Insider View on the Supply Chain Issue: People Have No Idea What’s Coming

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by Chris Black

This is what a guy who works in retail told me yesterday:

The problems are many, starting with the insane margin requirements of Big Retail. 

Tell me why Target should get to make $65 on a $100 item?

Amazon is the same. The average big box margin on most items is 55-60%. It doesn’t matter if it is online or a store. 

There are exceptions, like some electronics where they only make 15-20%. Clothing margins are usually 70-80%. Jewelry is as high as 90%.

I know for a fact that Crown Bolt pays a nickel for a machine screw they sell at Home Depot for $1.25. 

Most people have no idea how much air exists in the products they buy. 

Most $100 items left a factory in China for less than $10.

One of my competitors just said they can’t deliver product for next spring. In a seasonal business, that means you are out of business. 

I was supposed to get twelve containers last week, we got two. 

We’ve rerouted a lot of traffic to New York from LA, but the New York ports aren’t capable of handling the traffic of LA. So there are massive delays. 

Rates are through the roof, and the publicly traded companies are buying out containers from smaller companies, offering $20k above spot just to get a container. The entire supply chain is toast. 

See also  What is coming next

I would love to make my stuff in the USA, but it is nearly impossible. We don’t have the textiles, molding machines, and workers. Where am I going to find 150 people to sew in a room? Plus the environmental regulations and standards make it really hard to even get something like that approved. 

I did get a quote from an American manufacturer for one product. I was quoted $38. 

My wholesale price is $22 for a $50 retail.

 At $38, I’d have to set my wholesale at $50 to clear any meaningful profit. My retail partners would then put it at $115. I doubt any American consumer would pay $115 for the exact same product they could buy for $50, just so they can buy American.

I have been notified of 20% price hikes from my overseas factories. We used to factor in $1 per unit shipping cost, it is now $4. People also forget that there are still additional tariffs on top of the normal duty, 20%. The normal duty is 14%. So that is 34% on top of the FOB price.

What was a $12 item with $1 shipping, and $1.68 duty. Is now $15 with $4 shipping, and $5 duty.

$14.68 landed is now $24. That additional $10 represents $30 at retail. The $60 retail item is now $90. That isn’t 2% inflation.

People have no idea what’s coming.

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