Back in November of 2014 I wrote something to the effect of “gas prices were relatively cheap” in reference to days of our more halcyon past, remembering them fondly, and lamenting their passing. Well what do I know? Here we are in late January of 2015 and gas is so cheap, even the people who still own Hummers have stopped complaining. It’s as though I, like “Mugatu” in the perhaps under appreciated film “Zoolander”, have taken crazy pills!
Alas! No, I have not, at least in pill form, but I digress. While it does seem crazy that gas is inexpensive right now, there is at least one other event currently unfolding that rightly warrants the use of the word crazy, and that my dear readers is the failure of Target here in Canada. All jesting and joking aside, what kind of idiots are running that place? A huge retailer with what should be immeasurable collective memory and know how, just couldn’t make money selling things to Canadians? For those of you not familiar, the launch of Target in Canada had be plagued from the beginning with high(er) than the United States pricing and woefully understocked shelves. From day one, it looked like a closing sale. But why? Other United States’ companies and retailers are successful in Canada, so how is it that Target messed up so extraordinarily? I just don’t know. Retail in principal is simple. Step One! Buy things at “X” price. Step Two! Have them available on the shelves to purchase. Step Three! Sell them for more than “X”. Voila! Someone at Target just didn’t get step two because you know, as previously mentioned Target either hires idiots, or they planned to loose money on the Canadian operation from the inception. **shrugs while making shifty eyes and a “hmpf” sound** But now onto why Step Three failed, which relates, I promise, to rugs.
Before those aforementioned halcyon days, before the internet, everything was simpler by comparison. Canadians purchased goods at their local store at “X+20% (CAD)” price, happy the goods were available, and happy to have what they wanted. Never mind the fact that people in the United States payed “X (USD)” for the same goods. We as Canadians (though technically not me as I was not yet Canadian) generally accepted this fact as a nature of our economy and the exchange rate, and only those living proximal to the border of the United States really bothered to take advantage of gaming any benefit from cross border shopping. It was a fine system for sometime prior to let’s say 1995 for ease of working in decades. But lo! Time marched on as it does and, it seems, no one told the fine people at Target. In a period of near parity between the CAD and the USD, the painfully incompetent Executive Management at Target just couldn’t grasp that Canadians would simply not accept any Corporate Bullshit Answer as to why goods were more expensive (in excess of the exchange rate) in Canada than in the United States. It was as though Canadian Consumers could look online at Target’s US prices, convert from USD to CAD and have a reasonable expectation of what the price should be. This concept was certainly lost on Target, and my dear readers, it is also lost on many rug and carpet companies. So, without further adieu, this is how it is.
Enough of the cat and mouse, beating around the bush, “we don’t discuss our pricing” bullshit that so much of this industry loves to revel in. We get it, goods are bought and sold many times over, and at each step the person selling is attempting to make money. We all do it (some far better than others), yet there is so much annoying coyness about it all. Not today, today we’re discussing pricing and how to be competitive and customer oriented (The customer is never wrong after all…
). Now do not mistake my brashness to mean we should all air our dirty secrets (yikes!) or reveal our precise pricing structure, but let us be
, err, reasonable people, and acknowledge what we all already know.
The best way to illustrate the point I want to make today is to use an example. A fictitious example using even more fictitious and wildly extravagant pricing figures chosen: 1) For ease and simplicity of the maths, and B) So end consumers reading this post can quote my figures but still not be “right”. **waves while saying “Hi end consumers!”** (What a great homonym.)
I would like to introduce you to my brand new rug company named “Artis Anal Rugs”. Artis from the Latin meaning either “craft” or “of art”, because our rugs are artistic and crafted just like everyone else (myself included) would have you believe, “Anal” because of our attention to detail, and rugs because, well if I am explaining this one, I think you’re on the wrong website. It’s a simple company based in Springfield that imports and resells its foreign produced wares in the United States. Let’s examine their United States’ pricing structure, first, the givens:
Shipping (15%): $1.50/sqft
Duty (10%): $1.00/sqft
Total Landed Cost: $12.50/sqft
I would now like to use the perceived markup on which consumers believe we operate of eleventy-billion percent, but due to that explicitly contradicting part one (1) above, we will use the far more realistic [!] figure of ten (10) times, or a 900% markup, resulting in our wholesale price and resulting profits.
Wholesale Price: $125.00/sqft
Gross Profit: $112.50/sqft
Gross Margin: 90%
Assuming then our trusty retailer applies similarly greedy, unethical, and unscrupulous business tactics (as we could only hope they would do) we can extrapolate a simplified retail pricing structure – again using the ten (10) times markup.
Retail Price: $1250.00/sqft
Great! This isn’t too intimidating yet is it? Now let us examine what happens to “Mister Rug” (who in our example is a prototypical Canadian rug dealer) when they wish to purchase a rug from “Artis Anal Rugs”. Bear in mind, this is pretty much a verbatim conversation of the existing modus operandi of some (not all) rug companies attempting to conduct business in countries other than the United States, not just the United States to Canada.
Mister Rug (MR): I would like to buy your rugs! They have such artisanal quality. What’s the price?
Artis Anal Rugs (AAR): It’s “Artis” “Anal”, not artisanal. They are $125.00(USD)/sqft.
MR: Je m’excuse! (MR is obviously a homosexual Francophile much like “Roger De Bris” in the classic Mel Brook’s film “The Producers (1967)”, but I’m digressing widly.) Artis Anal it is, $125.00(USD)/sqft is a great deal for rugs of this quality. Is that my landed cost to Canada?
AAR: No. You’re lucky I’m even talking to you, and you’ll have to handle all of the customs details yourself. **makes shooing motion with hands** (I’ve paraphrased and used a little hyperbole.)
MR: Well, ok, thank you Sir may I have another? Give me a moment while I run the numbers:
(Note, all figures will now be noted as USD or CAD accordingly, and we assume a $1.00(USD)/$1.20(CAD) exchange rate, as it stands now(ish) on 23 January 2015.
Wholesale Price: $125.00(USD)/sqft
Converted Wholesale Price: $150.00(CAD)/sqft
Canadian Duty (10%) $15.00(CAD)/sqft
Total Canadian Price: $165.00(CAD)/sqft*
*I’ve removed the price of shipping from Artis Anal Rugs to Mister Rug as shipping is a generally not that much more across the border, nor have I included brokerage charges, in order to simplify the maths.
Mister Rug will now markup the rug, as he does, ten (10) times yielding his Canadian retail price.
Canadian Retail Price: $1650.00(CAD)/sqft
At this point I am sure you’re wondering, what is going on here, and does he even know what he’s talking about? Will this ever end? I thought University was over! But now, we also begin to see the problem, right?
Our fictitious, but overly polite, Canadian rug dealer Mister Rug (Monsieur Tapis au Quebec), is being burdened, not by paying duty, but rather by paying exorbitant amounts of duty, driving up his costs and in turn his retail pricing, which, (wait for it, it’s all going to come together into “The Prestige”) his customer, the Canadian end consumer: Lady Knowital notices is far higher than it should be. This is apparent to her because she, as a savvy modern consumer has access to the internet and a telephone. She queries Mister Rug as to why the rug – which at $1250.00(USD)/sqft in the United States she figures should be about $1500.00(CAD) taking into account the exchange – is 10% more expensive in Canada? Mister Rug says its because of duty and shipping charges. Lady Knowital says “Bunkum! Why are you paying so much more duty on rugs than the United States? Do they not have to ship rugs in the Untied States as well? This seems like you’re trying to take advantage of me. I read on the internet – Have you read “The Ruggist”? You really should, it’s like butter. – Well, he says that because the United States is a gigantic market for rugs, most companies pander to that market while simultaneously treating others as second class. Further, he says Canadians historically have just been to polite to assert ourselves and demand better pricing. He also says it’s not just the US and Canada, but between many countries, and that regardless of the precise situation, it’s just bad service. He also wanders off topic a lot.” Mister Rug nods his head, “Yes, he does wander off topic a lot, but he’s not wrong. And Ivana, may I call you Ivana? I’m not taking advantage of you, we’re all being taken advantage of.”
In case it’s not clear, because perhaps you’re a former Target executive, I find this situation rude, discourteous, lazy, somewhat greedy, and frankly not well suited to our current era. Competition is fierce (not in that Drag Queen way), and the barriers to entry into the rug industry have never been lower. Why would any wholesaler make things more difficult on their customer, and in turn, the end customer? Frankly, again, I have no idea. The simple act of handling the duty charges would allow Mister Rug to charge only an exchange rate adjusted price for the carpet ($1500.00(CAD) instead of $1650.00(CAD)), bringing it into line with contemporary consumer expectations.
I have talked to innumerable rug world impressarios who extol the benefits of “world class service” only to balk at the mere suggestion of dealing with customs for their cross border customers – quelle horreur! It’s as though I have suggested they throw all their profit out the window, while on fire, into their car, parked in their attached garage, and burn their house down. While I am exaggerating, it boggles my mind as to why anyone would find this level of service acceptable, and to be so bold, it smacks of a degree of arrogance unbecoming. Not that all of my writing and postulating isn’t arrogant, but I don’t make my customers worry about such trivialities and minutiae as duty. Their job is to sell rugs, mine is to attempt to make that easy for them.
So what can be done? It’s simple. Step One! Find a good client. Step Two! Sell them some rugs. Step Three! Ship them some rugs and pay the duty. Step Four! Sort out the paperwork for the various refunds and the like internally. Step Five! Happy customers!!
If you would like to know how to deal with this, we can talk. If you’re a showroom owner not unlike Mister Rug, I suggest – if you’re buying more than one rug a year from a cross border vendor (we must be reasonable that you are doing appreciable business) – that you have a polite conversation with your supplier, and tell them “The Ruggist thinks wholesalers should handle duty for their cross border clients.” They most likely dislike me already anyway. Oh! I also think cross border vendors should have country specific price lists, but that’s a topic for another day.
As always, I hope you’ve enjoyed.
Thank you for reading, and good-bye.