Diary of a Madman

Going Against The Grain

X Ray Eyes

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Picture yourself in this situation……

All of a sudden one morning, you wake up and you have x-ray vision. You can see right through people’s clothing. Exactly like those glasses they used to advertise at the back of comic books.

You expect that you are going to get to see all of the beautiful people naked, which you will. But there is one problem, there really aren’t that many of them. Underneath their clothes, most people, are, well, quite…………YUCK. Thank God for clothing; Not everyone can be a model. In fact, based on what you are seeing, you could swear that you were in an old age home.

That my friend is exactly what it is like for me walking into a retail store.

I know how many times a product has been marked up on it trip down the distribution channel from the time it rolls off the assembly line to the time it walks out of the store – think on the magnitude of 8 to 10 times. As the CEO of a large company once told me “If there is one rule to success in mass market, its 10 to 1”.

So that product you just paid 10 bucks for probably cost about a buck to manufacture.

Why so much?

Well let see. There is the 40 to 50% margin that the average retailer wants to make selling the product. Which, if you are bad at math, means the retailer typically buys a product at about half of it retail price.

It doesnt stop there. Retailers will often charge a manufacturer or distributor additional costs in the terms of discounts, co-op advertising fees, and return allowances. I have seen these run up from 5% to 17% in some situations, or what abouts to 8.5% of the retail price of the product. In the end, the customer pays for this too as it gets built into the price of a product.

But wait, there’s more. Listing Fees. The dirty little “secret” of the retail world, that no one really wants to go on record about. These are the fees that stores charge some, not all, companies, to put product on the shelf – to rent shelf space if you will. They will tell you that these fees help the retailer offset the cost of setting the new product up in their warehouse and inventory system, which may be tolerable, except for one thing……..this is the business the retailer is in……..buy stuff in bulk and selling it (they get a 40 to 50% margin for it). But guess what, in the end, the consumer pays for this too.

So essentially, many distributors and manufactures are essentially just renting shelf space space from retailers and paying through the nose through it, which means consumers are paying through the nose for goods they buy.

The next time you go into a store and buy, say a pair shoes or some kids clothes, or better yet a high end retailer who is selling you clothes with a designer label that were manufactured in China, think about how much of the purchase price is going towards “air” (marketing, transportation, etc) and how much is hard product cost……You may just want to gouge your eyeballs out.

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Written by insaneentrepreneur

April 13, 2008 at 12:58 pm

Posted in Behind the Curtain

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