Bill that's a great lesson on retail economics.
The problem is that, in anticipation of a price REDUCTION, the retailer
should IMMEDIATELY drop retail prices to the consumer. We all know that won't
happen when prices are falling, so naturally we're tired of providing the cash
flow during the upswing!
The blame for the price gouging doesn't land on the retailers anyway, but on
the producers. That's where we need to put some regulatory price controls
in place to keep monopolistic pricing tactics from extracting abnormally high
profits during high travel season.
In a message dated 3/10/2005 8:41:46 A.M. US Mountain Standard Time,
bill@freeholder.com writes:
Well, let me just comment on a couple of aspects of retailing. I have been
in retail and associated fields for 35 years.
Let's say I have a store that sells gizmos. I currently have 25 gizmos in
stock, and I paid $10 each for them. Since I am a small retailer, I sell
them for $19.95, which gives me 50% gross profit. That is considered pretty
standard for smaller or non-discount retailers. The big discount stores,
like Wal-Mart, work on more like 30% to 35% gross profit.
Anyway, let's suppose that I get a new price list from my supplier, and my
cost for gizmos has gone up to $15, because the dollar has fallen against
the yen, and gizmos are made in Japan.
Now, if you aren't knowledgeable about retailing, you may think that I will
need to raise my price as soon as I run out of the gizmos I have in stock,
but that's wrong. I actually need to raise my price right now.
Why? The $20 I get for gizmos represents the 50% I paid for them, and the
50% I need to run my business. If I sell my current inventory of 25 gizmos
for $20 each, I will realize $500 total. $250 of that is needed to run the
store, leaving $250 to buy more inventory. The problem is that $250 will
only buy about 17 gizmos at the new cost of $15 each, not the 25 I sold. If
I continue working like this, pretty soon I don't have enough inventory to
stay in business.
So, any business has to sell their current inventory for a price that is
based not on what the current inventory cost, but on what it will cost to
replace it.
How does this affect gas? If the price of crude goes up, refineries have to
immediately raise the price of their current inventory, which means
wholesalers and retailers have to do the same thing, so the new price hits
the gas station on the corner pretty quickly. A gas station can't afford to
sell their current inventory for less than it will cost to replace it, no
matter what it cost them to begin with.
I would like to pay less for gas, too, but that doesn't blind me to basic
business realities. Besides, we have the cheapest gas in the world.
Bill in Willcox
-----Original Message-----
From:
az-geocaching-bounces@listserv.azgeocaching.com [mailto:az-geocaching-
It went from $1.99 to $2.08 for regular unleaded overnight here. If there
is still a myth that those living close to refineries getting lower prices
on fuel, it's a bunch of crap. We have 3 refineries in town, and we're
paying as much right now, if not more than places like Phoenix.
I seem to remember in the past that when crude prices hit new highs it took
'several weeks' to see the impact on the refined fuel markets. But I've
since learned that 'several weeks' translates to approximately 3 days.
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