Musings about "price gouging"

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Guy B. Meredith

Guy B. Meredith

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I dropped in on a local vendor that usually has outstanding prices on reloading components. He was shelving primers and when I asked about the Winchester SP I use he came up with a box of 1000 for $50!!!! Previously his price had been less than half that.

When I remarked about the price he let slip that his usual price from his supplier was $15 per 1000 and is now $35 per 1000.

I am not going to buy primers at that cost, but I began thinking about his expenses. He is going to get caught holding some of the primers he's purchased at $35 as the market goes down. It makes sense to charge a heavy profit to cover losses that are sure to come when the prices do go below $35/1000.
 
I have a friend in the buisness. Costs from suppliers have not risen. Except .22lr. It's all the dealers that are charging crazy prices. They charge crazy prices because they know people will pay.

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Guy B. Meredith said:
I am not going to buy primers at that cost, but I began thinking about his expenses. He is going to get caught holding some of the primers he's purchased at $35 as the market goes down. It makes sense to charge a heavy profit to cover losses that are sure to come when the prices do go below $35/1000.
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Hmmmm...

You might want to rethink what constitutes a "heavy profit" with the perspective of a person who runs a business and has to make payments on a lease, insurance, employees, and the personal time it takes to run and stock that business.

At the end of the day, "profits" are what is left over after paying all the expenses of running the business...not the dollar difference between his wholesale purchases and retail sales.

;)
 
In other words,
Profit = Retail Sales Price - Wholesale Purchase Price - Overhead. If the volume of sales is down because of supply constriction, then overhead is higher per item since rent, salary, etc dont change.
 
Aaron1100us said:
I have a friend in the buisness. Costs from suppliers have not risen. Except .22lr. It's all the dealers that are charging crazy prices. They charge crazy prices because they know people will pay.

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Can you really say that with certainty when you only have one "friend" in the biz?
 
I understand business, paying expenses, etc., but the percent that is profit now is considerably higher than previous per the numbers I was given. Just happy that profit margin in this business isn't the same as the apparel industry.
 
They charge crazy prices because they know people will pay.
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This.

Its easy, and understandable, to get mad at retailers and resellers for "gouging" or "profiteering" but the truth is, if there were's people stupid enough to pay these prices, they wouldn't be charging them. :fire:
 
RetiredUSNChief said:
Hmmmm...

You might want to rethink what constitutes a "heavy profit" with the perspective of a person who runs a business and has to make payments on a lease, insurance, employees, and the personal time it takes to run and stock that business.

At the end of the day, "profits" are what is left over after paying all the expenses of running the business...not the dollar difference between his wholesale purchases and retail sales.

;)
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Good point Retired! My family has been running a business here in town since 1947 and it amazes me that lots of customers think you're automatically "rich" because you own a business and don't need to make a profit. Believe me when I say that small business owners have big headaches.-lots and lots of bills and more and more red tape every year. Not to mention labor and trying to stay relevant in your market.
 
Yeah, that's a tough one. To some extent, retailers need to speculate a little. Generally, they add a percentage, but they also need to think about what their supplier will charge for the next one they buy (of whatever). So if they *think* the manufacturer and/or distributor might be going for a price increase, they need to pass that on *before* it really happens, else they sell a unit, think they made money, only to learn that to stock another one for the next customer, they will have lost money on the last sale. It's hard to be a merchant.

At the same time, the people that show up at the retailer at 8:00 AM on delivery day, only to buy up stock and list on GB, I have no time for them. That's close to cartel behavior.
 
Guy B. Meredith said:
I understand business, paying expenses, etc., but the percent that is profit now is considerably higher than previous per the numbers I was given. Just happy that profit margin in this business isn't the same as the apparel industry.
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Your aware, of course, that the "profit" when you buy a pair of socks or underwear is like 100%?

You boycotting socks and underwear too?
 
I'm aware that the apparel/clothing industry routinely marks up 100% to 400%, hence my remark that I'm glad firearms components are not there.

Again I understand markup and am not knocking that. I am justifying the increase in margin as covering the speculative portion of the retailer's cost.

In the case of the primers the standard markup had been 30%. Right now it is 43%, but again I can see that as a wise move to cover the inevitable costs of being caught with primers the retailer bought at $35 when everyone else is selling at the $15 price.

And, yes, I am very picky about (boycott) clothing prices. Just check out the frayed pant legs, shrunk up shirts from too many washes, etc. Goodwill is your friend.
 
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I understand business, paying expenses, etc., but the percent that is profit now is considerably higher than previous per the numbers I was given. Just happy that profit margin in this business isn't the same as the apparel industry.
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So what?

If you do not like his prices, do not go there. I will bet his taxes and insurances have gone up (remember, Obamacare has passed, my wife's insurance has gone up 30% per year to cover something that hasn't gone into effect yet). municipalities have all raised taxes to fund services, shipping costs have gone up. manufacturers in the gun and ammo business typically raise their prices in late Spring, and any one of host of other reasons can necessitate his prices going up. If folks think prices will never go up, and anyone who raises them is a gouger, then they really need to rethink this hobby called shooting - it COSTS MONEY to do this.
 
Aaron1100us I have a friend in the buisness. Costs from suppliers have not risen. Except .22lr. It's all the dealers that are charging crazy prices. They charge crazy prices because they know people will pay.
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So did you ask your "friend in the business" how many pallets of ammunition he received at prepanic prices?:rolleyes:

It disturbs me that folks don't have the slightest clue about simple economics:

1. Suppliers price doesn't matter if they don't have that item in stock.
2. Dealers who sell at summer 2012 retail price will soon find they have nothing left to sell.
3. Same dealers will then discover that they can't replace what just sold.
4. "Markup" is not understood by nearly 99% of the firearms community. A dealer who marks up his inventory based on what he paid will soon be out of business............you markup based on your inventory replacement cost.
5. Those that complain the loudest about dealers charging high prices are the guys looking to flip that box of ammo on the internet for a profit. Please explain how it is immoral or unethical for a dealer to maximize his profit, but completely acceptable for a non dealer to do so? :scrutiny:

It makes me shake my head when someone posts "my LGS didn't raise the price of __________ (ammunition, AR's, PMags, etc)" Really? And how much ammo, AR's and Pmags do they still have? Where are they getting their resupply?

My distributors (RSR, Sports South, etc) haven't had squat since the first week of November. Anything that comes in to them is allocated to their larger accounts (I'm small time).

I wonder if there are forums where folks make WAG's about the percent of markup by their dentist, their plumber or appliance store?;)
 
Not sure how many verbal gymnastics I have to do to get tunnel visioned readers to understand that I am making an objective observation and not attacking.

dogtown tom's remark #4 above echo my observations.

If I didn't mention it before, this vendor is my favorite as they have consistently had the best prices around. If someone can make a decent living by offering me lower prices I will shop there.

Up until two years ago I belonged to a club that sold components at 6% over invoice. Guess where I shopped?

On the other hand, the club in this area makes a point of not competing with local vendors but is a few cents under my favorite commercial vendor. The cost of gas traveling to the club makes the local vendor the hands down choice if I am not already at the club.
 
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I have a friend in the business. Costs from suppliers have not risen. Except .22lr. It's all the dealers that are charging crazy prices. They charge crazy prices because they know people will pay.
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I have a friend in the business as well. I've seen his invoices, and can tell you that distributor prices definitely went up.

4. "Markup" is not understood by nearly 99% of the firearms community. A dealer who marks up his inventory based on what he paid will soon be out of business............you markup based on your inventory replacement cost.
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And so everyone is clear, most dealers treat this as a two way street. My same friend has pmags for sale at less than dealer cost - he has to, because the cost of new ones is less and he needs to sell them that low to be competitive.
 
One thing we're gonna have to take into account are lead and brass prices. I know scrap lead is fifty five cents a pound, maybe twice what it was a few years ago.
 
At the end of the day, "profits" are what is left over after paying all the expenses of running the business...not the dollar difference between his wholesale purchases and retail sales.
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True, but many companies have found out the hard way that profit is not as important as customer satisfaction and repeat business. Some times on certain products, you have to sell them at cost as a loss leader. Otherwise the customer goes elsewhere. Do you realize what your cost is to get a customer in your door??

Jim

You can make up your profits on other items. The retailer in this case was just stupid.
 
One reason we have to go up on price if the market is moving up but we aren't yet paying the higher prices is because when the market drops, we have to drop with it, no matter what we paid for the product on hand. So, we have to watch our backsides, we can take a real beating when the market drops, and we never know how bad of a beating we're going to take. It's only smart to make money where you can, especially in volatile markets.

****I see now that this was mentioned previously*******
 
Potatohead is saying exactly what I was trying to get across.

HOWEVER. I MADE A MISTAKE AND THINGS ARE CURIOUSER. :what:

In my original figures I used a non panic retail price that is actually wrong--it probably comes from what I used to expect when I was competing and purchasing by the 5000 cartons.

IN ACTUALITY, IT APPEARS THE MARGIN MY VENDOR IS TAKING ON PANIC PRICES IS * lower * THAN ON STANDARD PRICES.

So my last purchase was actually $29.95 and he mentioned supplier cost of $15/1000. Now the panic retail price is $50/1000 and supplier price is $35/1000. Assuming I did take good notes on the supplier price that means my vendor's non panic margin is 100% and the panic margin 43%.
 
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jim243 said:
True, but many companies have found out the hard way that profit is not as important as customer satisfaction and repeat business. Some times on certain products, you have to sell them at cost as a loss leader. Otherwise the customer goes elsewhere. Do you realize what your cost is to get a customer in your door??

Jim

You can make up your profits on other items. The retailer in this case was just stupid.
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An easy statement to make, not knowing the details behind this particular retailer's business.

Sales tactics has long been a lure for customers, yes...but without knowing the details behind what inventory he carries, what his sources are, and the market statistics for the area his business is in, it's kind of ludicrous to say what you just did. If his diversity in inventory is low, for example, then he has far less leeway to make such sales...every item counts just to stay afloat.

The man doesn't sound like a "company", with the implied "big business model". LGS implies "small business", which has quite different dynamics.

Lots of things go into customer satisfaction and repeat business.
 
True, but many companies have found out the hard way that profit is not as important as customer satisfaction and repeat business. Some times on certain products, you have to sell them at cost as a loss leader. Otherwise the customer goes elsewhere. Do you realize what your cost is to get a customer in your door??

Jim

You can make up your profits on other items. The retailer in this case was just stupid.
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That works well - IF you are Walmart, Target, or Home Depot - most small mom and pop shops cannot afford to carry merchandise they cannot make their margins on.

Maybe you should open your own retail store and sell goods at a loss to get customers in the door - then come back in a year and tell us how well you are doing. Small shops (and I owned one in a different genre) only put stuff on sale that doesn't move fast enough - inventory turns and margins drive the business - plain and simple
 
Small shops (and I owned one in a different genre) only put stuff on sale that doesn't move fast enough
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Blanket statement. Not entirely true. You sometimes have to match the big boys' prices on some items. No matter how fast it moves. I do see your point though.
 
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