Memo: Best of Intentions or Curse on the Industry?

Most businesses start out using memo for the right reasons, but problems often arise. Memo allows retailers to test new product lines, find out if their best customers are more interested in product innovation or variations, and determine critical price points. It helps newer stores manage initial cash outlays while cash flow is still ramping up and lets them test their market’s taste and passion for watches and jewelry and establish an effective mix of brands and generic product.

For manufacturers and designers, memo can establish product with new customers, test innovations with existing stores, and motivate retailers to improve product displays. Chimento successfully shifted from being a quality generic Italian gold jewelry manufacturer to a designer brand by providing additional key pieces on memo, along with custom display units, so retailers could show an entire suite of jewelry in a case or window. They combined the POS materials with a co-op ad campaign, funded in part by World Gold Council, which then featured the pieces displayed together.

One difficulty is retailers’ demanding that manufacturers and designers provide goods on consignment without buying even a basic assortment. Retailers’ test periods are often tied to lax credit terms, extending the time before a vendor gets paid. A common complaint is that consigned goods are often returned in worse condition than aged pieces that are returned for newer pieces. Because retailers often do not have significant “skin in the game” when sales are slow, it isn’t surprising that sales managers encourage associates to highlight the product they own during sales presentations, often regardless of what the customer said she wanted. This corrupts the very reason the retailer agreed to test consigned product.

On the manufacturer side, too often realistic “sunset” clauses bringing the consignment arrangement to a timely end are not used, or if they are, they often are not enforced for fear the retailer will simply send back the line. This is a critical element in creating a problem between vendor and retailer. Instead of doing some baseline focus groups and simple online consumer product testing, producers cross their fingers and hope the consignment of goods will sort out the winners and losers in their collections.

A key point from a recent Facebook discussion among jewelry professionals was the need for memo to shift more quickly from test phase to purchase phase. Retailers need to give consigned goods a fair test in terms of advertising, key POS locations, and in-store promotion. Manufacturers need to do more homework and be prepared to shift some long-term carrying costs to short-term advertising/promotional/spiff allowances to make their prospective collections “pop” at retail. Both parties need to understand terms and conditions and communicate regularly before and during the consignment period so no surprises occur at the end of the agreement.