Rack Merchandising

Note: The term wagon jobbing is often used interchangeably with rack merchandising, but traditionally the "jobber" just buys things cheap and wholesales them to a retailer, while the "racker" puts items in stores on consignment, getting paid only if and when there are sales. Now that I have clarified this, on with...

My Rack Merchandising Story

After living alone in a cabin for a couple years, I moved back to my parent's house at the age of 20. No more cutting trees and selling them to the lumber yard. I was in a city now (although a small one) and I needed a real job. Soon I was working at a fast food place, and just as soon I was remembering that I don't like real jobs. Even after a promotion to management, I decided that I needed time to try other ways of making money. I let my employer know that I would be happy to work just one day per week rather than quit, and he agreed. That's when I discovered rack merchandising.

An advertisement in the local newspaper said, "Make Thousands Monthly Placing Jewelry Racks In Stores," or something similar. I called and got the details. The man said he was placing earring racks in the Grand Rapids area. He put them in beauty parlors, drug stores, and small restaurants at his expense, and then gave the merchant $1.50 for each $5 pair that sold. He had 110 racks out, he told me, and his business was still growing. His proposition was to provide the racks and earrings to me, the latter at $1.75 per pair.

"You can start with ten racks," he explained, "and you just run the route once per week to fill the empty slots on the rack and get paid by the merchant."

I asked him how many earrings he sold from each rack. He averaged 16 pair per rack per week. I did the math while he was on the phone: 16 times 110 racks times $1.75 per pair (his profit was presumably higher, but I was interested in my potential) added up to a gross profit of over $3,000 per week. My own profit, assuming my ten racks also averaged 16 pairs per per week each, would be $280 minus two bucks worth of gas to run the route.That was better than my fast food job, and I could grow the business from there.

What about placing the racks? I wondered. At least half of the store owners I approached would agree to the deal, he assured me. Since they paid nothing, but simply forwarded $3.50 of each $5 pair sold, it was an easy sell, he said. That sounded reasonable. They had no risk.

A few days later I met him in a hotel conference room. In my excitement I didn't really notice his general used-car-salesman appearance and approach. He went over the basics of the business, and promised to buy back any earring and racks at cost if it didn't work like he said it would. Ten racks and the earrings to fill them would be almost $2,000--most of my savings. At that point a hotel employee walked by and stopped to say how much she loved the earrings. It didn't occur to me at the time that she might have been paid a few dollars for this one-minute performance. I went home with ten racks of earrings.

Despite the fact that there was no cost, nobody wanted the earrings in their businesses. Not being a retailer myself, it didn't occur to me that space is a real cost. Bottom line? For many shop owners the profit potential didn't seem as appealing as their other alternatives for the space.

There was another concern. I assumed (an was told) that this was a no-risk proposition for the retailer, but it wasn't. To get my money I would count the empty spaces on the rack and collect for each from the shop owner. But what if a pair had been stolen? In that case, I would be collecting $3.50 for a sale that didn't happen. It was a drugstore owner who first pointed this out to me, and he explained that he would then have to sell 2 more pair just to break even. Shoplifting was more of a problem than I thought in our little town.

With the help of my mother, I eventually had five racks placed. They were in that drugstore (I guess he just wanted to make his concerns clear), a card shop, and three other stores. I came back over the coming weeks to refill the racks and collect, and surprise, surprise - sales averaged just 3 pair per week per rack. I made about $5.25 gross profit for each stop on my route. After hearing "no" about thirty times in a row, I also gave up trying to place more racks.

Along the way I did discover that I could get earrings of equal quality for less than 50 cents per pair from several places. This would have almost doubled my profit--if I sold any earrings. But sales dropped to less than three pairs per rack per week at some point, and I had enough. I also realized another problem inherent in a rack full of many unique earrings. It was that some might never sell, and that tied up space on the rack, lowering sales, plus it made a the capital investment in them into an outright expense.

I reminded the guy of his promise to buy back the earrings, and he refused, saying that I hadn't tried hard enough--and pointing out that we never put anything in writing. I probably hadn't tried hard enough, but then I also didn't get anything like the results he claimed even when I did get the racks placed. I filed a $2,000 lawsuit in small claims court for a $13 fee, and paid another $10 to have the sheriff show up at his door with the summons. The man agreed to give me $1,000 if I brought the racks and earrings to him, which I did.

Now, you might get discouraged by my true story, or just see it as full of lessons on what not to do. Rack merchandising has real potential. Suppose you do average 16 sales weekly per rack on 110 racks full of $5 items that net you $3 (remember those 50-cent earrings). That's a gross profit of $274,560 annually, and you might be able to run a route that size alone in three or four days per week.

The Lessons:

1. There is big potential in small sales if you have a lot of racks with even a few sales each.

2. Don't assume store owners will line up to accept your offer--do market research and refine your sales pitch.

3. Look for cheaper suppliers if the quality is still decent.

4. Don't accept claims about numbers of sales (perhaps test a few racks before committing more money).

5. Choices mean some things will sit for a long time unchosen (a good argument for a rack full of duplicate items).

6. If you have an agreement, get it in writing.

The Bullet Point | Rack Merchandising