No, that’s not a typo in the title. It refers to a remarkable, and slightly annoying, conversation I had with the owner of a shoe store. Some of it might make you feel uncomfortable, but I also believe it will make you think. At least I hope it makes you think.
I spend a lot of time on airplanes. As often happens, I struck up a conversation with the person sitting next to me. We eventually asked about each others’ profession. I told him that I am a writer, speaker, and consultant mostly working within the travel industry.
He told me he owned a small shoe store (name withheld by request). While not verbatim, this was the gist of our conversation:
Me: “I know your store! I’ve bought at least 3 pairs of shoes there. I know nothing about your industry. Can you tell me about it?”
Store Owner: “We’re a single-location, highly specialized shop, focused on running, casual jogging, and marathons.”
Me: “I remember seeing other shoes, too.”
Shore Owner: “Oh, we carry all sorts of shoes, but we SELL running. You can get shoes anywhere, probably for a lower price. Our prices are fairly high.”
Me: “But your store is always packed!”
Store Owner: “It is… and you bought shoes more than once. Why?”
Me: “I’ve had some bad experiences buying shoes. Your staff asked a lot of questions and found the right ones for me, plus a special insole for a foot problem I have.”
Store Owner: “Did you know you paid more than average?”
Me: “No, but it was worth it to avoid buying the wrong shoes again.”
Store Owner: “Exactly. I don’t worry about discount stores or websites. They sell shoes; I sell running. We know running, we love running, and we help people who love it or want to learn about it. We work for them, not the manufacturers.”
Me: “Don’t manufacturers have a say in your prices?”
Store Owner: “To some extent – usually a MINIMUM price so we don’t devalue their brand. We can usually mark it up as much as we want. Our prices are high. They have to be! Time with customers, genuine support, ongoing employee training… it all costs money. It’s factored into our prices; including the profit I need to keep doing what I love.”
Me: “Do you mind telling me the average markup?”
Store Owner: “Sure! Most stores mark up 100-200% over wholesale. We’re closer to 400%, and we get a few supplier incentives. I don’t depend on those though. They could be here today and gone tomorrow. They’re just a nice bonus.”
Me: “400% sounds like a lot!”
Store Owner: “Really? Movie popcorn is marked up by 1,200%! Look, we spend 30 to 60 minutes with each customer. We have a great return policy. We have support, educational programs, and a lot more. Our prices are a bargain for what you get, and it’s working. I’m happy, our staff is happy, and customers keep coming back. Again, we don’t sell shoes, we sell RUNNING. There’s a difference.”
“Your turn. I’ve used a travel agency before, but I don’t know how it all works. What’s the average markup for a hotel or cruise?”
Me: “Usually zero. Suppliers set the prices. There are some net-price exceptions, but agencies are generally not allowed to mark up. Instead, they get a commission on the selling price.”
“Some products or portions are non-commissionable, and some agents discount by taking it from their commission. It’s against the rules, but they do it to get the business.”
Store Owner: “What’s the commission percentage and who sets it?”
Me: “Each suppliers sets it. Large agency groups sometimes have higher rates, but it’s usually around 10-13%. It’s lower for some things. Supplier incentives like yours also exist.”
Store Owner: “Wait, suppliers set the price and don’t allow markups? They also set the rate and decide which bits are commissionable? How do agencies control their own revenue?”
Me: “Mostly through volume, the right customers and high-yield products. Some also charge fees for consulting, advice and support – a little like you having higher prices for better service. But not all do it, and some only charge fees sometimes. In fact, some agents are vehemently against the idea.”
Store Owner: “Don’t be offended, but this is the craziest thing I’ve ever heard. My suppliers are great, but I’d never entrust them with my entire financial future! That makes no sense to me. Also, getting a commission on the selling price feels like a conflict of interest. Did I misunderstand? Are agents actually supplier sales reps?”
“The fee thing makes sense. At least it’s clear who they’re working for, and hopefully the service would be good. But, you said not everyone charges them. So, otherwise they’d just get a percentage of the selling price, but they’re supposed to represent me? I’m confused. Is this all this legal or even ethical?”
Me: “It’s completely legal and most travel agents are extremely ethical! They don’t let commission dictate their advice and most are honestly devoted to great service and making their clients happy. It’s the best way to create repeat business.”
Store Owner: “But if most of them don’t control their own finances, how can they do that consistently? Obviously, some must have figured it out – probably the ones charging fees. I guess it’s like discount stores versus my shop. They sell shoes, I sell running. They struggle to beat websites, I’m thriving.”
“Hmm, maybe I know something about travel after all.”
Me: …maybe he does.
Nolan Burris is an author, former travel agent, failed musician and self-professed techno-geek. He’s also a popular international speaker both inside and outside of the travel industry. He is the founder and chief Visioneer of Future Proof Travel Solutions (futureprooftravel.com) based in Vancouver, Canada. Nolan’s believes that if can change the way business works, you’ll change the world. His goal is to spread the message of integrity and ethics in a techno-driven world.