Quote:
Originally Posted by HCNDM View Post
I have worked in IT for Large retailers for a few years now so its second nature. I Will try to explain.
I have price lists from Bosch and Baier power tools which show a margin between 10 and 20% for the retailer.
Yes, sometimes you will see dealer price lists that show such low margins but it would be pretty darn hard to keep a retail business open, especially a brick & mortar retail location, on 20% margin unless you were doing a huge turnover. Distributors and manufacturers often provide large percentage rebates to dealers that move high volumes of product. That way, dealers have an incentive to sell more. Internet sales have turned a lot of things upside down and as specialty local retailers have scaled back over the years, sometimes the only place to get specialty items is from online sellers or pay very high prices to the few remaining brick & mortar retailers.
There are a few notable exceptions:
Aldi and Lidl use very low markups due to high volume and big buy models.
Where drop shipments, concession, or franchise models are used the margin wil also be lower. This because the inventory and legal responsibility (returns and warranty) remain the responsibility of the supplier. The dealer just takes the kickback with no risk.
Finally electronics. TV's computers gadgets sit around the 20% marker. Largely due to high competition and price pressure from cheap made in China.
If you follow my model you will see that a saving of five euros in production makes an enormous difference in retail price. There is a finite limit on what a consumer will spend more on a better product.
A five hundred euro festool power tool may only cost 30-50 more in production than a well made in China Bosch. The retail ( recommended) price however differs much more.
Also keep in mind a factor 2,4 is not 240%. It's actually 58%. The maximum possible profit being 58% of the total price.
Lastly the wholesale to retail margin is including vat. In my previous example 30 euro wholesale ex vat = 79.95 inc vat.
Deduct you average European vat of 20% from 58% and suddenly we are getting a lot closer to montes numbers. Especially considering its electronics. Store overhead could easily be another 20%.
So I guess it's also how the supplier calculates the achievable margin and sells this to their dealer. I know my employer has a 2,4 guarantee to its dealers but in reality you'd never make that.
Bricks and mortar is a truly difficult way to make money nowadays. Overhead is high and web competition is killer.
Many suppliers are realizing they can make far more by cutting out the middle man and selling through their own website.
Often customer service is outsourced to Eastern Europe or even India.
Not saying I like it (not one bit) but it is the way things are going.
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