Out of Order or Good Business Sense?

[ianmacc]

Morning All.

 

A retailer I use regularly who I will not name as I am sure they are not unique...

 

Carries a large stock of certain items (in this case spare packs of wheels). Has had some in for a good couple of years. The item has seen at least three price increases in that time from £12-£16. Every time there is a RRP rise, the entire couple of years' stock gets relabeled to the new price (some very thick layers of labels now!). Is this good business practice or is it wringing every last penny out of customers?

 

Apologies if the wrong area of the forum.

Edited May 30, 2018 by ianmacc

[great central]

No real opinion on it personally but have seen it in the past. One long closed small retailer near here used to do the same. Much older style, in this case, Hornby boxes often colour bleached from display alongside brand new stock at the same price.

All I would say is I'd be more inclined to make sure the stock was moving and if I'd already got items in stock wouldn't be getting more in. Rather discount the older stuff to move it before bringing new in

[brushman47544]

That's a tricky one. Some retailers do the same thing others not. If a retailer doesn't put its prices up, then it will get less income when selling them, so will have less money available to buy new stock which will in turn now be at a higher price from the manufacturer. Bachmann for example puts up the price of the stock it has in its warehouse each year when releasing the new catalogue and the retailer putting its price up is effectively doing the same thing.

 

Not all retailers do it though, so perhaps the moral is to shop around, although admittedly not necessarily what you want to do if a local retailer and relatively low priced items.

[Trains4U]

This is a complicated one - and a subject that has come up a few times in the past.

 

I went for many years holding off on putting up stock prices until the absolutely necessary. This was fine when annual increases were in the 2-3% region.

However, in recent years, price increases have varied between 5-15%.     

 

In the event of larger increases, if prices are not put up, you lose your selling margin on replacing the stock just sold.  so in order to stay in business and pay the bills, prices must go up.

 

Also, with continually stocked items, at what point do you raise prices - Generally we would wait until we re-stock with new items at the new price - and any remaining stock will also be raised.   

it is bad practice to have the same item on the shelf at different prices - The customer could, rightly, ask for all of the items at the lower price - although this does not have to be honoured.   and is a problem that continues to occur in my shop (Despite repeated discussions with my staff!)

 

I can see your argument, but ultimately, the shop is a business and needs to make money - if they are pricing their items at, or below MSRP, they are not trying to rip anyone off.

It's no good selling a packet of wheels for £12 if it costs £12 to replace them.    Though they really ought to question whether their overall pricing strategy is good if they are not selling any of their wheels.

 

 

However - The retailer needs to know that it is illegal to overprice a lower value with a higher one.   you can do it the other way around, but if there is a thick wad of labels, with increasing prices, then they could fall foul of Trading Standards. - again, this has occurred in my shop, and I made it very clear to all my staff that it is unacceptable.

Edited May 30, 2018 by Trains4U

[scottystitch]

 If a retailer doesn't put its prices up, then it will get less income when selling them, so will have less money available to buy new stock which will in turn now be at a higher price from the manufacturer. 

 

But the old stock was bought from the wholesaler at a lower price to begin with. Whilst the new stock will be bought from the wholesaler at a higher price, the retail price he or she charges will reflect that higher cost price, won't it?

 

If the shop sells the old stock at the new price, it could be viewed as profiteering? i.e. they are making a bigger mark-up at no cost to themselves.

 

I'm not saying the shop, nor you, are wrong. Just thinking out loud for the benefit of discussion.

[Trains4U]

But the old stock was bought from the wholesaler at a lower price to begin with. Whilst the new stock will be bought from the wholesaler at a higher price, the retail price he or she charges will reflect that higher cost price, won't it?

 

If the shop sells the old stock at the new price, it could be viewed as profiteering? i.e. they are making a bigger mark-up at no cost to themselves.

 

I'm not saying the shop, nor you, are wrong. Just thinking out loud for the benefit of discussion.

 

But if you cannot afford to replace it, your business model is unsustainable.

 

The margins are not fantastic, there aren't many model shop owners driving around in range rovers.

 

Profiteering is taking a scarce item and selling it for twice the RRP.

 

but then it happens anyway - it is business and it is market forces in play - you can make up your mind as to the morality, but ultimately, the shop owner is there to make money (Hopefully doing something they love), but they still have bills to pay and mouths to feed, and if the opportunity is there to make the maximum profit, why would you not take it?   It's not baby milk or medicine.

Edited May 30, 2018 by Trains4U

[scottystitch]

But if you cannot afford to replace it, your business model is unsustainable.

 

The margins are not fantastic, there aren't many model shop owners driving around in range rovers.

 

Profiteering is taking a scarce item and selling it for twice the RRP.

 

but then it happens anyway - it is business and it is market forces in play - you can make up your mind as to the morality, but ultimately, the shop owner is there to make money (Hopefully doing something they love), but they still have bills to pay and mouths to feed, and if the opportunity is there to make the maximum profit, why would you not take it?   It's not baby milk or medicine.

All makes sense, thanks.

 

As I say, I wasn't saying it was wrong, just being a devil's advocate.

[kevinlms]

It works the other way too. 

 

A friend told about a long since gone shop here in Melbourne. There were 2 long rakes of brass US coaches. They had been in the display for years, without any price increase. He decided to buy one rake & put a holding deposit on them.

 

Next day he went in with the rest of the money, only to see that a 2nd long rake had disappeared! So someone else had panicked!

 

So the shop now had a significant hole in the display cabinet and due to the long time of their occupancy, they had to spend a lot of cash replacing them, which took a while for them to arrive. OK, they spread out some other items to fill the gap, but the cabinet did look bare for quite a while.

 

 

But I would agree, a wad of labels, with presumably gradually increasing pricing, looks very poor at best & probably against the spirit of the law.

 

 

In the RMweb eBay Madness thread the question is often asked, why is an item still displaying an old price label (possibly decades old) & the opening bid is listed at a higher amount. I don't see anything wrong with that, if you don't like it, don't bid. The item should sell at whatever the buyer thinks is a fair rate, regardless of its historic price.

[10000]

A number of years ago I was in a shop that changed hands after the owner retired. The new owners were actually repricing items with a high price on top of the original while I was in the shop.

 

When I informed them that what they where doing was illegal they just shrugged their shoulders and carried on. 

 

I walked out and never went back.

[Talltim]

It works the other way too. 

 

A friend told about a long since gone shop here in Melbourne. There were 2 long rakes of brass US coaches. They had been in the display for years, without any price increase. He decided to buy one rake & put a holding deposit on them.

 

Next day he went in with the rest of the money, only to see that a 2nd long rake had disappeared! So someone else had panicked!

 

So the shop now had a significant hole in the display cabinet and due to the long time of their occupancy, they had to spend a lot of cash replacing them, which took a while for them to arrive. OK, they spread out some other items to fill the gap, but the cabinet did look bare for quite a while.

 

 

But I would agree, a wad of labels, with presumably gradually increasing pricing, looks very poor at best & probably against the spirit of the law.

 

 

In the RMweb eBay Madness thread the question is often asked, why is an item still displaying an old price label (possibly decades old) & the opening bid is listed at a higher amount. I don't see anything wrong with that, if you don't like it, don't bid. The item should sell at whatever the buyer thinks is a fair rate, regardless of its historic price.

Sometimes, with a a very old item. the original price label is part of the 'provenance'

[woodenhead]

If people are prepared to pay the price then it is reasonable - remembers old Supply and Demand theories from Economics.

 

If you have two boxes of the same wheels - why would you sell one at a low price and another at a higher price, you wouldn't and people would be mocking the seller for doing so.

 

That all said, I have seen from time to time with Hattons that they can have very similar items at two very different prices when they had one of those 'special' sales on after receiving some excess stock but the difference there I guess is that they bought the items cheaper with the intention of selling cheaper.

 

I think in business there is the notion of the 'going rate' for items, if prices are rising then it is fine to increase your existing stock prices in line with general inflationary pressures.  What wouldn't make sense is to lift the price on something no-one is buying, i.e. if they weren't buying at £20 then there is no point increasing the price to £22 which potentially is the case in point with this thread.  If those wheels have been there for so long they have been through several price rises then they are not selling or selling very slowly adding to the price is going to only marginally increase profit (or reduce losses) so the question is, why is no-one buying them and is there another way to release the cash value in them.

[ejstubbs]

it is illegal to overprice a lower value with a higher one.   you can do it the other way around, but if there is a thick wad of labels, with increasing prices, then they could fall foul of Trading Standards. - again, this has occurred in my shop, and I made it very clear to all my staff that it is unacceptable.

 

I realise that you are a retailer and that you claim to be speaking from experience, but can you point to the legislation that says that overpricing is, of itself, illegal?  It is illegal to put misleading pricing on an item (eg to display two prices, only the higher of which you would actually be prepared to sell at) but as far as I am aware there's nothing to stop you putting whatever price you want to on an item provided it is clear and not misleading.  The displayed price is only ever an "invitation to treat" anyway - there's no contract in place until retailer and customer agree on the actual price that is going to be paid & accepted.

 

There's a reasonably informative debate on the subject here:  https://forums.moneysavingexpert.com/showthread.php?t=3425203. (If anyone wants to refer to the Price Marking Order 2004 referenced in that thread then it can be perused here.)

[Phil Parker]

I realise that you are a retailer and that you claim to be speaking from experience, but can you point to the legislation that says that overpricing is, of itself, illegal?  It is illegal to put misleading pricing on an item (eg to display two prices, only the higher of which you would actually be prepared to sell at) but as far as I am aware there's nothing to stop you putting whatever price you want to on an item provided it is clear and not misleading.  The displayed price is only ever an "invitation to treat" anyway - there's no contract in place until retailer and customer agree on the actual price that is going to be paid & accepted.

 

There's a reasonably informative debate on the subject here:  https://forums.moneysavingexpert.com/showthread.php?t=3425203. (If anyone wants to refer to the Price Marking Order 2004 referenced in that thread then it can be perused here.)

 

The whole "invitation to treat" was a classic Trading Standards question when I used to work with some of the council team years ago (not on the team, I helped them look after their bit of the website where the Q&A section was popular). You can put whatever price you like on something, the crucial point is at the till when the price is agreed between buyer and seller. 

 

Ultimately, it is up to the customer to decide if the price on offer is the price they are willing to pay. If it's not, walk away. If enough people do this, either the price drops or the product is no longer economic to produce and will disappear. 

 

And "profiteering" surely isn't applicable to model railways. We are not talking about basic foodstuff or water that people can't live without. It's not unreasonable that a shop should wish to make a profit on items. If they don't, goodbye shop!

[hayfield]

I have always been of the opinion that its good practice to sell items on the original ticket price.

 

However I know one supplier who increased all stock when the cost of replacing the item increases, his pricing was based on how much it cost to replace the stock (if this makes sense) 

[Pete the Elaner]

The displayed price is only ever an "invitation to treat" anyway - there's no contract in place until retailer and customer agree on the actual price that is going to be paid & accepted.

 

I worked at one of the big supermarkets a few years ago, among other things, one of my roles was to change the shelf edge labels to reflect price changes.

We were always told that we could start changing the shelf edge labels on items which were increasing in price well before the shop shut, since the items would be scanned at their older, lower price.

We were definitely not allowed to change the labels for any decreases since it was illegal to advertise them at a lower price than they were being charged.

 

I was also told separately that you cannot charge more for something that what it was advertised for, although at a later time, it was pointed out to me that you can withdraw it from sale.

[Andy Hayter]

Back in the 70s I knew a jeweller who had been in the business for many years.  He had a simple formula for have a good business.  He out a handsome set margin on everything he sold (IIRC 60%, and while that sounds a lot I guess that he had relatively low turnover even compared to a model shop.

 

Then he was hit with a triple whammy.

1.  UK inflation went up to an average 18% or so.

2.  The pound plummeted against the US$ - the currency which is used to price precious metals

3.  Gold prices soared as unrest in the middle east created fears of oil price hikes above those already announced.

 

He was convinced after years of being in business that he could continue with his business model.  Fact was though he had 60% margin on each watch or ring he sold, when he came to buy a replacement, it was costing him more than the money he had received from the sale.  18 months later he was bankrupt.

 

Lesson:  If the income you get from a sale is not enough to cover the stock to replace that item, you either stop stocking that item or you have to put prices up -  irrespective of what you might have paid for them.

[40F]

Back in the 70s I knew a jeweller who had been in the business for many years.  He had a simple formula for have a good business.  He out a handsome set margin on everything he sold (IIRC 60%, and while that sounds a lot I guess that he had relatively low turnover even compared to a model shop.

 

Then he was hit with a triple whammy.

1.  UK inflation went up to an average 18% or so.

2.  The pound plummeted against the US$ - the currency which is used to price precious metals

3.  Gold prices soared as unrest in the middle east created fears of oil price hikes above those already announced.

 

He was convinced after years of being in business that he could continue with his business model.  Fact was though he had 60% margin on each watch or ring he sold, when he came to buy a replacement, it was costing him more than the money he had received from the sale.  18 months later he was bankrupt.

 

Lesson:  If the income you get from a sale is not enough to cover the stock to replace that item, you either stop stocking that item or you have to put prices up -  irrespective of what you might have paid for them.

 

 

Very well said sir

[40F]

 

However I know one supplier who increased all stock when the cost of replacing the item increases, his pricing was based on how much it cost to replace the stock (if this makes sense) 

 

Perfectly true

[hayfield]

Perfectly true

 

 

Though we all do have a secret smile when we see an item in a shop we want priced up at an old lower price,

[Andy Y]

Remember the days when the Chancellor would announce a petrol and diesel price increase in the Budget statement which would come into effect at say, 6pm, that evening? There would be queues of cars at filling stations on the way home. I don't know how they ever worked out what was sold before or after 6pm but that was, in effect, a price increase on something that was already in stock. It was the government so it must have been legal.

[PaulCheffus]

Remember the days when the Chancellor would announce a petrol and diesel price increase in the Budget statement which would come into effect at say, 6pm, that evening? There would be queues of cars at filling stations on the way home. I don't know how they ever worked out what was sold before or after 6pm but that was, in effect, a price increase on something that was already in stock. It was the government so it must have been legal.

Hi

 

That's a little different though as it was fuel duty that was being raised much like when the VAT rate changes the cost of the item changes immediately whether its old stock or not.

 

Cheers

 

Paul

[Dava]

Some model shops clearly have pretty slow stock turnover, it may make more sense to move older stock attractively priced to sell and get the cash flow moving than keep it unsold at higher prices. But small batch production of RTR ordered in advance is changing that for popular items. Dealers at shows are usually keen to discount and sell older items.

[E3109]

Filling stations have been doing this for years, the moment a 45 gallon barrel of oil goes up.

Doesn't make it right, just saying it how it is.

 

Pretty much everyone needs derv or petrol so we don't have much choice, irrespective of the moralities.

Model trains are however a niche market when considering the entire population, so we as a general community have the choice to shop or not to shop.

[10000]

OK so some of the comments seem to justify this practice on the grounds that it costs the retailer more to replace the item.

 

Well, sorry, for me that is no excuse to up the price on old stock.  If it cost them £8(0) to buy and its old price was £10(0) but they sell at a new price of £12(0) then that is extra profit on that item.

 

Yes it may cost them £10(0) to replace the items but that will be covered when its sold

[Jol Wilkinson]

It works the other way too. 

 

A friend told about a long since gone shop here in Melbourne. There were 2 long rakes of brass US coaches. They had been in the display for years, without any price increase. He decided to buy one rake & put a holding deposit on them.

 

Next day he went in with the rest of the money, only to see that a 2nd long rake had disappeared! So someone else had panicked!

 

So the shop now had a significant hole in the display cabinet and due to the long time of their occupancy, they had to spend a lot of cash replacing them, which took a while for them to arrive. OK, they spread out some other items to fill the gap, but the cabinet did look bare for quite a while.

 

 

But I would agree, a wad of labels, with presumably gradually increasing pricing, looks very poor at best & probably against the spirit of the law.

 

 

In the RMweb eBay Madness thread the question is often asked, why is an item still displaying an old price label (possibly decades old) & the opening bid is listed at a higher amount. I don't see anything wrong with that, if you don't like it, don't bid. The item should sell at whatever the buyer thinks is a fair rate, regardless of its historic price.

 

 

A number of years ago I was in a shop that changed hands after the owner retired. The new owners were actually repricing items with a high price on top of the original while I was in the shop.

 

When I informed them that what they where doing was illegal they just shrugged their shoulders and carried on. 

 

I walked out and never went back.

 

Since the abolition of Retail Price Maintenance, a retailer or reseller can sell an item at any price he chooses. Of course, everyone welcomed the abolition of RRP, because the retailers could cut prices to increase their sales volume, enabling the bigger players to put the smaller out of business. Customers now expect a discount on the manufacturers suggested selling price, wanting the lowest price and get upset if they don't get it. Of course, one way around that is for the manufacturer to set an artificially high SRP and give the retailer a bigger margin so that they can give a discount but still make an realistic working profit.