs.

Blending Both Strategies for Success

The most successful retailers know how to strategically combine both discounts and dating. For instance, they may negotiate dating terms for core inventory but take advantage of discounts on overstock or preseason orders. By blending these strategies, retailers can improve both cash flow and profitability, ensuring the right balance between immediate savings and long-term financial flexibility.

Conclusion

Discounts and dating are two valuable tools in a retailer’s financial toolkit, but they must be used wisely. Discounts offer immediate price relief but can erode margins if overused, while dating provides time to manage cash flow but can create future liabilities. In today’s challenging retail environment, especially for independent shoe retailers, choosing the right strategy can make the difference between thriving and just surviving.

As you navigate your next buying season, take the time to analyze your inventory turnover, cash flow, and upcoming sales cycles. A well-informed strategy—one that artfully mixes discounts and dating—can keep your store running smoothly and profitably.

Alan Miklofsky is a retail expert and advocate for independent shoe retailers, helping them succeed through strategic financial management, merchandising, and operations.