Part 2 of Secrets Businesses Don’t Want You To Know

When Is A Sale Really a Sale?

The answer is never. This is due to the commercialization of America. Allow me to briefly describe the anatomy of a product and then next time you walk into a Best Buy, Home Depot and or Bloomingdales you’ll feel like you’ll have better knowledge on how that product came to be and how the sale tactic is a ploy.

A widget (generic term used for a product unit) is often made in some developing nation like Sri Lanka, Rwanda, Djibouti (pronounced The Booty. Sorry, I couldn’t contain myself). This widget is made by poor families or in sadder cases, small children for what can be equivalent to a few American pennies. These widgets are shipped over to well-developed importers across the US, whom pay import tax fees (sometimes. Grease payments other times), inspect the quality of the goods (if we are lucky) and keep adequate inventory on wholesale items. These items are then shopped around to different retail stores around our great country. Essentially the US-based importing plants are the middle men between the widgets makers that were paid pennies to the US stores that make a lot more then that in profit. The true value of the widget is what these stores make above the cost from the importer.

Now here’s where the plot thickens. A long time ago (i.e. 15-20 years ago), America was flooded with tons of Mom and Pop kind of neighborhood stores. This made it easier for import dealers to do business with lots of different shop owners. Now times have changed. We no longer have 25,000 hardware stores in our country. We now essentially have three (Home Depot, ACE and Lowes). We no longer have 25,000 book stores in our country. Now we have basically two (Borders and Barnes and Noble). This is a another story for another time but my point is that import dealers have less negotiating power. If they want to sell an item they must bow to the demands of large commercial industries. There is actually a fascinating documentary called “Wal*Mart—the High Cost of Low Price.” It discusses how Walmart bullies importers into dropping their price otherwise they won’t sell their widgets in their stores thus limiting the sale opportunity for importers. This is actually the reason why Walmart and Target keep prices lower then most other places. They bully prices and keep carry higher inventory. Good for the customer, not so good for small business owners who don’t have has much leverage on importers.

SO ABOUT THE SALE?
Here’s how they work you over. This aspect is simpler to follow. The store buys 500 units of said widget from importer. Since it’s cheaper to buy in bulk, the price works out to $50 a widget for the store. That store then sells that same widget to you, the customer for $100. Now most of us are savvy enough to look online before going to the store to buy so there needs to be an incentive for the store to get you in your car to come and buy in person. So they hang a sign and say “25% off.” If you are lucky that means you can get a $100 widget for $75 but in most cases its not even that favorable.

YOU ARE GETTING RIPPED OFF
In most cases, the store will raise the price of that product a few weeks or a few months prior. Then they put up their sale signs. You think you are getting a bargain but in reality you are just paying the regular store price. If you want to go even further to analyze, you are paying probably 80% more then what it costs to physically make this product overseas. But I digress.

You don’t believe my sale analysis? Bed Bath and Beyond are the kings of this practice. They may spend millions of dollars each year flooding our mailboxes with their endless 20% off coupons but in the long run it creates hundreds of dollars in revenue for the company. People are led to believe that they are saving money when in reality the store simply adds at least 25% to cost of their products. Everyone wins. You feel like you are saving money (when you really aren’t) and the store just got you in their doors. They are making a profit on everything you buy. Don’t believe me. Try going to Bed Bath and Beyond without your 20% off coupon. Better yet, go there with an expired coupon. It doesn’t matter. You can go in there and just say “I know someone who knows someone who knows someone else that had a coupon. Can I get the same deal? They won’t say no because sales are not designed for stores to lose money.

That’s just one example. Many other places are the same. When a car dealership has a holiday sale and you buy your $25,000 car for $20,000, you may feel good about your savings but that dealership really paid $10,000 for that same car from the importers. They paid even less if it’s an American made car. Furthermore the car was priced at $20,000 a few months before they had the sale. They only recently up-charged it to $25,000 to make you feel like you got a deal at $20,000. Some call this a smart business approach. I call it disingenuous. The truth lies somewhere in the middle. The goal of a business is to create profit. The one exception to this rule may be liquidations but the whole point of a liquidation is to sell everything because the store is going out of business. Maybe because the reason is their sales suckedJ

As we learned in this blog, sales are not to favor the customer. The origin of the sale can include the birth of the widget in a developing nation by the utilization of cheap labor, importers shopping widgets around, the existence of large commercial companies, the bullying tactics of these companies and the misperceptions of the point of a sale. Welcome to America. The land of opportunity.