Emphasis: very SIMPLE. Please do not read the following as ‘expertise’. It is NOT. There was SOME expertise thirty or so years ago in a few specific industries but it was never ‘across-the-board’ expertise even back then. And times have changed with the entry of China into the marketplace….still…here goes…
If you made ‘something’ (i.e. widget, better mousetrap, etc.) the general rule of thumb (30 years ago) was that you had to sell it for at least 5 times the manufacturing cost to succeed as a manufacturer. And, the wholesaler/distributor had to do much the same. The retailer then added ‘Keystone‘ mark-up which was another 100% or, in the case of textiles and fashion, up to $1000%. In reality, the item that cost $1.00 to make would be ‘stepped on‘ until it was at MSRP (manufacturers suggested retail price) of $100.00. One dollar times 5 = $5.00. $5.00 times 5 = $25.00 and 400% on that equals $100.00.
Of course, NO ONE pays retail (especially POST China) so let us use $29.95/$30.00 for the final sale-to-consumer price that might be more appropriate today.
Don’t believe me?
I have a friend still engaged in the antique/used-items market and he uses much the same system for old items where the cost to produce has been ‘sunk’ decades ago. “I aim to mark it up 20 times what I paid for it. Of course, I may have to accept less in negotiations but less than 10 times is simply NOT worth my while.”
So NOW Amazon ships you a widget for which you pay $30.00 plus taxes plus shipping making it say, worth $40.00 to your bank account. $40.00 from your life/time/money account.
But it turns out that you don’t like it. It has a dent. It has a scratch. They sent the wrong colour…whatever….you send it back and it costs you $15.00 to send it back. Ostensibly, the overall cost of that item is now $55.00. But it does not end there. Amazon has to receive the returned item and store it and manage it in a warehouse with staff. They are not happy looking at that NOW-to-them-cost $60.00 item.
Remember: it cost $1.00 to make. AND it still cost you at least $15.00 (more really but that is another blog). You do NOT have it and it cost you at least $15.00!
Amazon gets a lot of that crap and so they pile up your rejected widget on a pallet along with some other rejected better-mousetraps, gadgets, super-widgets and other related-but-not-the-same items until they have a pallet-full of say, 30 rejected items representing a total MSRP + expenses value of $1800.00. And then they auction it off to liquidators.
They might get $50.00-$100. They ship it to the liquidator who pays another $50.00 in shipping.
The liquidator sorts through the mess and, lo and behold, SOME of the returns really are no good. They are broken or simply too dented and scratched to re-sell. Half gets tossed in the bin (and the bin costs money to pick up and dump). The re-seller/liquidator has a local shop, gets on Craigslist, Ebay, even AMAZON (for the good stuff) and discounts the crap from the MSRP price by say, 50%. That means the $1800 was cut in half to $900 (because half was junk) and then again by 50% as ‘discount’. There is now $450.00 worth of that stuff back on the market.
And THAT cycle might even repeat again……
And you wonder why we have accountants?
The point: how much real value was created there? Whatever the real value is it is NOT what the GDP has measured after all that nonsense. Maybe measured several times!
The real value is MORE than just the cost of manufacturing, that’s for sure. But how much? And how much taxes were collected? (taxes: a great deal MORE than the cost of making it, that is also for sure.) There were taxes on taxes on taxes. Paid for with after-tax dollars.
But what about the ‘extra costs?’ There was ‘waste’ from the manufacturing process, spent-fuel carbon from the transportation side, half the crap went to the landfill and much of what went to the consumer ends up some time later on top of that….also in the landfill. There is a significant cost to the planet. Plus there is lost-labour cost. A waste of a human’s time!
So, you take 30 items at a dollar-to-make each, the majority of which ends up in the landfill and you add in ‘lifetimes spent‘ working for and around all that stuff…and…well, what is the value? Is there any? How much of that value claimed, measured, taxed and representing YOUR work-time-in-life is real value?
Bottom line: the only REAL currency in life is TIME. And we spend our time earning tokens to spend on stuff. Stuff equals YOUR life’time’.
“Dave! Do you hate stuff?”
Of course not. I love stuff as much as the next guy. Haven’t I talked about Yamaha outboards enough? Toyota Landcruisers? Scotch? It is just that stuff equals your time – the essence of life. I am just saying that stuff plus taxes plus crooks, plus greed plus pollution equals a whole lot of wasted LIFE in this system.
Simplistic conclusion: the whole wasteful, corrupt system needs a review.
I agree with your analysis of how the market works. I recognize that you have had retail experience and direct experience with buying wholesale and selling retail.
Yeah. But also manufacturing – years ago. I watched the ‘stepping on’ system for a long time. And now I’ve been reading about the ‘liquidation system’ growing by huge amounts. And I watch how lives are spent, burnt, used up in an endless materialistic pursuit to the landfill. Good God y’all….it’s crazy!
Btw….posts on the 25/27/29/30…can’t seem to write a word for the book….
I think this current trend to recycle goods will have a positive effect to reduce the number of times goods are ‘stepped on’ as they pass through the distribution chain.
I get your point and agree with it. But, sometimes that low quality stuff is the only thing some people can afford because people’s time is valued so little that they can’t make a decent living from the job they have, and they have to long hours to make ends meet. There is no time left to repair and re-purpose. I watched 11/9 last night. Sickening. For years, the US has been touted as the model to which we should aspire. No thank you. Life must be horrendous in those countries south of the border for people to want to go to the US. Those new congresswomen better have good security.
I understand. I know people will trade their time for a TV. I get it. I know people will also trade their time and bodies for a bigger TV. But do they do so with the conscious realization that they are spending a dwindling account of their LIFE for that junk? I know that I did not. I got engaged in the system early on (first job at 8 selling Xmas cards door to door) and traded life for junk and, given a chance for a Landcruiser, might still do it. But I won’t pay too much anymore. My top price for a Landcruiser is much less than it would take to acquire one – Why? Because even a Landcruiser is NOT worth my dwindling life span. It’s just a realization too late achieved is what I am saying.
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Tried to just “like” the message but it wants me to sign over my kids, so no. But I likes this one, like our OTG way better than ever before.
Saw the sun for a couple days up here, Wow, what great days.
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THERE IS THE GOLD! Sunshine in the winter drinking wine and talking boats with Doug and Sadie sitting nearby. THAT is the real currency well-spent!
…..and the landfills continue to grow with plastic widgets………