Buy your Chinese guitars now.....

[Mycroft]

Wow. It's made it almost a page.

[ALBD]

Originally Posted by Mycroft

Wow. It's made it almost a page.

You pushed it to two

[chistrummer]

Originally Posted by tadol

Margin is pretty slim - so thinking that there's alot of room to absorb this extra cost and not pass it on is not very realistic -

If you only pass on your extra cost than there shoudn't be a problem. 25% of whatever the value is while the goods are still on the boat is not 25% of msrp.

[Pura Vida]

Right, chistrummer.

So, let's take a $1000 guitar (retail) and include some admittedly loose margin assumptions to make the math easy. First, let's assume the guitar has a 50% markup from the dealer, so his cost is actually $500. And let's assume that the wholesaler applied the same markup on their price from the manufacturer, so the landed cost is about $250. A 25% increase to the landed cost would be just over $60, so if that cost is is carried with no other changes, the retail price would increase from $1000 to $1060 (6% increase).

If the margins are smaller, the increases would be a little more, but not 25% to the final consumer. In the interest of forum rules, I'm withholding my personal opinions of all this... just trying to follow the math. I'd expect to see a 5-10% price increase, but if we see 25%, then people are exploiting the situation to hold a margin, rather than passing along the flat cost increase.

[brandall10]

Originally Posted by Pura Vida

Rso if that cost is is carried with no other changes, the retail price would increase from $1000 to $1060 (6% increase).
.

Agreed on the impact being a fraction of 25% carried to the consumer, but It's not the retail price, it's the street price. Ultimately the consumer has to absorb the entire extra cost (+ an extra bit of sales tax) to retain the margin.

[tadol]

Lets take a far more realistic look - we’ll use your numbers, but make things a bit more factual -

A $1000 guitar (list) is gonna have a realistic sales price of lets say $700 (probably less). But we’ll go with the assumption that the dealer is getting 50 off list (highly unlikely) so their cost is $500 - and we’ll assume they need at least a $200 profit to keep their overhead covered - a 40% markup.

Importers rarely get a keystone markup, but we’ll go with your $250. New landed cost is $312 - so they either cut their profit to keep the cost, but that means they lose money, or have to let go employees, but most likely, and very reasonably, they keep their margin nearly the same, and raise the price to $600 (not the $625 they would have with any other product). So the dealers cost is now 600, with a suggested list of $1200 - 30% off would make it $840, an increase of 20%, just to keep their 40% margin. Yes, they might make an extra $40 profit, but more likely they will lose in total sales volume, or they will have to lose that $40 and then some besides since the customer is looking at a $140 increase in the discounted price -

The scenario you want to believe is that the dealer can live on a flat rate profit - $500 cost guitar can sell for $700, so why can’t a $1500 cost guitar sell for $1700? They make just as much money - anything else is greed, right? I’d love to see an industry model where that works. I’d love to get a $4500 dealer cost Martin custom for $4700 - any dealers wanna jump on that bargain?

What you seem to be suggesting is this approach, just make each guitar sale generate the minimum necessary to keep the store open, or, the old “lose a little on each item but we’ll make it up in volume” -

Its easy to look at a single item and extrapolate a scenario that works for you - but thats not how the industry (or industries) are going to do it - they will be more concerned with maintaining their numbers and margins, so they can keep their employees and pay the rent. Try to get a loan with income statements showing decreasing margins and rising costs. Ain’t pretty -

This isn’t political - its just facts - numbers - reality. When you start buying product by the container from overseas, you’ll either understand far more clearly, or go bankrupt rather quickly -

[JayBee1404]

What tadol said. Margin %age is a major KPI in assessing the financial health of a business. Simply passing on a base cost results in a reduction of Margin %age. In order to maintain Margin %age, the Margin must be applied at each stage right down the line from manufacture to retail.

The usual disclaimers apply......IMHO, YMMV etc.