4 ms·

> You are paying extra for everything since the cost of return losses is built into the price - you are paying "return insurance" whether you need it or not. I

> You are paying extra for everything since the cost of return losses is built into the price - you are paying "return insurance" whether you need it or not. I've heard this before but it always confuses me. Stores always charge the amount such that (price per widget)*(expected number of widgets sold) is maximized. Put another way - If stores somehow managed to eliminated returns with no other side effects, would you expect the price to drop?

SahAssar 4y ago
If the theory of capitalism holds then a lowered price of doing business combined with competition should lead to lower prices. I don't believe that the world operates under such a system, but in theory it works that way.
- lotsofpulp 4y ago
  Then why did all the mom and pop shops go out of business when Kmart and Walmart and Dollar General came around around? Retail is a near perfect example of multiple sellers competing for multiple buyers resulting in razor thin profit margins, which means the buyers are getting what they want at the lowest prices possible. Retail business do not earn 2-4% profit margins because they want to, they earn them because their customers will go to the store next door if they try to take 5%+.
  - bombcar 4y ago
    Moms and pops died more from low hours and low selection than low prices I suspect, though some of it no doubt is national price equalization.
    - lotsofpulp 4y ago
      That is all part of the equation customers are using to decide who to buy from. Price is not just the currency exchanged, but convenience, warranty, trust, etc. The point is competition does cause each other to up their offerings and/or lower prices to maintain market share.
  - formerkrogemp 4y ago
    > Retail business do not earn 2-4% profit margins because they want to, they earn them because their customers will go to the store next door if they try to take 5%+. Have you seen Home Depot's and Lowe's profit margins? Consistently 5-9% for decades. Kroger, Walmart, and target all earn 1-3%. They hardly ever earn 4% nowadays. Perhaps after all of the cashiers and stockers are automated or made redundant. They are all heavily investing in automation, delivery, pickup, and supply chain tech.
    - lotsofpulp 4y ago
      Home Depot/Lowes are good counterexamples of retail where profit margins are increasing, and some of it is surely due to them killing the competition and being in a high barrier to entry retail sector. https://www.macrotrends.net/stocks/charts/HD/home-depot/profit-margins https://www.macrotrends.net/stocks/charts/HD/home-depot/prof... https://www.macrotrends.net/stocks/charts/LOW/lowes/profit-margins https://www.macrotrends.net/stocks/charts/LOW/lowes/profit-m... The logistics of selling the things Home Depot and Lowes sells is much harder to replicate than Target/Walmart/grocery retail, so the profit margins need to get bigger before a competitor will want to invest in the market due to the higher risks.
lotsofpulp 4y ago
> Stores always charge the amount such that (price per widget)*(expected number of widgets sold) is maximized. The error is in neglecting the stores’ competitors selling the widget for a lower price, and customers opting to buy from said competitors.
HarHarVeryFunny 4y ago
Stores are certainly trying to maximize profits, but how optimal they are about it is going to vary. Who's doing the best job in maximizing profit - the gas station selling lots of gas at $2/gal, or the one across the road selling far less at $2.50/gal? (I don't know, but surely one is doing better than the other!). In other countries where "no reason" returns are not the norm, are stores missing out on profit they could be making by adopting this policy and adjusting prices accordingly, or is it the American stores that have it wrong? If all stores in unison dropped no-reason returns then there's be no competitive reason to drop prices, but if only one or a few did it then presumably they'd have to (else why pay same price for less flexibility). More to the point, they might WANT to drop prices as a result of this reduced cost-of-goods since that'd be a way to attract more customers, as non-stop "10% off" sales attest.

SahAssar 4y ago

If the theory of capitalism holds then a lowered price of doing business combined with competition should lead to lower prices. I don't believe that the world operates under such a system, but in theory it works that way.

lotsofpulp 4y ago
Then why did all the mom and pop shops go out of business when Kmart and Walmart and Dollar General came around around? Retail is a near perfect example of multiple sellers competing for multiple buyers resulting in razor thin profit margins, which means the buyers are getting what they want at the lowest prices possible. Retail business do not earn 2-4% profit margins because they want to, they earn them because their customers will go to the store next door if they try to take 5%+.
- bombcar 4y ago
  Moms and pops died more from low hours and low selection than low prices I suspect, though some of it no doubt is national price equalization.
  - lotsofpulp 4y ago
    That is all part of the equation customers are using to decide who to buy from. Price is not just the currency exchanged, but convenience, warranty, trust, etc. The point is competition does cause each other to up their offerings and/or lower prices to maintain market share.
- formerkrogemp 4y ago
  > Retail business do not earn 2-4% profit margins because they want to, they earn them because their customers will go to the store next door if they try to take 5%+. Have you seen Home Depot's and Lowe's profit margins? Consistently 5-9% for decades. Kroger, Walmart, and target all earn 1-3%. They hardly ever earn 4% nowadays. Perhaps after all of the cashiers and stockers are automated or made redundant. They are all heavily investing in automation, delivery, pickup, and supply chain tech.
  - lotsofpulp 4y ago
    Home Depot/Lowes are good counterexamples of retail where profit margins are increasing, and some of it is surely due to them killing the competition and being in a high barrier to entry retail sector. https://www.macrotrends.net/stocks/charts/HD/home-depot/profit-margins https://www.macrotrends.net/stocks/charts/HD/home-depot/prof... https://www.macrotrends.net/stocks/charts/LOW/lowes/profit-margins https://www.macrotrends.net/stocks/charts/LOW/lowes/profit-m... The logistics of selling the things Home Depot and Lowes sells is much harder to replicate than Target/Walmart/grocery retail, so the profit margins need to get bigger before a competitor will want to invest in the market due to the higher risks.

lotsofpulp 4y ago

> Stores always charge the amount such that (price per widget)*(expected number of widgets sold) is maximized. The error is in neglecting the stores’ competitors selling the widget for a lower price, and customers opting to buy from said competitors.

HarHarVeryFunny 4y ago

Stores are certainly trying to maximize profits, but how optimal they are about it is going to vary. Who's doing the best job in maximizing profit - the gas station selling lots of gas at $2/gal, or the one across the road selling far less at $2.50/gal? (I don't know, but surely one is doing better than the other!). In other countries where "no reason" returns are not the norm, are stores missing out on profit they could be making by adopting this policy and adjusting prices accordingly, or is it the American stores that have it wrong? If all stores in unison dropped no-reason returns then there's be no competitive reason to drop prices, but if only one or a few did it then presumably they'd have to (else why pay same price for less flexibility). More to the point, they might WANT to drop prices as a result of this reduced cost-of-goods since that'd be a way to attract more customers, as non-stop "10% off" sales attest.