Out of Order or Good Business Sense?

[Colin_McLeod]

If the prices went down and the retailer reduced the price of old stock would there be a thread about that?

Edited June 1, 2018 by Colin_McLeod

[Talltim]

I read that as ‘used Railroad’ for a second!

Edited June 2, 2018 by Talltim

[Jol Wilkinson]

If the prices went down and the retailer reduced the price of old stock would there be a thread about that?

 

Probably would be Colin, under headings like "I got a bargain", "Why get ripped of elsewhere?", etc.

 

As I only buy/build my models from kits (there is no option when modelling the Edwardian period LNWR) pricing is only a matter of whether I can I afford what I want. Discounts don't happen in the "Small Suppliers"  kits and bits world, probably because the customers want them to continue in business. Buying RTR doesn't seem to be quite like that and appears very much bargain/discount driven, possibly the reason for the OP comment.

[BlackRat]

Doesn't really prove anything, you can buy a used RR for about £10K if you want.

 

You can,........its when you go to fill it up tho......

[Jol Wilkinson]

Unless you are a very busy shop owner six days a week, when you won't have much time to use it.

[BlackRat]

Unless you are a very busy shop owner six days a week, when you won't have much time to use it.

You'd still need to fill it up tho, if only occasionally.

[stewartingram]

If a farmer is growing crops, and he sends his first batch of the season to market, getting (for the sake of discussion) £1/lb, whatever they are, that is therefore the current price. (Ignore the wholesale/retail price step for simplicity here). He has further supplies in the fields - ie "on the shelves". If, for various reasons, the price increases as the season goes on, does he still sell at £1, or does he "relabel" his growing stock? Same principles.

 

Stewart

[Jol Wilkinson]

If a farmer is growing crops, and he sends his first batch of the season to market, getting (for the sake of discussion) £1/lb, whatever they are, that is therefore the current price. (Ignore the wholesale/retail price step for simplicity here). He has further supplies in the fields - ie "on the shelves". If, for various reasons, the price increases as the season goes on, does he still sell at £1, or does he "relabel" his growing stock? Same principles.

 

Stewart

 

I don't think it is the same principle at all. He would probably sell at the market price on the day, whether higher or lower, especially if he has a product that can't be stored and/or degrades. If it can be stored he might keep it in the hope the market price increases, but may need the cash in hand to fund his outgoings, so have to sell at whatever price he can get.

 

Keeping a model on a shelf costs money, although many wouldn't recognise that. As already discussed it may well cost more to replace with the like or similar. If an individual buys a model, keeps it in the box on a shelf and then sells it later, would he want to get more than he paid? Of course he would, so he could fund new purchases which invariably have risen in price.

 

I recently sold some wagon kits I bought years ago at an exhibition B&B. I priced them at about 75% of their current price, which was the same or even more than I paid for some (about twenty years ago). They all sold, the purchasers saved money and I was able to recirculate what I got back into the hobby. Was I wrong to sell them at more than I paid?

[GoingUnderground]

Sorry, mispost - now deleted.

Edited June 2, 2018 by GoingUnderground

[GoingUnderground]

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

So what does the poor retailer do if the items haven't yet sold but his rent, business rates, electric, insurance, wages, pension contributions, and other costs go up. Keep the old price? If they did that they'd eventually run out of cash to buy new stock and no longer have a busines. I think you're out of touch with how a business needs to be managed financially if it is to survive. How do you react when your cost of living goes up? You expect your employer to increase your pay at some point even though you're doing the exact same job. Using your logic, your employer would never increase your pay if you did the same job year after year.

 

A retailer increasing prices is simply trying to cover their increased costs so they stay in business. It's a fine balancing act between increasing prices to cover increasing costs without losing sales to competitors, or simply becoming too expensive and people stop buying what you're selling.

[Baby Deltic]

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.

If the price is in the barcode you have a bit of an issue. Generally food substances are price barcoded if catch-weight, but average weight or fixed weight produce may be using a fixed EAN-8 or EAN-13 barcode, so the only change necessary is on the main database. Non-food again will have a fixed barcode, so the change can be on the main database although items will need the price label changed.

[10000]

So what does the poor retailer do if the items haven't yet sold but his rent, business rates, electric, insurance, wages, pension contributions, and other costs go up. Keep the old price? If they did that they'd eventually run out of cash to buy new stock and no longer have a busines. I think you're out of touch with how a business needs to be managed financially if it is to survive. How do you react when your cost of living goes up? You expect your employer to increase your pay at some point even though you're doing the exact same job. Using your logic, your employer would never increase your pay if you did the same job year after year.

 

A retailer increasing prices is simply trying to cover their increased costs so they stay in business. It's a fine balancing act between increasing prices to cover increasing costs without losing sales to competitors, or simply becoming too expensive and people stop buying what you're selling.

 

Well if you and the others on here that support it are willing to use retailers that do that then good for you.

I shall count myself lucky that the model railway shop and a couple of non model railway shops that I use on a regular basis do not reprice old stock.

[Ravenser]

Much depends on your business model. Our family took the view that if it's not selling its not making us money and priced according.

 

Some model shops seem to think they are museums...

 

If the item doesn't sell very well you won't be re-ordering it. At that point you just want shot of it to recover cash - there is no replacement cost

 

But you can't have too many items like that , or you'll go bust . You need plenty of Hornby Pecketts that don't get repriced because they sell straight through .

 

(A slow-motion liquidation sale is not a viable business model)

 

And this is about turnover. If you have a Craftsman detailing kit hanging on a hook at the back priced 15 quid , then you can't replace it and it's just a question of getting the money back , but it's not a big sum. The same with that dusty Ratio coach kit. On the other hand you can't afford not to be able to replace your Bachmann and Hornby locos at £135, or you haven't got a business. So those need to be repriced if the market can stand it. They will be the bulk of your stock value

 

When it gets to ordering 10 locos of which 8 sell in the first 6 months at 20% margin and 2 hang around, it gets complicated

[GoingUnderground]

Well if you and the others on here that support it are willing to use retailers that do that then good for you.

I shall count myself lucky that the model railway shop and a couple of non model railway shops that I use on a regular basis do not reprice old stock.

Count yourself lucky that they still exist. In many parts of the country the model shops went under years ago. If yours can manage without repricing then they must be exceptionally well run, or their owners must have exceptionally deep pockets to keep funding their replacement stocks.

 

Of course, they may be repricing existing stock without you realising that's what they're doing. I just hope that your model shops continue to flourish, irrespective of their pricing policies.

Edited June 2, 2018 by GoingUnderground

[10000]

Count yourself lucky that they still exist. In many parts of the country the model shops went under years ago. If yours can manage without repricing then they must be exceptionally well run, or their owners must have exceptionally deep pockets to keep funding their replacement stocks.

 

Of course, they may be repricing existing stock without you realising that's what they're doing. I just hope that your model shops continue to flourish, irrespective of their pricing policies.

 

I've been going enough years to have seen old and new stock (like decoders, Kadees, Oxford die cast etc) on the shelves at the same time.

Loco prices are a good match for Hattons. In fact on one occasion his stock of a new loco arrived the day I was in and at the time there was no price for it on Hattons web site. So we agreed on a price. The next time I was in he reduced my purchase of that day to compensate for overcharging me on that loco. 

 

Edit : As a point of interest the shop I mentioned in post 9 was closed in less than a year after the new owners took over. I heard they were operating from a market stall for awhile and are now only mail order.  Real shame. Under the original owner it was not the cheapest of places but was a little gold mine with some of the things he sold.

Edited June 2, 2018 by 10000

[GoingUnderground]

For those of you that are too young to remember, there was a time when inflation in the UK was consistently much higher than it is today, of the order of 15% a year for several years running. This was causing all sorts of problems for businesses. They were reporting good profits, but the escalating cost of replacing their stocks was soaking up their cash and many were really struggling. The accounting profession came up with a solution, which I'm sure many of you will think is at best "smoke & mirrors", and at worst downright dishonest given some of the comments in this thread. Their solution when working out a businesses profits was not to look at the price the business paid for the things it sold, but at the cost to replace those stocks, and the cost of replacing the buildings, plant and machinery that it used, which is not so different to repricing existing stocks. This method of calculating profits was called Current Cost Accounting (CCA), whereas the method using the actual price paid for stocks was called Historic Cost Accounting (HCA). The way to apply CCA was published as a discussion document in the accounting world as Provisional Statement of Standard Accounting Practice 7, which some of you might have heard of. It was controversial, even i nthe ccounting profession, and was never formally adopted as shortly after it was released UK inflation started to fall and the need for it progressively reduced.. Hence almost all businesses use HCA when calculating their profits. But that doesn't solve the problem of how to stay in business when the cost to you of the things you are trying to sell keeps going up.   

Edited June 2, 2018 by GoingUnderground

[Andy Hayter]

If the item doesn't sell very well you won't be re-ordering it. At that point you just want shot of it to recover cash - there is no replacement cost

 

But you can't have too many items like that , or you'll go bust . You need plenty of Hornby Pecketts that don't get repriced because they sell straight through .

 

(A slow-motion liquidation sale is not a viable business model)

 

And this is about turnover. If you have a Craftsman detailing kit hanging on a hook at the back priced 15 quid , then you can't replace it and it's just a question of getting the money back , but it's not a big sum. The same with that dusty Ratio coach kit. On the other hand you can't afford not to be able to replace your Bachmann and Hornby locos at £135, or you haven't got a business. So those need to be repriced if the market can stand it. They will be the bulk of your stock value

 

When it gets to ordering 10 locos of which 8 sell in the first 6 months at 20% margin and 2 hang around, it gets complicated

 

 

In the case of locos the shop keeper may choose next time to order only 8 locos (unless 10 is a minimum order).  There are however many items which sell well (as in continuously) but where the minimum order may well be a box full - replacement wheels, couplings, track pins, bits of track etc.   It may then take some time to sell the full minimum orders' worth.  During which time prices may well have risen - considerably.  I often see the moans of how prices have gone up.  In fact over the last 5-6 years prices of locos of a similar type seem to have roughly doubled - that is about the 18% inflation I referred to in my original post on this subject.   It can well be that by the time it is time to re-order the purchase price from the supplier is above the old selling price.  Model Railway inflation is clearly well out in front of national inflation and these are exactly the conditions where a shop has to be sure that the proceeds of sales are sufficient to fund re-stocking.  It hurts the buyer - of course it does - but having even fewer model shops hurt us more.

[Andy Hayter]

Sorry but that was exactly the model that my Jeweller friend was working and it led him to bankruptcy.  

 

WE can look at it in two ways.  The first is what I think he was thinking and what you seem to be thinking.  I bought this item for £8 and I have sold it for £10.  I have made £2 profit.  Now I have to invest this £2 profit together with the £8 purchase price to get a new identical item.  But I will have profit again when I sell the new £10 item for £12.50 and I will be even better off with £2.50 profit.*

In the mean time of course he has no money for his living costs, his store rent, his rates, his security system ......... and everything else.

 

*[This is known as the jam tomorrow business model.]

 

The other way of looking at it is that at the start of the process he has a (let's say) gold ring.  A customer comes in buys the ring, he buys a replacement ring and 2 weeks later at the end of the process he has a gold ring.  To all intents and purposes the customer did not need to have come in and buy it.  It is exactly as if there was no customer.  He started with a gold ring.  He ends with an identical gold ring.  It is just as if the sale had never happened ...................

 

................... and shops that don't sell go out of business.  

 

You can argue that the gold ring he held at the end of the process was worth more than the one he held at the start - but it is an identical gold ring.  So what makes it more valuable?   It was only more valuable on his ledger.  

 

I apologise to all that I made a major blunder in this analysis.

 

It is not exactly as if the customer had not been there at all.

 

It is much, much worse.

 

The seller owes the Taxman £1.67 VAT collected on the £10 sale.

 

So he is worse off for having sold the item at its replacement cost.

[Ravenser]

In the case of locos the shop keeper may choose next time to order only 8 locos (unless 10 is a minimum order).  There are however many items which sell well (as in continuously) but where the minimum order may well be a box full - replacement wheels, couplings, track pins, bits of track etc.   It may then take some time to sell the full minimum orders' worth.  During which time prices may well have risen - considerably.  I often see the moans of how prices have gone up.  In fact over the last 5-6 years prices of locos of a similar type seem to have roughly doubled - that is about the 18% inflation I referred to in my original post on this subject.   It can well be that by the time it is time to re-order the purchase price from the supplier is above the old selling price.  Model Railway inflation is clearly well out in front of national inflation and these are exactly the conditions where a shop has to be sure that the proceeds of sales are sufficient to fund re-stocking.  It hurts the buyer - of course it does - but having even fewer model shops hurt us more.

 

In my analysis - and I suspect the margin on locos is less than 20% -, he would have recovered all his purchase cost from Hornbach after selling 8 locos.

 

Now what does he do? - I suspect he orders 9 replacements, meaning he now has 11 locos in his shop, and the purchase cost for one loco left in his pocket to pay for the shop. The remaining 2 locos from the initial order can be rationalised as "paid for", and anything he makes from them as profit

 

This would tend to result in slowly declining orders to the manufacturer and a slowly accumulating stock in the shop. It sounds rather like small shops as we know them.

 

Of course this relies on the first 8 selling quickly, and a decent margin. Both assumptions may no longer hold true

[GoingUnderground]

I apologise to all that I made a major blunder in this analysis.

 

It is not exactly as if the customer had not been there at all.

 

It is much, much worse.

 

The seller owes the Taxman £1.67 VAT collected on the £10 sale.

 

So he is worse off for having sold the item at its replacement cost.

Yes, the seller had to pay the VAT on the new price to HMRC but he'd still have had to pay the VAT on the old price to HMRC. In a nutshell, if the selling price is increased by £1, the seller gets 83.3p more profit, and HMRC get 16.7p more tax to pay for the NHS, roads, rail, defence, policing, etc., etc.. It would be much the same if we still had Purchase Tax, as that was also based on selling prices but was only levied, IIRC, on non-business sales. VAT isn't hard, complicated or costly for businesses to administer these days, the computers do it all as part of normal invoice processing.

[10000]

I apologise to all that I made a major blunder in this analysis.

 

It is not exactly as if the customer had not been there at all.

 

It is much, much worse.

 

The seller owes the Taxman £1.67 VAT collected on the £10 sale.

 

So he is worse off for having sold the item at its replacement cost.

 

There is the possibility of something worse than that.

 

I knew of a shop that was doing OK but didn't pay VAT.  Then he saw how popular Games Workshop was. So he though I'll have some of that.  Yes it was popular and sold really well with the result that he exceeded  the limit for not having to pay VAT.

[GoingUnderground]

What many people forget is that businesses do not pay all of the VAT included in their selling price to HMRC. They can deduct the VAT that they paid to their supplier. Yes HMRC do end up with 1/6th of the price we paid as consumers, but they get it in stages as the item, or the bits and pieces it is made from pass from sub-contractors, to manufacturer, to wholesaler, and finally to the retailer. Each one charges VAT to the next person in the supply chain, but that person in turn can deduct the VAT it paid to its suppliers from the VAT it charged to its customers, thus it only pays HMRC the difference between the two VAT figures. Might sound complicated, but it's really simple once you understand the principles.

 

So your shop who found himself above the limit for not paying VAT would have been able to deduct the VAT that he'd paid to his suppliers from what he should have included in his selling prices. It's not as black a picture as you think. I suspect that his problem was that he hadn't set his selling price high enough to allow for the VAT that he should have been charging to his customers, and had problems working out how much VAT he'd paid to his suppliers.

[Colin_McLeod]

I agree Goingunderground.

 

VAT does not cost the model shop anything. He pays VAT that he reclaims, and he collects VAT and sends it to the Revenue.

[Andy Hayter]

No Colin

Nearly right but not quite

He reclaims the VAT he paid on the £8 but has to pay the VAT on the £10 sale.  So it does cost him.

[Jonboy]

Ref post 73:

 

Don’t underestimate the perception of VAT to shopkeepers on flat rate schemes. Basically they pay a set percentage of turnover as vat instead of actually calculating vat paid to suppliers vs vat collected from customers (Hmrc have percentages calculated for all sorts of businesses e,g a rate for hair dressers, a rate for fish and chip shops, a rate for newsagents etc etc).

 

These should work out broadly the same amounts, but save businesses the admin of working out vat on thousands of small transactions(more critical before Epos till systems etc I suspect) but many small business owners just view it as another expense.