There has been a lot of discussion (argument) about 'price gouging' versus 'free market'. While I am personally a 'free market' guy, this post is not about that. I am addressing the larger concept of "retail" versus "wholesale" versus "non-profit corporations". I think there is a lot of confusion about how the market works, and I would like to clear up some issues.
"Retail is the sale of goods and services from individuals or businesses to the end-user." Historically, retailers were businesses that operated on a local level, with an actual storefront, where customers came to browse, handle, try on, and otherwise inspect goods that were available for sale. Retailers were the folks who owned and operated these retail stores. Retailers buy goods either directly from the manufacturer, or sometimes through a distributor who buys from the manufacturer and makes a small margin of profit. Because of the distributor's profit, the retailer pays a little more to buy from the distributor than to buy directly from the manufacturer.
Normally, the retailer has the highest gross profit margin of all those in the supply chain. Historically, that profit margin was 50% or even greater. For example, if an item sells for $100 and the retailer paid $50, the retailer made a gross profit of $50, or 50% of the selling price. The manufacturer may make a lower profit margin, but the manufacturer is doing the highest volume of business. A distributor acts as an additional 'middle man', buys from the manufacturer, and makes a smaller profit margin, perhaps 2%-12%.
Why does the retailer make a higher profit margin? Because the retailer has by far the highest operating expenses relative to the volume of business he does. He may only sell a few items each day, but he has to pay expenses for a retail location-usually more expensive real estate than the warehouses that are used by distributors and the factories used by manufacturers. Certainly manufacturers and distributors have expenses, but they are very small compared to the volume of business they are doing.
A large retailer will try to buy directly from manufacturers, but a small retailer may need to use the services of a distributor, because manufacturers typically require much larger order quantities, and distributors will allow the purchase of individual items. This scenario means that a small retailer actually pays more for an item than a large retailer; but we probably all know that.
So what's my point? Internet sellers today are acting as de facto distributors. They sell to the end user, but they do not have expensive retail real estate, and they are operating on a business model of high volume and low margin. That is fine for distributors, but it has been devastating to local retailers, who often are forced to lower prices to a level that does not sustain the business.
I'm not just bitching about the internet. I buy lots of things online, and for much better prices than I can get locally. And I own a retail store (not gun related), so I completely understand the difficulty. Does this make me a hypocrite? I don't think so, and here's why:
I will not go to a local store, fondle the merchandise, try it on, figure out exactly what I want, and then go buy it online for less money. That is the worst thing a customer can do. I buy things online that I don't need help with, and that I already know what I want. I buy things locally that I need help with, or advice, or that I want to try on, feel, touch, smell, etc. Also, things that I am likely to need service with I buy locally in order to have that service available.
Now, here's my real rant. Some people, actually many people, seem to think that any profit is too much profit. If they can buy ammo online for $12/box, then they complain about the 'rip-off' when a local store has it for $17. A distributor may be able to stay in business making a $2 gross profit on thousands of boxes of ammo. A retailer cannot stay in business making a $2 gross profit on dozens of boxes.
Most of us probably don't need advice on buying ammo; that's okay, go buy it online. Just don't bitch about the local guys 'ripping you off' when you see it for a normal price locally. Understand the difference! This goes for guns as well. Plenty of people around have an FFL, and they will order you a gun and mark it up 10% and be happy. They aren't paying for a high cost retail location. They aren't holding thousands or millions of dollars in inventory so that you can touch and feel and smell it before you buy it. If you know what you want and order it somewhere, that's fine. Just don't bitch about the 'rip-off' when a local store has it at a normal price. Understand the difference!
With the exception of online stores who also have a retail presence, like Bass Pro, Cabelas, and Gander Mountain, online sellers are operating practically as distributors. Just because you can buy from them now doesn't mean that their prices are retail prices. You should not expect these prices at a retail store. Furthermore, if you don't understand the difference, you should not expect there to be retail stores in the future. Retailers are not non-profit corporations, there simply to serve you. If they can't make a reasonable retail profit, they can't be there to serve you at all.
"Retail is the sale of goods and services from individuals or businesses to the end-user." Historically, retailers were businesses that operated on a local level, with an actual storefront, where customers came to browse, handle, try on, and otherwise inspect goods that were available for sale. Retailers were the folks who owned and operated these retail stores. Retailers buy goods either directly from the manufacturer, or sometimes through a distributor who buys from the manufacturer and makes a small margin of profit. Because of the distributor's profit, the retailer pays a little more to buy from the distributor than to buy directly from the manufacturer.
Normally, the retailer has the highest gross profit margin of all those in the supply chain. Historically, that profit margin was 50% or even greater. For example, if an item sells for $100 and the retailer paid $50, the retailer made a gross profit of $50, or 50% of the selling price. The manufacturer may make a lower profit margin, but the manufacturer is doing the highest volume of business. A distributor acts as an additional 'middle man', buys from the manufacturer, and makes a smaller profit margin, perhaps 2%-12%.
Why does the retailer make a higher profit margin? Because the retailer has by far the highest operating expenses relative to the volume of business he does. He may only sell a few items each day, but he has to pay expenses for a retail location-usually more expensive real estate than the warehouses that are used by distributors and the factories used by manufacturers. Certainly manufacturers and distributors have expenses, but they are very small compared to the volume of business they are doing.
A large retailer will try to buy directly from manufacturers, but a small retailer may need to use the services of a distributor, because manufacturers typically require much larger order quantities, and distributors will allow the purchase of individual items. This scenario means that a small retailer actually pays more for an item than a large retailer; but we probably all know that.
So what's my point? Internet sellers today are acting as de facto distributors. They sell to the end user, but they do not have expensive retail real estate, and they are operating on a business model of high volume and low margin. That is fine for distributors, but it has been devastating to local retailers, who often are forced to lower prices to a level that does not sustain the business.
I'm not just bitching about the internet. I buy lots of things online, and for much better prices than I can get locally. And I own a retail store (not gun related), so I completely understand the difficulty. Does this make me a hypocrite? I don't think so, and here's why:
I will not go to a local store, fondle the merchandise, try it on, figure out exactly what I want, and then go buy it online for less money. That is the worst thing a customer can do. I buy things online that I don't need help with, and that I already know what I want. I buy things locally that I need help with, or advice, or that I want to try on, feel, touch, smell, etc. Also, things that I am likely to need service with I buy locally in order to have that service available.
Now, here's my real rant. Some people, actually many people, seem to think that any profit is too much profit. If they can buy ammo online for $12/box, then they complain about the 'rip-off' when a local store has it for $17. A distributor may be able to stay in business making a $2 gross profit on thousands of boxes of ammo. A retailer cannot stay in business making a $2 gross profit on dozens of boxes.
Most of us probably don't need advice on buying ammo; that's okay, go buy it online. Just don't bitch about the local guys 'ripping you off' when you see it for a normal price locally. Understand the difference! This goes for guns as well. Plenty of people around have an FFL, and they will order you a gun and mark it up 10% and be happy. They aren't paying for a high cost retail location. They aren't holding thousands or millions of dollars in inventory so that you can touch and feel and smell it before you buy it. If you know what you want and order it somewhere, that's fine. Just don't bitch about the 'rip-off' when a local store has it at a normal price. Understand the difference!
With the exception of online stores who also have a retail presence, like Bass Pro, Cabelas, and Gander Mountain, online sellers are operating practically as distributors. Just because you can buy from them now doesn't mean that their prices are retail prices. You should not expect these prices at a retail store. Furthermore, if you don't understand the difference, you should not expect there to be retail stores in the future. Retailers are not non-profit corporations, there simply to serve you. If they can't make a reasonable retail profit, they can't be there to serve you at all.
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