Monday, Dec 29, 2008
Can you hear that hissing sound of a deflating economy?
Press Association: Store price cuts likely to continue
BRC spokesman Richard Dodd said: "They have to be able to make an acceptable margin on what they sell in order to be able to cover their costs."
Posted by paul @ 09:57 AM (385 views) Add Comment
4 Comments
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1. little professor said...
Interesting thread on the forums about margins for clothes retailers. Generally the markup is between 6 to 12 times the cost price of the clothing, which is invariably made somewhere in the far east, whether it's Primark or M&S. Traditionally the markup was more like 3x, but with commercial property prices going through the roof even more so than residential property, companies had to make the money up somehow. The cost was offset by the cheapness of third world labour so we actually saw clothing prices fall over the last 10-15 years, even though margins rose considerably.
2. drewster said...
Thanks for the info LP.
I have a new definition of inflation / deflation: commercial property rents. Picture a coffee stall in a major train station that charges £2 for a coffee (which costs 10p to make). When people are feeling the pinch, that morning coffee is one of the first things they cut back on. So the stall has to cut prices to entice buyers. In order to cut prices it has to negotiate a lower rent from the landlord and possibly lower wages from staff. That's my definition of deflation.
3. northern bear said...
It will be interesting to see how far prices do fall. It's a fact that every link in the retail chain has been making fat profits, and while people thought they had plenty of money there wasn't too much complaining. A close contact of mine negotiated a lease on a unit in Eldon Square shopping complex in Newcastle, only to find the management inserted a clause demanding 10% of turnover in addition to rent! Who do they think they are - the mafia?? Note, that was a percentage of turnover not profit!!
No wonder those trendy trainers etc. cost so much.
4. paul said...
"the management inserted a clause demanding 10% of turnover in addition to rent!"
Wow. That simply defies rational logic. Imagine if ATM manufacturers demanded 10% of bank profits, or lorry manufacturers demanded 10% of hauliers' profits. Maybe bed manufacturers could demand 10% of all future income received by children conceived on their beds.
I do hope Eldon Square is consigned to shop units selling hair extensions, bangles and pick-n-mix. That would serve 'em right.