Wednesday, April 22, 2009

Shop Local.

"Yes we are -- shopping locally." Local campaign mentioned in the Bulletin.

Hey, what's to argue?

First the good news, and then the not so great news.

I, personally, try to shop locally. But I'm not much of a consumer, so I'm not sure I'm a big help. (Makes me wonder if the same people who are socially conscious enough to shop locally, are also the same people who are socially conscious enough not to over-consume? Hmmmm.....probably not. People love to shop.)

I've always thought of shopping locally as a small local tax. It's relatively painless, that quarter or fifty cents you spent extra to buy aspirin from a local druggist instead of Wal-mart, doesn't seem like it could kill anyone.

When it starts getting to half-price, though, it's pretty hard to argue that one should spend twice as much...

Except, of course, I would maintain that if you got it for half, there is a hidden cost somewhere.

Just talking to my UPS driver about this very thing. He bought a couple of doodad's he needed for his Direct T.V. for 25.00 each from them, after checking around town and finding that they coast 150.00 everywhere else.

"Are you a subscriber to Direct T.V,?" I asked. "How much does it cost per month? See, they want you to buy those doodads so that you'll continue to buy their service and they make x amount per month by having hooked you in."

That's not to say it isn't a good deal, and you would be crazy not to take it. Just that there is always an explanation, always a hidden cost somewhere.

I won't go into the political ramifications of using cheap foreign labor, or paying your American workers as little as possible (benefits? What's that?) Or that the materials going into the 'cheap' stuff may not be quite as good as it should be. Or...well, you could go on and on...

But I always say, if you dig dirt out of one end of the field, it doesn't disappear, but it piles up somewhere else.

Over the last few weeks, I've gotten an extraordinary number of calls and visits from people trying to sell their baseball card collections. I usually just say, No. I usually point them to E-Bay. If they insist, I usually say, "If you find anyone who's buying, let me know...."

End of conversation.

What I don't say is -- how did you expect to be giving your money to the big chain stores for the last 15 years of so, and then expect to come to little old me and get cash?

With what? Where's the money? It isn't in my pocket.

Nothing is for free. You don't get something for nothing. You get what you pay for.

I'd bet that there are a million such examples of hidden costs, disappearing service, shrinking selection, and lousy convenience.

I'd also have to say, that being able to buy more cheaper stuff doesn't necessarily add to your lifestyle. Two pieces of crap instead of one, just means you have twice as much crap.

Imagine if you will a town where everyone bought locally. Instead of Walmart's (smaller) cents on the dollar sticking around, you'd have about 40% of it sticking around. Being spent locally, enriching local merchants, who can refurbish their storefronts, higher more employees or give them bigger paychecks and benefits, who could buy more and different product, maybe even eventually lowering their prices because of their volume.

Imagine.

So here's the not so great news. Such a thing happening is extremely unlikely, to say the least.

If you have to explain why it's in their long-term best interest, that they really are going to end up getting more service and quality product by buying locally, it's not going to work.

One, they won't believe you.

Two, they won't listen to the end of your explanation.

Three, they aren't paying attention. They want what they want when they want at the price they want.

Cheap is cheap. Explanations are blah, blah, blah.

I think people often mean well.

But again imagine that you are an independent bookstore, and Barnes and Nobles is coming to town. What are you going to do about that freight train bearing down on you?

Usual answers are, service, service, hometown feel, service, incentives, convenience, service, quick and free ordering, and so on.

Great. Let's say you maintain 80% of your customer base, despite B & N being 20 times bigger, selling 20 times the number of books, having a large percentage with huge discounts, and having exclusives and mysteriously always getting the books sooner, and always having it in stock when it's sold out at the distributor and so on.

Let's say, though, that you succeed in keeping 80% of your customers. That would have to be considered a huge success.

But you STILL took a 20% hit on your earnings.

How many of you can handle a 20% cut on your earnings?

(I have to say, though, that 80% is wildly optimistic....)

I don't think "Shop locally" campaigns are very effective, but they can't hurt. Maybe you can push that loyalty level to 85% instead, which is nothing to sneeze at.

Anything that might get people thinking about consequences and ramifications may be a good thing.

But if you are a local store, make your peace with the big boys, because pleading with your customers probably won't work too well. Find a way to accommodate the disappearing customers; make them come back because you got something they want, and they're willing to pay for it.









But, yeah, whenever possible, shop locally.

18 comments:

RDC said...

Not sure where you come up with your .4 walmart number, but considering that they pay taxes, utilities, building costs, salaries, etc. The same as any other business with a store in that area the only part which does not stay local is that stores profit margin. Now if you are using your 40% figure as being the retail markup, then I would suspect a more realistic number for Walmart would be somewhere between 25%-35% remaining local, depending upon the size of store and the sale mix.

The articles point was shop anywhere in Bend, instead of going to Portland and shopping there.

RDC said...

Actually after thinking about it a bit more. If Walmart acquisition costs are 15% lower and they pass those costs on to the consumer and they use 40% for their gross margin.

Then using your number and assuming that 60% of the sales price is product cost
(X * 1.66) = 1.66X sales price
sales price *.4 = amount remaining local = .664 X where X is the whole sale price of the product purchased. Assuming that the entire store gross margin remains local, including profits.

Now if Walmart pays 15% less in wholesale prices (they may well save more) then the equation becomes

.85X *1.66 = 1.411X sales price
sales price * .25 = .352X if profit margin is 15%
sales price *.35 = .494X if profit margin is 5%.

However, don't forget that the consumer paid .249 X less and not only does that money remain in the community but it remains in the consumers pocket to spend on something else. So if you add that back in the the amount remaining local is .664X for a local small business compared to somewhere between .601X to .743X.

As such I don't think the keep money local really holds up, unless you want to argue that their lower costs means less sales tax revenue for the same quantity of products sold.

Duncan McGeary said...

Yeah, I think that .4 figure is pretty iffy. Got it off a indy bookstore site.

Still, the basic point remains....

blackdog said...

"I'd bet that there are a million such examples of hidden costs, disappearing service, shrinking selection, and lousy convenience."

Only a million? You're being way too conservative, Dunc.

It is axiomatic that when a small company is swallowed up by a big one, quality will decline, service will decline and, ultimately, prices will increase.

I'm old enough to remember when supermarket chains came along (damn, that IS old) and started competing with the corner grocer, butcher, baker, etc. People went to the supermarket for the lower prices until the local merchants went out of business, and then the supermarket started jacking up prices. WalMart will do the same as soon as it's eliminated enough of the competition.

Also, it's debatable whether WalMart's prices really are significantly lower. I believe there's been research that shows they aren't. WalMart prices a few items spectacularly low as loss leaders to (a) pull customers into the store and (b) catapult the propaganda that WalMart always has the lowest prices.

Anecdotally, I had an interesting conversation one day with the guy who used to own the Coast to Coast store. He told me that they made sure their prices were as low as or lower than WalMart on all the items they competed on, but they just couldn't overcome the public perception that WalMart was always cheaper. I'd bet very, very few WalMart shoppers bother to compare prices with other retailers; they just assume WalMart is the cheapest and go there.

Duncan McGeary said...

The following if a message from VERTIGO BOOKS, College Park, MD.

I've capitalized the part I wanted to pass along...

Hello-

After seventeen and half years, the time has come. Curtains down and goodbye–in two weeks Vertigo Books will close.
Starting today, EVERYTHING IN THE STORE IS 20% OFF. If you’ve been eyeing that special something, come in and grab it now, before someone else does. And our new rules for the next couple weeks: no checks, no returns and no exchanges. Please note: we will be closed Easter Sunday, April 12, our usual hours will resume Monday

Why are we closing? There are many reasons, but basically, not enough people buy books here.

We have many loyal customers, just not enough of them, and our cloning experiments have not yielded satisfactory results. And way too many people (not you, but someone you know) are buying their books at Amazon. We’ll spare you the inside baseball stuff about the near monopolistic force Amazon has become in the industry. You can also skip to the party info at the end if you like.

Connecting the Dots
As we have said before, your shopping dollars help create the community you want to live in. FOR EVERY $10 YOU SPEND AT LOCALLY OWNED BUSINESSES, $4.50 STAYS IN OUR COMMUNITY. THE MATH IS SIMPLE AND COMPELLING:
Vertigo Books $4.50
Barnes & Noble/Borders/Costco $1.30
Amazon $0.00


The money you spend with locally-owned businesses continues to circulate as we pay employees, buy supplies and pay taxes that are used to provide basic services to residents.

Our local economies are key to a successful recovery from the current financial crisis. Amazon and many online retailers contribute nothing financially to our state and local economies, yet suck up an enormous amount of Maryland’s shopping dollars and compete heavily with small natural foods stores, hardware stores, bookstores and specialty stores of all kinds.

While Amazon may have made their name selling books, they want you to buy a DVD player, organic foods, power tools and pick up the latest John Grisham title when you visit their site. They actively fight any attempt to force them to collect sales tax–even in those states where they have a physical presence. Maryland Senate Bill 1071 will allow us to join other states, such as New York and Kansas, that are now collecting sales tax for online sales and using the revenue for education and public safety.

Building Community as You Shop
Building community is an ongoing process, the result of small choices made everyday. We know you understand this, but are very busy and shopping online is seductive. We sympathize and have many of the same worries. But independents live in and serve your community and make many intangible contributions. What does Jeff Bezos, the founder of Amazon, do for our community? We are:

* working for quality public schools
* advocating for smart growth and sustainable development
* pushing for comprehensive planning and public transit
* serving on local boards and committees
* supporting your causes
* and operating a business that recycles, reuses and donates.

And, except for that last item, we’ll continue to do these things.

Please take a fresh look around your community, temporarily ditch the iPod, stop Facebooking and tweeting for a moment and explore your neighborhood’s businesses. Use one of the coupons below (email only) to visit new locally-owned businesses that need your support. If you want a small business to offer something else or do something differently, let them know and help them improve. If we want more than chains in the area, we need to start by supporting the local businesses we already have.

Any Excuse for a Party: Join us Saturday, April 18 5 pm-??
One of us grew up Irish Catholic and, under these circumstances, a wake is required. Bring a dish or something to drink and join us for a free form wake and potluck on Saturday, April 18 from 5 pm-?? If you shopped, read or worked here, we want to see you.

We hope Vertigo Books has served as a thoughtful literary and political gathering place, community and author resource, provided challenging, interesting conversation along with some laughter, and generally served, as one customer put it, as "an intellectual oasis on Route 1" (and previously at Dupont Circle).

Please stay in touch by sending us a note at staffATvertigo-booksDOTcom. We were never good about photographing and documenting the store’s activities. If you have event calendars, photos or memorabilia to share, please send them on. A computer with archived materials was stolen last summer, so your contributions would be much appreciated.

We owe an enormous thank you to the friends and family who made this adventure possible. We thank the many authors who so enriched these years, and our sales reps, publicists, event partners, publishers and our outstanding customers for their friendship and encouragement.

Thanks for your support over the years,
Todd Stewart, Bridget Warren &

Duncan McGeary said...

Meanwhile, I'm going to take out the .4 cent number in the main message since I can't vouch for it.

RDC said...

Duncan,

I think the main message is first and foremost spend money in stores that are physically present in the community, if possible. And to support small businesses to keep and encourage variety and selection.

Big box stores probably do not matter that much as far as keeping money local vs a small business owner, but it does make a difference if you want to be able to find a wider choice when it comes time to buy and you actially want to touch and feel the product before you put your money down.

Michael said...

Regardless of the accuracy of the .4 the message is exceedingly accurate. The quality of this post is why I stop by to see what you have to say. Good work.

RDC said...

Blackdog,

So basically the fellow from Coast to Coast indicated that Walmart was effective in getting others to lower their prices in order to compete.

Now keeping in mind that Coast to Coast was a cooperative that basically enabled the stores to have combined purchasing power, similarly to a larger company it is not quite the same as a single small company owner.

These days several retailers have adopted many of the same methods as Walmart as far as inventory turns and sourcing so the difference between compnaies such as Target and Walmart have narrowed, but there is a significant different between the large national chains and a small single store such as Duncans.

Which was the nature of the comparison.

I would like to see your information on price comparison. The information I have seen has shown that if you do a market basket comparison on a wide range of products Walmart comes out consistently lower than other stores. You can find individual product lower at various stores and you can find products lower in the stores that specialize in over stock merchandise (when they have the products), but in general they still come out ahead when comparing a consistent market basket with any other single store.

RDC said...

By the way the same calculation I used for the comparison between a small local store owner and a big box chain such as Walmart would also apply to similar stores such as Target. I believe that Target has a slightly higher per store margin, but the numbers are not dramatically different.

tim said...

The article in the paper was pretty clear that all they cared about was you shopping in Bend, big box or not.

Not in Portland, New York, or Paris.

An approximately useless article.

blackdog said...

"So basically the fellow from Coast to Coast indicated that Walmart was effective in getting others to lower their prices in order to compete."

No, he indicated that WalMart had been effective at persuading consumers that it always had the lowest prices, even when it didn't.

I wasn't able to uncover any recent price comparison data, and if you have some that proves WalMart really has consistently lower prices across the board I'd appreciate a link to it. However I did come across a story about how, back in 1994 in Michigan, WalMart entered into a court agreement to cease deceptively advertising its prices vs. those of competitors.

blackdog said...

"I'd also have to say, that being able to buy more cheaper stuff doesn't necessarily add to your lifestyle. Two pieces of crap instead of one, just means you have twice as much crap."

Yes, and the two pieces of crap are likely to wear out or fall apart sooner than one piece of quality stuff.

A growing problem, though, is even FINDING quality stuff. A few weeks ago I bought a new pair of Clark's loafers ($135) after my old pair finally gave out after about 15 years of use. The old pair was made in England, but I discovered to my chagrin that the new pair was made in China. The workmanship and materials are not nearly as good as those of the English-made shoes. I doubt they'll last 15 years -- five, maybe.

Duncan McGeary said...

Somehow I missed that they were encouraging local, including box stores -- makes it pretty useless.

Hell, taken literally, if everyone else shopped locally, Bend would have a net loss.

RDC said...

Duncan,

Don't they anyway. While the store may have a 40% gross margin, that means that 60% of anything spent is going to your suppliers located outside of the area.

Duncan McGeary said...

Bear with me, here, RDC. See if this makes sense.

IF we had product production and distribution on an average per capita basis, it would even out, right?

But we're mostly tourism and retirement; so the money flows out....

Just like every out of state tourist that spends money in my store is gaining a bit by not paying sales tax, and gaining a bit by getting sales tax from when we visit them.

Not that I want a sales tax. !!

Anyway, our economy seems to be set up to really get hammered in this kind of economic conditions.

RDC said...

How many would you like? The better challenge is finding one that does not have Walmart on top.

http://www.producebusiness.com/Attachments/walmart-tesco-laprices.pdf

ces.census.gov/index.php/ces/seminarslist?down_key=254&down_val=paper

findarticles.com/p/articles/mi_m0FNP/is_20_41/ai_93917342 - Cached

redorbit.com/.../252864/a_grocery_store_price_comparison/index.html

www.umass.edu/resec/spotlights/docs/Walmart_RAE.pdf

http://econ-www.mit.edu/files/1768

http://www.hometextilestoday.com/article/CA6424017.html

These range over a few year periods, but I can post a lot more.

I also have some examples with a couple of stores at Walmart, but none where anyone was materially less expensive.

The cases that I am aware of with Walmart prices were related to:

1. Claims - where Walmart had to make a slight change in advertising verbage because they were not always the lowest price for all items. Even though they were in general lower. The outcome was The Old: 'Always the low price. Always.' The New 'Always low prices. Always.'

2. Cash register errors where the tag would say one price and the register would rign up something else (an issue experienced by most modern retailers these days)

3. Predatory Pricing, there have been some challenges uder Robinson-Patman and some other laws about Walmart selling under cost. These are summerized fairly well by
http://www.lawmall.com/rpa/chap6.html
Of course those challenges merely reinforce how low Walmart has run its prices.

RDC said...

Duncan,

Yep, you need things to bring money into the area. Stores tht attract people to come to town from surrounding areas can also bring money in, but only at the expense of those towns. Bend needs to have sufficient tourism or manufacturing to bring the dollars in to offset the dollars flowing out to purchase good. Basic economics 101.

The money spent by tourists on lodging and services pretty much remain in the area, dining also does as well. They are good ways to bring money in. Retirees bring an influx when they move in and may also bring in pensions and social security.



Not a good situation in general for retail in Bend.