Saturday, May 28, 2011

A monkey walks into Walmart.

I mean, it drives me crazy that the customers are so illogical.

I know, it's no surprise. We're just monkeys.

But it still drives me crazy.

I've mentioned before the rather constant irrational pursuit of saving a buck -- at the expense of time, energy and space. People taking hours and driving miles to save 1.00 or 2.00 or 5.00 or even $10.00

But buying from corporate entities is also illogical.

How do you profit by making everyone else earn less? Do people think they are disconnected from the process?

If you own a service business in Bend -- say, an electrician or plumber -- EVERY DIME you earn will come from locals.

And yet the same electrician and plumber will send the vast bulk of his earnings out of town, to corporate entities who can never return the dollar by hiring them back.

The thinking is so short sighted, it's maddening.

I've always had a fantasy that I could take the 6 biggest card manufacturers in a room in 1990 (only one who is still in business) and say, "What the hell do you think you're doing? Do you understand that the card shops are the golden goose? Don't you see how your sales started skyrocketing after the establishment of card shops? That the mass market is only interested because the market has already taken off?"

Or, I'd ask my card shop competitors -- "Why are you buying from Walmart? Don't you see how every dollar you spend there is going on Walmart's books and Topps is looking at who is buying?"

"Oh, I can't afford not to save money," was (and is) the response.

Which to me is like saying, "Look, I'll hand you a 100,000.00 today. But in five years from now, I'll be back to put a bullet through your brain."

"Gee, mister. That sounds great!"

You can get any book in print, just about, from a local independent bookstore IN ONE DAY! Ingram's happens to be in Roseburg and is a one day ship. ONE DAY! It isn't possible for Amazon to be any faster than that.

We ship jobs overseas so we can get cheaper goods so that we can have stagnant wages and lost jobs so that we need cheaper goods.

But getting great swathes of cheap crap doesn't improve your life folks, any more than buying smaller amounts of higher priced goods ruins your life.

I suspect that I wouldn't feel any richer if I was buying from mass markets instead of locally. Or that I feel any poorer because I buy locally. In other words, in the daily scheme of things it really doesn't seem to matter. I don't sit around thinking about the price of a book I'm enjoying.

Why is that?


Jack Elliott said...

Dunc, you're right. I spend a dollar in a locally-owned shop. A portion of that dollar leaves Bend because the goods that I buy are probably not from here, and the shop owner ordered them from out of town. But a larger chunk of that dollar stays here, and is likely to be spent here. On the other hand, if I spend a dollar from a chain or franchise Not From Here, a larger portion of that dollar leaves town forever.

I had a chance today to buy a thingie from that RV store on S 3rd, or from WalMart. Both shops employ people who live here, but one diverts a chunk of the money out of town. I bought from the local shop.

Chains and franchises suck money out of the local economy and impoverish a town. All that stays in the area are the minimum wages paid to the cashiers and stockers and other store employees. None of the profits remain, they are bled off into the pockets of out of town, out of state owners.

RDC said...

Actually if one really looks at it.

Lets take a small store and a big box.

Product purchases
Small Store- Remote
Big Box Store - Remote

Store Location
Small Store - local rent or purchase
Big Box Store - Local rent or purchase

Small Store - local
Big Box store - local

Small Store - local
Big box store - local

Support services (legal, accounting, ...)
small store - Generally local
Big box store - remote corporate HQ
(now realistically for the big box store these a pretty minimal and the money would be in the profit category since in most cases the cost is independant on any individual store and the cost per store is pretty low)

Small Store - kept with local owner
Big Box store - Corporate

So the only real difference in money flow is for support services and profit. In the other categories the money flow is pretty much the same.

So looking at cash flow you do have some money flow out of the area. On the other hand you also had some money flow into the area with the original capital investment. You also have some Corporate benefit packages, for atleast some of the employees that tend to be larger then the employees of most small stores (or have you started to provide paid vacation, 401ks, medical, etc to any of your employees Duncan?)

You also have the fact that Big box stores tend to be act as a magent to bring shoppers into the community from the surrounding area. Small stores tend not to do that.

If one really looks at it the presence of big box stores is pretty much a positive for towns like Bend, though probably a negative for small communities like sisters that are within shopping driving distance from Bend.

There are also questions on which is better for the shoppers buying something for less and have a slightly larger percentage of the price flow out of the community (slightly larger because some of it flows out such as product cost anyway) or pay more and have that go as profit to the shop owner.

Of course depending upon those numbers if the big box store reduces the purchase cost of the product enough the outflow out of the community might actually be less than in the case of a small store with higher product costs.

RDC said...

Actually Jack the diversion is really not that much different. The big box store pulls out profits, but pays lower product costs.

If You look at the 10Q for Walmart US they have a gross profit margin as a percentage of sales of 25%. They reported an operating net profit of 5.5% of revenue.

Now as Duncan as commented before their selling price is often competitive with what he has to pay wholesalers.

So lets look at that. If in fact their sale price is competitive with his acquisition costs that means that they have to be getting that product for 25% less. Lets also assume that the small store is just as profitable as the big box store of 5.5%

In that case for the big box store to having a larger out flow of cash from the local economy then the small store does the amount of profit and support services (think of it as G&A) would have to greater then the amount they save in product acquisition costs.

Now they reported that their operating, sales and general administrative costs was 20.1%

But some of that figure, actually a good chunk of it is operating costs that stay local. Lets assume that half is local operating and sales costs. and have as G&A.

If that is true then the 25% reduced product acquisition costs would actually mean more money would stay local with the big box store. That they could reduce that advantage in product acquisition costs to 15% before the cash outflow would shift to the small store.

Needless to say that is not valid for a store that sells locally made product. however, for most retail stores that order product that is shipped in from outside of the area it is pretty valid.

If you want we can compare salary structures of big box stores compared with small stores as well.
Considering that big box stores have managers, asstant managers, and others beyond the part time and low level clerks.

I don't think that you will find small local stores paying wages substantially above the big box stores or have wonderful benefit packages.

RDC said...

just to make it a bit clearer. Lets take an item that the big box store buys for $7.50

charge to consumer $10.00
Product Cost $7.50 (out flow)
Profit $.50 (out flow)
Operating Cost $1.00 (Remains)
G&A $1.00 (out flow)

Total outflow from community $9.00

Now small store
Charge to Consumer $14.00 (assumes 40% markup normal for a small store)
Product Cost $10.00 (outflow)
Profit $ .70 (remains)
Operating Cost $1.65 (remains)
G&A $1.65 (remains)

Total outflow from community $10.00

The consumer saves $4.00 and $1.00 less flows out of the community.

Now G&A is probably high, Operating cost is probably low.
So it actualy is a bit better in that reguard for the big box store then the example shows.

The big box store probably doesn't average 25% better purchasing price, but I suspect that it is atleast 15 and probably pretty close to 20%.

In which case more money flows out of the community if you buy from the small store then the big box, unless you are purchasing something made in the community or by the store itself.