A sales representative from a wholesaler of sporting goods called on a sporting goods retailer in the middle of the summer. The salesman was particularly fond of the new line of exercise equipment from a major manufacturer his company was now carrying. He went through his presentation of showing pictures, leaflets and catalogs for about 20 minutes. Finally, the store owner held up his hand as if to say “wait a minute” and said, “What’s the bottom line? How much can I make on this stuff? Normally we get 50 percent off list price on these products and I see from your catalog that most of your merchandise offers that. But the market around here is very competitive. Stores discount this stuff like crazy. I need 35 percent gross margin to pay my expenses and make a profit. How can I be sure this merchandise will measure up?”

What would be your response to the store owner? Present an argument that would address his concerns on gross margins.