Do retailers and wholesalers rip us off?

Forums › Off topic › Do retailers and wholesalers rip us off?

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#2169455 29-Jan-2019 09:45

tdgeek:

Profit seems to be a dirty word for many. That profit makes it viable to pay wages and salaries, and the endless costs to run a business which is also more wages and salaries for those businesses that support your business

It's Profit vs Egregious Profit.

From an open market perspective less efficiently run businesses should shrink/die when they can't compete in a particular niche. No consumer will listen to the owner crying about how he runs his business. Unprofitable companies will go out of business, unless the owners have an endless fountain of funding to keep it afloat.

When you want to buy the starter motor, would you buy from Attewell distributors for $300 online or visit the retailer and pay $480?

(keep it simple ... only factor in cost/convenience from a consumer perspective)

If Attewell were selling it for $450, then would you bother buying online when there's only a few % difference and you could get extra benefit by speaking to the retailer on how to install it etc.

chevrolux

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#2169456 29-Jan-2019 09:50

MadEngineer:

chevrolux: When the likes of Jaycar sell an Arduino clone for $30 that can be bought on Aliexpress for $3, I would say, yes, they rip us off.

But there are plenty of industries where the margins just aren't there from the wholesalers.
comparing a retail outlet to a massive overseas website grinds my gears.

Surely you realise Jaycar have different expenses to a site such as aliexpress, even if jaycar do pay minimum wage for life? electronics cost tiny fractions of a cent, do you expect jaycar to sell you a bag packed with electronics for the same?

Absolutely understand they have stores to run. But if I can buy a single module for $3, what can they buy 10,000 of them for?

And yep they need to pay the bills, but 1000% markup per item seems a stretch.

Electrical wholesalers do the same to retail customers. And I can understand the argument too, they need to sell to the tradie at x so that they can add their margin and pass on to the customer. But when you come across products that are almost double the wholesale price (to the sparky), that's taking the piss.

tdgeek

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#2169458 29-Jan-2019 10:01

sudo:

tdgeek:

Profit seems to be a dirty word for many. That profit makes it viable to pay wages and salaries, and the endless costs to run a business which is also more wages and salaries for those businesses that support your business

It's Profit vs Egregious Profit.

From an open market perspective less efficiently run businesses should shrink/die when they can't compete in a particular niche. No consumer will listen to the owner crying about how he runs his business. Unprofitable companies will go out of business, unless the owners have an endless fountain of funding to keep it afloat.

When you want to buy the starter motor, would you buy from Attewell distributors for $300 online or visit the retailer and pay $480?

(keep it simple ... only factor in cost/convenience from a consumer perspective)

If Attewell were selling it for $450, then would you bother buying online when there's only a few % difference and you could get extra benefit by speaking to the retailer on how to install it etc.

Unsure how relevant your first point is.

If I was the OP I'd buy online to save money, its a consumable item. I don't need to try it on and see if it fits me or if it looks cool in the mirror. Or to touch it to check quality.

Why its $480 is because its a low turnover item, the retailer probably has 2 in stock as they sell very infrequently. No bulk buying power, one freight cost for those 2 items, then they funds sit there forever on a shelf

kobiak

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#2169460 29-Jan-2019 10:05

as an average Joe (consumer in NZ), I don't give a damn how price of an item adds up. Manufacture, import, wages, margin, warehouse cost, import cost, etc. Why should it bother me? if an item cost X here and Y else where, if I think the different is small enough to justify lack of CGA, I would buy local. If difference is 2-3-4-5 times - I'd import saving thousands of NZD over years.

as an retail employee I can understand business frustration and thread from overseas cheaper imports, this kills business. But I also have an idea on local markups - shocker.

it only will get worse over years.

helping others at evgenyk.nz

sudo

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Ultimate Geek
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#2169463 29-Jan-2019 10:15

tdgeek:

Unsure how relevant your first point is.

If I was the OP I'd buy online to save money, its a consumable item. I don't need to try it on and see if it fits me or if it looks cool in the mirror. Or to touch it to check quality.

Why its $480 is because its a low turnover item, the retailer probably has 2 in stock as they sell very infrequently. No bulk buying power, one freight cost for those 2 items, then they funds sit there forever on a shelf

Completely relevant ... the post talks about an item thats significantly higher than you find elsewhere and assuming the cost price is much lower. Whether it sits on a shelf or not is the irrelevant bit. If you can locally source the same item much cheaper then you would probably go there.

Note: I have been talking about sourcing locally, not importing. I try to buy locally, but I get price guidance from overseas (usually starting in Australia) to see whether the prices are proportional to what I can get here.

A lot of companies do huge markups, because they can, not because of necessity. But things are a lot better than they used to be.

tdgeek

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#2169467 29-Jan-2019 10:22

kobiak:

as an average Joe (consumer in NZ), I don't give a damn how price of an item adds up. Manufacture, import, wages, margin, warehouse cost, import cost, etc. Why should it bother me? if an item cost X here and Y else where, if I think the different is small enough to justify lack of CGA, I would buy local. If difference is 2-3-4-5 times - I'd import saving thousands of NZD over years.

as an retail employee I can understand business frustration and thread from overseas cheaper imports, this kills business. But I also have an idea on local markups - shocker.

it only will get worse over years.

You can't compare local markups unless you also look at the bottom line and the return on investment (ROI) Then you can see if its a rort

As to it getting worse, it will. More sales will be online, less brick and mortar, brick and mortar prices increase, less sales again. Then they go the way of video stores. CGA becomes not needed anymore. We save money and self "CGA" it ourselves. Postage will change too, I think that when stuff is sent here from overseas, its free, as no one pays NZ Post to shunt it around NZ. Its the opposite too, hence why it seems to be a joint agreement. But that will get very one sided as people spend less at NZ Post and more costs for NZ Post to shunt the ever increasing goods around. I think @sbiddle explained that once? I.e. I post a letter to China it costs $3, NZ Post pockets it. China guy posts me a letter, probably free at his end as they do free freight a lot, or he pays $3, NZ Post doesn't get any money to use to send it around NZ. Thats all fair and ok but the issue is 4 letters get sent to China at $12 for NZ Post and 4000 get sent to NZ at $zero to pay for them being sent and delivered here.

If I am correct, then we will have to pay real freight one day. That may not be cheap as chips for single items. factor is self insurance for faults, the cost to deal with faults and send stuff back. Add in, hey this online stuff is good but I have more competitors now with other online retailers so I need to put my prices up. Always will be cheaper but how much cheaper in the future will it be? What happens when whiteware, TV's shut down and have to be online?

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Dingbatt

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#2169475 29-Jan-2019 10:26

Rikkitic:
There are always examples that can be cited to prove anything. Here is one:

I just replaced all the lights in our house with standard LED bulbs. The cost of these varies (15 watt, if you can find them here) but seems to be around $8-$13 or so apiece. So instead, I bought them on Aliexpress for US $2.50. Of course the quality may be crap but all work so far and some have been working for nearly a year so no complaints up to now.

I am not suggesting anything with this example, just putting it out there. People can make of it what they like.

Are they compliant with NZ electrical standards?
If one of them malfunctions and burns your house down, where do you stand with regards to insurance?
I assume all electrical goods sold in NZ will have had to prove compliance, which comes at a cost. That cost (per unit) is high if the volumes are low.
In the end, in a consumer society, the only time we are being 'ripped off' is if the commodity is a necessity. Prices charged are what the market will bear. Just like surge pricing for an Uber.

“We’ve arranged a society based on science and technology, in which nobody understands anything about science technology. Carl Sagan 1996

tdgeek

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#2169477 29-Jan-2019 10:28

sudo:

tdgeek:

Unsure how relevant your first point is.

If I was the OP I'd buy online to save money, its a consumable item. I don't need to try it on and see if it fits me or if it looks cool in the mirror. Or to touch it to check quality.

Why its $480 is because its a low turnover item, the retailer probably has 2 in stock as they sell very infrequently. No bulk buying power, one freight cost for those 2 items, then they funds sit there forever on a shelf

Completely relevant ... the post talks about an item thats significantly higher than you find elsewhere and assuming the cost price is much lower. Whether it sits on a shelf or not is the irrelevant bit. If you can locally source the same item much cheaper then you would probably go there.

Note: I have been talking about sourcing locally, not importing. I try to buy locally, but I get price guidance from overseas (usually starting in Australia) to see whether the prices are proportional to what I can get here.

A lot of companies do huge markups, because they can, not because of necessity. But things are a lot better than they used to be.

Wrong, you completely missed the point. Your first point was

We are talking about local vs imported, and you go off and talk about inefficient businesses going out of business??? That is totally irrelevant, and off topic, it applies to any business, small, large, local, overseas. Its a non topic statement

Shapenz

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Ultimate Geek
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#2169488 29-Jan-2019 10:41

Most business do (or should) work on a GMROII model. So items that turn slower have to have a higher margin in order to return the owner some money on their investment.

Jaycar I would imagine have mostly slow moving items so I would expect their margins to be high - that's someones money just sitting there in the store not selling/not earning them anything month after month until someone needs that part.

Otherwise we may as well all invest in property instead of starting businesses.... oh wait.....

Edit: Typo

Aredwood

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#2169489 29-Jan-2019 10:41

Whether the items sit on a shelf for ages is very relevant. As a well stocked spare parts warehouse will easily have over $100K worth of parts. And could easily have over a million $ worth. For those parts to even be there, someone had to spend that money buying them. Which means someone had to either take out a large loan, or forego interest payments on money that would otherwise be in their bank account.

High margins are necessary to cover that use of money cost. And then there is the high cost of land, which means that warehouse space is expensive.

Just think of the high markup as the price that you have to pay for the convenience of getting parts quickly. And be thankful that you at least have a choice. I have helped out friends living in Samoa who needed a clutch master cylinder for a bus. Lots of spare parts are almost impossible to obtain locally over there. I had to go to Repco, buy the part at retail, drop it off to another friends house, who happened to be flying to Samoa the next day (very lucky that he was). Send photo of receipt so they can send money to me to cover the cost. Sure, they could have bought it cheaper from Amazon. But the lost revenue from having the bus off the road would have been far more than just paying retail for the part.

kobiak

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#2169495 29-Jan-2019 10:43

tdgeek:

kobiak:

as an average Joe (consumer in NZ), I don't give a damn how price of an item adds up. Manufacture, import, wages, margin, warehouse cost, import cost, etc. Why should it bother me? if an item cost X here and Y else where, if I think the different is small enough to justify lack of CGA, I would buy local. If difference is 2-3-4-5 times - I'd import saving thousands of NZD over years.

as an retail employee I can understand business frustration and thread from overseas cheaper imports, this kills business. But I also have an idea on local markups - shocker.

it only will get worse over years.

You can't compare local markups unless you also look at the bottom line and the return on investment (ROI) Then you can see if its a rort

As to it getting worse, it will. More sales will be online, less brick and mortar, brick and mortar prices increase, less sales again. Then they go the way of video stores. CGA becomes not needed anymore. We save money and self "CGA" it ourselves. Postage will change too, I think that when stuff is sent here from overseas, its free, as no one pays NZ Post to shunt it around NZ. Its the opposite too, hence why it seems to be a joint agreement. But that will get very one sided as people spend less at NZ Post and more costs for NZ Post to shunt the ever increasing goods around. I think @sbiddle explained that once? I.e. I post a letter to China it costs $3, NZ Post pockets it. China guy posts me a letter, probably free at his end as they do free freight a lot, or he pays $3, NZ Post doesn't get any money to use to send it around NZ. Thats all fair and ok but the issue is 4 letters get sent to China at $12 for NZ Post and 4000 get sent to NZ at $zero to pay for them being sent and delivered here.

If I am correct, then we will have to pay real freight one day. That may not be cheap as chips for single items. factor is self insurance for faults, the cost to deal with faults and send stuff back. Add in, hey this online stuff is good but I have more competitors now with other online retailers so I need to put my prices up. Always will be cheaper but how much cheaper in the future will it be? What happens when whiteware, TV's shut down and have to be online?

Yeah I got that about business side things. But average consumer - they don't care, they see lower price as a key factor to buy, and it should be like that unless business educate customers about hidden benefits such as local support, CGA, etc. No one buys local imported items to support local business, I'd happy support local manufacture if they on par with overseas businesses on price, it does not have to be equal, higher is fine to justify the benefits.

IMO, local business needs to educate its customers on all of these benefits buying local and not import. hence they indirectly force customers to by local: free returns, exchange, same day or overnight delivery, free delivery, freebies, local support, etc

helping others at evgenyk.nz

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tdgeek

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#2169507 29-Jan-2019 11:07

kobiak:

Yeah I got that about business side things. But average consumer - they don't care, they see lower price as a key factor to buy, and it should be like that unless business educate customers about hidden benefits such as local support, CGA, etc. No one buys local imported items to support local business, I'd happy support local manufacture if they on par with overseas businesses on price, it does not have to be equal, higher is fine to justify the benefits.

IMO, local business needs to educate its customers on all of these benefits buying local and not import. hence they indirectly force customers to by local: free returns, exchange, same day or overnight delivery, free delivery, freebies, local support, etc

Agree

The bottom line will be price, many consumers will see today's price as more beneficial to them than tomorrows potential issues. Your opinion is correct but human nature is fickle, many will take the cheap option, brick and mortar will be a tough business, it probably already is

Geektastic

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#2169517 29-Jan-2019 11:37

Perhaps someone can explain to me the benefit of distributors.

As far as I can see, the shop rings the distributor and askes for 10 units of X. When enough shops have rung, the distributor contacts the manufacturer who ship, say, 100 units of X.

The distributor's sole contribution to the process appears on the face of it to be splitting 100 units in boxes into smaller quantities in other boxes and sending them by courier to the retailer, in return for a 100% markup.

Now, when things had to be ordered by Telegram, fax or even Airmail, I can see how that might have developed and how it might have made sense.

However, today, that retailer wanting 10 units of X can simply email the head office Sales people wherever X is made and give them a card or account number and the 10 units can be on FedEx by the end of the day, en route to the retailer in NZ.

So what exactly is the point of distributors?

tdgeek

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#2169526 29-Jan-2019 11:49

Geektastic:

Perhaps someone can explain to me the benefit of distributors.

As far as I can see, the shop rings the distributor and askes for 10 units of X. When enough shops have rung, the distributor contacts the manufacturer who ship, say, 100 units of X.

The distributor's sole contribution to the process appears on the face of it to be splitting 100 units in boxes into smaller quantities in other boxes and sending them by courier to the retailer, in return for a 100% markup.

Now, when things had to be ordered by Telegram, fax or even Airmail, I can see how that might have developed and how it might have made sense.

However, today, that retailer wanting 10 units of X can simply email the head office Sales people wherever X is made and give them a card or account number and the 10 units can be on FedEx by the end of the day, en route to the retailer in NZ.

So what exactly is the point of distributors?

No.

The distributor knows that its customers will use 100 units over time. He orders 100 units, bulk discount, low freight per unit and by sea to be even cheaper. His customers could do the same but 100 is too many. They could buy 5 but more expensive, plus airfreight divided by 5 doesn't help. maybe the manufacturer cannot cope with 10,000 global customers so they have 15 globally. Then there are returns, issues and so forth

Thats a few points, your example might work for some products, or if the manufacturer became the distributor as well, and offered wholesale prices for individual purchases, yet has to bear the costs of distributing all these small parcels instead of one container

WyleECoyoteNZ

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#2169529 29-Jan-2019 11:50

This thread is starting to really annoy me.

Is person\company not allowed to make money?? They’ve stumped up the money to start a business\venture, surely they’re allowed to profit\reap the rewards?

Yes, you as an individual can buy a widget off Ali Express for $3, pay a similar amount for shipping and have it arrive at your place. But that small parcel has come through the Auckland Mail centre where it was probably only x-rayed

For a supplier\wholesaler importing 10,000 widgets, that is more than likely going to get to NZ on a ship in a container. I’m not a importer, but I’d expect that container arriving on a wharf has a lot more costs associated with it (customs\duty\shipping\GST\fumigation).

Then the supplier\wholesaler needs to get there product off the wharf to a distribution centre, where it maybe then distributed across other satellite distribution centres. More costs. Now add on employee, utility, rent costs.

Somewhere in that 10,000 units is the suppliers\wholesalers break even point.

In Tony Quinn’s book, He's got his 2 + 2 = 7 theory, which he applies to making profit. If the cost of your product is 2 + 2, selling it for $4 will make you bankrupt. If you sell it for $8 and give the customer a $1 discount, everyone will be happy. This wording is taken from a stuff story, so it’s missing bits of his theory.

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