The Employee Discount

Should you offer one?

Written By:
Jay Jacobowitz
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Should your employees receive a discount for purchasing products from your store? In my view, there are several compelling reasons why you should consider it.

1. The employee product-purchase discount is a valuable, untaxed fringe benefit that enhances implied compensation. Instead of increasing base pay, giving a bonus or offering another cash incentive, you effectively deliver monetary value by increasing your employees’ real-world purchasing power.

2. By offering a meaningful product discount, you enhance the intangible emotional bond between you and your employee, increasing loyalty and good will.

3. You educate your employees about a wider array of products than they would otherwise experience, improving their product knowledge and expertise, and facilitating better customer education and increased sales.

4. You stem the impulse to steal. It is an unfortunate fact that in the retail store setting, much “shrink,” or loss of inventory, comes from “friendly fire”; that is, from employees as opposed to shoplifters or customers. Remember, too, that in most markets today, employees can simply go down the street to the discount vitamin outlet or the value-priced natural gourmet store and buy at heavily discounted prices anyway. And, of course, everyone can simply go online for deep discounts.

So, what sort of discount program should you offer? My view is, make it meaningful and keep it simple. I recommend an overall 25% discount off MSRP for all products including food, supplements and personal care items. While you will be giving away most of your gross profit margin, you will retain enough cushion to cover your administrative expenses. The employee discount program is not a profit center, so you needn’t measure it in terms of dollar profitability. When vendors provide additional discounts, consider passing those through to your employees, lowering the retail price before applying the employee discount. This will magnify the goodwill effect of your program.

A few tips for managing a successful employee discount program. Employees should never cause an out-of-stock problem. When there is a high-dollar item or a high-demand item, it is perfectly appropriate to require a special order from the employee ahead of the order deadline. The same is true for popular items that are on deal from the vendor. Employees should plan ahead and give the buyer their orders to add to the regular store order. Apart from these special circumstances, the employee should always be sensitive to maintaining ample in-stock levels for customers.

It is also a good idea to set up a standard purchase and delivery schedule, say before the start of each shift, or once or twice a week, so that employees get used to planning their needs, both for that day at the store, and for home use. Also, by controlling the purchasing period, you have a better chance of accurately capturing all employee purchases as the shift supervisor can ring up all sales on the correct register key, at one time.

While being a benign manager is your best employee retention tool, your employee discount program acts as a silent partner, increasing employee satisfaction and longevity. WF

Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a comprehensive marketing service designed especially for independent natural products retailers. With 35 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. He can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.

Published in WholeFoods Magazine, June 2012