by Chris Black
World Economy Braces For Supply Chain Chaos As COVID Closes China t.co/UjUbZ7qygj
— zerohedge (@zerohedge) March 16, 2022
It doesn’t matter anyway. We have reached the point where retail margins have expanded to the point that you can’t make a profit selling anything to them.
Shipping costs ate up all the margin distributors had.
A $100 retail item has a manufacturing cost as low as $8 today. Prior to the big box publicly traded boom of the 1990s, historical margins were 30%.
Something manufactured for $8 would have a wholesale price of $12 and would sell for $16.99.
It really is amazing that margins have expanded to the point that something made for the same price can sell for $100.
Pure inflationary air.
The product manufactured in China has a base cost of $8.
The factory sells it to a trading company for $11. The trading company adds $2 for themselves and another $1 for the rep. When you add shipping costs, it was around $1-2 per unit. Now it is $4-5. So we’ll say a landed cost around $18.
The US distributor wants to make at least 40 points, so wholesale is around $30. A big retailer generally won’t take most products without making 60 base points. Then they add up to 5% for other fees and costs. Add it all up and you get a retail around $95.
The sheet part of all of it, is that if retail margins went back down to 25-30%, most stuff could be made it the USA again.
It was Wall Street greed and publicly traded earnings that kept pushing margins higher.
There is practically no competition anymore, so if you want to sell something, you need big retail. But the catch 22 is you might not ever make money.