Frank
I am really looking forward to buying Frank’s fantastic flex track for $2 a length. Would December be too soon to expect it to be in stock at my LHS? I assume you will be posting advertisements to assure us that you are paying living wages, no matter where you have the track manufactured.
I really like your ideas and opinions, but please don’t ask me to be your book keeper or investor. Money just doesn’t have enough respect for popular opinions.
sincerely
cheapskate Fred
One thing I’ve noticed over the years, even before I enrolled for a short time in a business school, is that few people, including business people, really understand pricing. This really became apparent when I became treasurer of a club. We would buy, at a trade price, a basic supply of a much used product for resale to the members. The purchase and resale were handled by a couple local businessmen. They could never understand why at the end of the year this transaction always showed a monetary loss sometimes going into the several hundred dollar range. Of course, they never believed my simple explanation, because they were sucsessful businessmen, and I was only an engineering employee. One reason behind the discrepancy in retail price can be just as simple that one vendor is buying from a wholesale supplier, one is buying factory direct, and another is buying from a clearance outlet, who may have been able to buy stock from another source who may have had to sell at a loss through bankruptcy, death of a proprieter, or even something like a natural disaster like fire or tornnado. Some years ago, I found a kit I wanted, normal discount price of $129.95 for $22.50. It had come to the salvage outlet from an LHS that had had a fire. Just had to put up with some slight smoke smell. My wife found me another similar kit for a similar price at a garage sale. Maybe some of the grey market people make similar deals?
The fact is, there may be situations where the low priced seller is making a higher profit than the full MSRP seller.
I dealt with this issue for the years when I worked in purchasing for one of the auto manufacturers and I was involved in looking at many cost drivers when it came to pricing. Sheldon has is partially right when it comes to the amortization of tooling costs but that is only one of the costs associated with the development and manufacture of a product. The other drivers in establishing a cost may include direct costs such a raw materials, indirect costs including heat and lights, tranportation, burden including administration and then an estimated volume all create the initial cost. Then comes this thing called profit and depending on that factor, and what the market will bear, becomes a sale price, or what we call MSRP. Some manufacturers will actually be willing to make less profit on one product - or even take a small loss - if it can be made up on another. This doesn’t happen offen, but in some industries it happens with great regularity. Unless someone knows all these cost drivers, it becomes very difficult to rationalize pricing differences between products such as locos or rolling stock - or an automobile front fender for a 1990 Chevrolet or a similar product for a 2010 Ford Focus.
Now there are things called ‘fire sales’ when a company will take inventory that hasn’t moved for, in some cases months or years, and reduce the price to near break even levels and sell it. In my former industry this was a common practice and it was a way of reducing inventory and thus reducing insurance, taxes, storage costs and similar things associated with warehousing excess product.
Finally, and this applies to products manufactured overseas, there are things called free trade zones that are created by the federal government and exist in almost every area throughout the country. These areas need to meet certain qualifications and can be thought of a wareho
If you would care to check you will find most on line shops has a store front and not your basement dwelling train show dealers that happens to have a e-bay store or on line web page.
Its hard to be a independent basement dealer these days due to the requirements.
Now…Its all about bulk orders and paying for these bulk orders with cash means a cash discount on top of the regular dealer costs.Which leaves the mom and pop shops out in the cold since they can’t complete with their small orders which is usually charged and must be paid within the allotted time frame…Of course mom and pop is force to charge full MSRP or offer a 10% discount.
Now,if mom and pop would get a small loan for new stock and become aggressive on line they will survive the coming years.
LOL, Brakie I know of at least 10 “basement dealers” just within a 100 mile radius of my house that have a website and sells through mail order, lol. I know of more basement dealers then I do hobby shops within a 300 mile radius of my house. The websites of brick and mortar shops for the most part are very poor compared to the basement dealers. They are selling everything from Digitrax decoders and equipment right up to Rapido cars and Kato locomotives. I can get on the phone or shoot off an email and usually have something within a day or two. It’s a ton easier to be a basement dealer these days because you simply don’t have the expense of rent, heat, water and hydro as well as staff. Some even will work together and split a minimum order just to get new stock. As long as you have the room in your basement that’s all you need. I was at one dealers house and his inventory alone would rival Credit Valley or George’s Trains up here in Ontario. I know of one guy that is sitting on 50 Rapido CP Rail cabooses and is waiting for the market to dry up on them so he can sell them at a premium price. It doesn’t matter if a brick and mortar store has a website or not, they will never be able to compete with a basement seller who sells over the internet and at shows. Even if the brick and mortar stores would get a loan and become more aggressive on the internet like you suggest they still wouldn’t be able to compete. I’ve seen the bickering back and forth between these two types of sellers and I’ve seen the basement guys called the cockroaches of the model train world. It’s just the way it is and it’s just the way it will always be. To be honest I find it a lot easier to order through a basement dealer then a hobby shop. The basement guy doesn’t care if he only makes one dollar over his cost but a B&M store has to factor in all their expenses, and that adds up. I tried to order
I seen the “junk” basement dealers that lacks sufficent up to date stock and the higher prices they ask at several train shows I have been to…
Here’s the rub.
The better on line discounts comes from the bigger B&M shops not basement dwellers as many suspect.The basement seller is a dying breed as they are slowly being choke off from the supply chain as far as requirements-as is a lot of wholesalers in case you haven’t notice the slow change in the supply chain.
I’m not talking about the junk guys, all train shows have those guys. I’m talking about guys who sell new up to date, new release items. Maybe it’s different where you live but up here in Southern Ontario basically anybody that has a vendors permit can get things to sell from distributors AND most manufacturers. It’s got to be the same way in the States. Anyone that goes to the same shows I go to in the Toronto and surrounding area know who these guys are, and believe me, they aren’t going anywhere. If anything they are only getting bigger. Most wholesalers/distributors don’t have a minimum requirement clause anymore. If you want to buy one item a year your account is still good with them. I agree there is the odd Brick and Mortar store that does offer great deals from time to time on their websites, Train World being one of them but they are a minority, what about the other 99% of shops that are 1/10 the size. They don’t and never will because they can’t. The basement guys always will offer great deals because they can and that brings back repeat business. Besides, they also get a tax break because they use part of their home for business. They can also claim part of their mortgage, water, hydro etc on their taxes. It almost doesn’t seem fair does it.