Free Shipping.....How do they do that!

[GaryJ]

So I've sold some stuff on ebay recently and shipping costs are just crazy. So I wonder, how do these big companies do the free shipping thing and still make money? I know they get a better rate than any individual does, but for instance I can order a 30 pound bag of dog food from Chewy for about what I pay in the store and get it the next day.....delivered. But if I went to ship that same bag of dog food it would cost me more to ship it than I pay Chewy for the dog food and shipping.
Are we as individuals subsidizing these big companies with the high prices we pay to ship stuff? Inquiring minds want to know!

[Paddy1951]

Economies of scale and they likely can write shipping off, to some extent, as a business expense.

There may also be allowances from the companies they buy from.

There are all sorts of possibilities the the end user never realizes. The bigger you are, the more likeky you are to see these incentives.

[GHS]

Cant say for sure because I cant prove it but I would say the products we buy are inflated by 300-400 percent on average. So if a 30lb. bag of food costs 30 dollars in the store chances are the store pays about 3-5 dollars for the bag. No other way they could stay in business if the mark up was not in that zone. shipping of course is negotiated on a massive scale we cannot come near.

[Wadcutter]

In regards to Amazon shipping, they probably made the USPS “an offer they couldn’t refuse.” 😱

[RP]

Originally Posted by Paddy1951

Economies of scale and they likely can write shipping off, to some extent, as a business expense....

Whenever the topic of business write-offs comes up, my mind immediately goes to Kramer's explanation....

[Dr. Spivey]

This article explains part of the situation with Amazon.

https://www.businessinsider.com/amaz...report-2018-12

[rokdog49]

Originally Posted by GHS

Cant say for sure because I cant prove it but I would say the products we buy are inflated by 300-400 percent on average. So if a 30lb. bag of food costs 30 dollars in the store chances are the store pays about 3-5 dollars for the bag. No other way they could stay in business if the mark up was not in that zone. shipping of course is negotiated on a massive scale we cannot come near.

Ok, I will politely disagree but Im not sure you have an understanding of distribution costs, logistics or overhead.
I'm pretty sure your numbers may apply to "some things" but what products are you referring to? All products?
A bag of food comes from the manufacturer by way of a distributor. There are warehousing (storage and handling) costs, transportation costs, people overhead costs, fees and I could go on forever depending on the given product, the source of manufacturer and a myriad of other things.
Don't get me wrong, I believe there are plenty of instances where margins are steep but there are a lot more where they are more like 50-60% and some even less.
I'd be curious as to what kind of profit margin would you guess a store like GC makes on a $2000 sold guitar, not mark up but profit?

[Earl49]

My guess: Amazon and big retailers get a wholesale price on shipping which they roll into their selling price. Mere mortals pay full-boat retail when we ship, to subsidize that. There is no free lunch. I know there is a big markup taking a package to my UPS store versus taking it directly to the shipping center at the airport, or taking something directly to the Post Office.

[Wadcutter]

Originally Posted by RP

Whenever the topic of business write-offs comes up, my mind immediately goes to Kramer's explanation....

Now I don’t care who you are, THAT’S funny!😂

[GHS]

Originally Posted by rokdog49

Ok, I will politely disagree but Im not sure you have an understanding of distribution costs, logistics or overhead.
I'm pretty sure your numbers may apply to "some things" but what products are you referring to? All products?
A bag of food comes from the manufacturer by way of a distributor. There are warehousing (storage and handling) costs, transportation costs, people overhead costs, fees and I could go on forever depending on the given product, the source of manufacturer and a myriad of other things.
Don't get me wrong, I believe there are plenty of instances where margins are steep but there are a lot more where they are more like 50-60% and some even less.
I'd be curious as to what kind of profit margin would you guess a store like GC makes on a $2000 sold guitar, not mark up but profit?

Well, you're right, I dont work in that field so as I posted..."I dont know and cant prove it because thats not my, or was my line of work". I'll take a shot a GC though. Lets take a Squier Classic Vibe telecaster, just bought one, 400 dollars. I would think they must make 50% on the sale. The guitar itself probably cost 25 dollars but there is wholesale. transportation over seas, land transport, distributor, and then store and salesman gets a piece. I had classic car calanders printed up one year. spiral bound, real nice 60's muscle cars, i got 5 dollars each sale...the retailer got 50% of cover price. My buddy sells Mercedes in Bergen Co. NewJersey...super demand the money they make is crazy, I wont print that out of respect for him but it is crazy money. Had a salesman from a Harley dealer tell me the only get about 600 per bike they sell. Please, you couldn't turn on the lights, pay the rent, keep the mechanics, maintain a parts inventory, oh, and YOU want to make something too. Please dont insult me. You have to make half of sale price to keep this place standing, pay the help, water, electric, taxes, and your take..My other buddy sells jewelry in an up scale town in NJ. Diamonds are marked 300 percent...minimum. Sales is where its at for sure

[Hoyt]

It’s cheap to keep your product in big wearhouse and on UPS trucks rather than a store shelf. Plus, they get a good deal from shippers when shipping a lot of goods.

But I agree, it is amazing some of the deals available today. Chewy delivers food and 40 pounds of cat litter right to my garage door.

I just shipped a used Martin guitar through Reverb’s UPS account for a lot less than I can get. You have volume, you get big breaks in price.

[Cypress Knee]

I was in retail for many years and can say that a few years ago wholesale pricing vs retail could be all over the board. As small (re:micro business) I paid 55% of the MSRP wholesale for running shoes. A friend of mine with a triathlon bike shop paid 65% of MSRP wholesale for his bike inventory.

Out of the 45% margin I had to pay:
A) Shipping and postage
B) Rent
C) Utilities
D) Property/Casualty Insurance
E) Office Supplies
F) Company Vehicle, including gas, maintenance and insurance.
G) Salaries
H) Employer share of FICA (about 7.5% of payroll)
I) Employee Benefits
J) Marketing and advertising
K) Business licenses, fees, permits, and taxes
L) Pilferage and theft
M) Professional fees (legal, accounting, etc)
N) Refunds
O) Credit Card Processing Fees

Then there are sales which reduce the profit margin. Then there is left-over inventory at the end of the season which needs to be drastically reduced just to get it off the shelfs because there is no room for current models.

And those comments about "Hey, it's a write-off". Well, let me tell you brother, just because it is a write-off doesn't mean it is positive cash in your pocket. For example, and this is just to keep the numbers easy, suppose the business owner in the above example actually cleared $100,000 in take home with the above numbers. Now he decides to upgrade his system to the latest Apple products, and gets a new computer for $2000, a new iPhone for $1000, a new iPad for $1000. What this means is that now there is only $96,000 in take home pay for the owner because Apple wants their money now. The business can depreciate those assets over a period of years which will reduce the tax burden, but still the business owner is short $4,000 from last year's take home.

(Note: Numbers are for example purposes only. I am certain that some single door specialty retailers do net six figures, and I am also certain that many single door specialty retailers are just barely making ends meet.)

My friend in the bike business never made any money selling high-end bicycles at a 35% mark-up. His profit came from his bike repair operation, which he did not want to really be involved with because he was not mechanically oriented, but realized it was the part of the business that made the entire operation profitable. In the end it wasn't enough to keep his interest, and he sold it to some other people who didn't have a good bike repair operation, and they went out of business and sold the name to someone else without a bike repair operation, and he went out of business and fled the country.

Anyway, just my .02 tonight.

CK

[Tony Burns]

Originally Posted by Earl49

My guess: Amazon and big retailers get a wholesale price on shipping which they roll into their selling price. Mere mortals pay full-boat retail when we ship, to subsidize that. There is no free lunch. I know there is a big markup taking a package to my UPS store versus taking it directly to the shipping center at the airport, or taking something directly to the Post Office.

I wondered about this as well -so i asked my postmaster at my local post office -
he responded ( not his exact words but the heart of this ) amazon negotiated the rates because of very high volume basically they named the rate.

i also mentioned to him that some items would cost me more to ship than what the initial purchase price from an item from amazon is - which hurts small businesses ( like mine )

I wanted to give my son a Guild D-25 that i bought a few years back , but the shipping on was a bout 2/3 of what a new all wood guitar was at Musicians friend ( on close out ) - So i just ordered him that guitar from M.F.

[fazool]

As soon as I saw your title, I thought of Chewy.

We buy a lot from Chewy. I can buy 25 or 40 pound containers of cat litter, delivered to my door cheaper than even Walmart sells it.

[Huskyman]

I was a letter carrier for 33 years and unless it's the holiday season if a carrier has 8 parcels that day or 20 parcels that day from Amazon it most likely wont send him into overtime. He is going to all those addresses anyway to deliver mail so throwing a parcel or two into his bag wont add to his day. That part I can speak on. Im guessing that if a USPS cargo plane flies from one coast to the other it's better for it to be full anyway?


The thinking probably was that it's better to get a lowered price on a contract then not get the contract at all when in the long run it wont really cost them anything.