A friend of Alice Bachini’s has been buying a fridge. The two most interesting obvservations are that an aesthetically different but otherwise identical fridge cost 50% more than the one that was purchased, and that it was possible to obtain a substantial discount by finding an internet retailer that offered the same fridge for substantially less than the high street retailer, and taking up the high street retailer’s offer to match any competitor’s price.
As for the first issue, I am presently reading Virginia Postrel’s The Substance of Style which is to a large extent about the first question (ie about why people care about fridges with different aesthetics, and why they are willing to pay a lot more for the right aesthetics). I will review the book when I finish reading it.
As for the second issue, well it brings up a big annoyance of mine about this country (which is a country that in most ways I rather like), which is that in some ways it isn’t that sophisticated as a retail market. In a lot of areas the high street is just horribly uncompetitive and anticompetitive. Electrical goods are a very bad example of this. High street retailers simply do not compete with one another on price. They will give you discount finance sometimes (which doesn’t help if you want to pay cash) and they will sometimes make the “We will not be undersold” type argument, which has traditionally been on the understanding that most of their competitors charge the same as they do, and that the British anyway are too embarassed to take advantage of such offers. However, the simple strategy of “Here is 1500 pounds in crisp 50 pound notes. Can I have a discount?” just doesn’t seem to work here. This is entirely different to what I am used to in Australia, where the electrical retailers are about as competitive as it possible for them to be.
A lot of this lack of competition in Britain actually has to do with planning regulations. In America (and Australia) discount retailers have been able to build large stores in large out of town shopping malls. In Britain this has not generally been allowed, in the name of preserving the high street. As a social goal this may have been at least partly successful – city centres may well have been hollowed out more if out of town shopping malls had been allowed in larger numbers – but we are paying for it. And we are paying a lot for it. Every time you pay too much for something in Dixons (which is most of the times you buy something in Dixons) you are paying for it.
Of course, a consequence of this is that a parallel retail business has sprung up alongside the high street, in which you can buy things at competitve prices. This is why London is full of things like Sunday markets in Shoreditch selling mobile phone parts, and guys on street corners selling batteries, and discount stores run by immigrants that sell lots and lots of telephone accessories and video cables, and computer fairs and things like that. This is one of the things that gives the city its charm, but it is also annoying if you just want to walk into the nearest electrical goods store and buy a fair priced telephone cable. Using this parallel retail business is a hassle, which is why the uncompetitive high street retailers continue to dominate in the way they do.
Thankfully, though, the advent of internet retailing is changing things. It is possible to buy fair priced electrical goods over the internet, and I am finding myself doing this more and more. And this is slowly turning into competition that the existing high street retailers are acknowledging, as Alice’s friend found out. “We will match any competitor’s price” deals are starting to mean something. (Still, however, Alice’s friend had to find a price on the internet before the high street retailer would lower the price, rather than just negotiating a discount. There is an extremely strong antipathy amongst most electrical retailers to simply being willing to negotiate their best price).
However, even this isn’t perfect. The disadvantage of this is that when you buy stuff on the internet you have to wait a day or two to receive it. Right now I am sitting here hoping that a memory card for my digital camera arrives before I leave for Australia on Wednesday. Given that it was 40% cheaper on the internet, though, I didn’t see buying it on the high street as a realistic option. (Of course, it goes without saying that the fact that I can obtain such a good price from an internet retailer when ten years ago this was impossible is a huge step forward). Hopefully, someday, the competition will mean that the high street is more price sensitive.
Or perhaps the British government will institute some laws that are genuinely in the interests of consumers, namely dereglation that makes it easier for new entrants to build and open large shops wherever they want to. A few years ago an investigation was actually held into price fixing in electrical goods on the high street. It determined that although different retail chains usually charged exactly the same prices as each other, there was no actual collusion between them, and therefore they weren’t breaking any laws. What would have been nice would have been an acknowledgement that the problem was that there was not enough competition, and that this was because regulatory barriers to new entrants to the business were too high. Red tape is too great in other ways. The government spends a lot of time introducing new regulations that supposedly increase consumer rights and protections, but the most important consumer right of all, the right to obtain the best possible price, is far too often ignored.
Since the kitchen is essentially the same thing as a woodworker’s shop, only dealing in different materials, the need for aesthetics ought to be very low on the evaluation list. Far better to concern one’s self with price, functionality, and efficiency of power consumption.
That is, unless, one considers one’s kitchen solely an art museum.
The difference in price btw internet source and a retailer is in “cost of business” expenses that retailer has to pay: rent, interior design of the store, utility maintenance, display/sign/advertising, attendants/staff salaries, etc. in addition to warehouse cost, even assuming latter is the same with internet source. Famous example of it is Amazon vs. Barnes & Noble, former slashing their prices while operating from warehouse facilities.
Also, stores provide another obvious service- opportunity for sensual observation and in-place technical assistance. So, it’s a situation of “eather time or money”- either you know exactly what you are looking for and afford to spend your time doing research on internet, or you pay for convinience of not spendidng your time.
As to cash purchases, I suspect store owners, like other business owners, have certain tax/credit incentives to show profit on the books. I think it is working only at a certain profit level, so for small shops cash purchases still more profitable, but I might be wrong on that.
J.F. Macaulay:
When competition among appliance manufacturers reaches level of identical technical characteristics and function of the product, any fringe advantage counts. In comparing compact dishwashers for a client recently I’ve discovered one with more ergonomical control panel and aesthetically pleasing (for my client) handle bar-that one was a winner, despite $70 difference. Kitchen, for many people, has to bring aesthetic pleasure in addition to purely functional qualities.
Michael,
American shopping malls, in my experience, do not provide better price than street shops in the city (namely, Manhattan’), unless they are so called “outlets”, selling products that didn’t sell in “flagman” shops – they are not low-maintenance warehouses, and certainly will not discount merchandise for cash.
Tatyana, I do find that prices for a wide range of items are better in shopping malls, and in particular in large standalone “box stores”, than in center-city shops. This is true for furniture, appliances, computers and consumer electronics, bed linens, books (except for chain stores) etc.
The reason is your opening point, namely that on a per-item basis these stores have lower rental costs, fewer employees and support higher sales per square footage of display floor. Internet sales or mail order catalogue sales just take this up one more notch, but shipping costs can outweigh their additional discounts.
Shopping in Britain is always a bit of a shock whenever we visit … I can’t believe people pay those prices for books, music or cosmetics!
The difference in price btw internet source and a retailer is in “cost of business” expenses that retailer has to pay: rent, interior design of the store, utility maintenance, display/sign/advertising, attendants/staff salaries, etc.
Oh sure. I expect some price difference due to these factors. What I do not expect is the level of price difference I find in the UK, which at times can be extraordinary. And with a lot of negotiation, in a competitive market shops should be willing to go somewhere near their marginal cost if the alternative is to lose the sale, and they generally don’t.
As to cash purchases, I suspect store owners, like other business owners, have certain tax/credit incentives to show profit on the books.
The situation is so dramatically different between the UK and Australia (where cash discounts are easy to obtain and salesmen expect you to ask) that either the laws or accounting standards governing retail are dramatically different (and I don’t think they are) or it is something else. I think it is something else. You can blame “culture” if you like, but culture is fluid. (I actually can think of one or two specialist chains in the UK who will negotiate, and these are chains whose prices are generally quite competitive in the first place).
American shopping malls, in my experience, do not provide better price than street shops in the city (namely, Manhattan’),
Maybe not, but the total retail environment is much more competitive in the US, the barriers to entry are lower, and the number of competitors is bigger. Shops in cities have to lower prices to compete with other types of retailer, and the overall price level is lower, particularly for durable goods. The difference between internet and non-internet prices is much smaller in the US than here, which suggests this to me. Of course, blaming it all on planning restrictions is a simplification. There are issues to do with distribution as well. (There are also smaller economies of scale than in the US, which are not the fault of anybody.
unless they are so called “outlets”, selling products that didn’t sell in “flagman” shops – they are not low-maintenance warehouses, and certainly will not discount merchandise for cash.
Not ever? It’s a common thing in Australia, even in malls, at least for certain types of goods. (Furniture and electricals for instance).
Michael Jennings wrote:
What would have been nice would have been an acknowledgement that the problem was that there was not enough competition, and that this was because regulatory barriers to new entrants to the business were too high.
I was discussing this very issue with some colleages recently. They suggested that anti-monopoly and anti-cartel laws were required to prevent a situation in which there wasn’t enough competition. This didn’t sound very libertarian to me, so I pointed out that perhaps it was too many laws preventing new entrants that was the problem. Given a lack of restrictive regulation, there shouldn’t be anything stopping a new entrant from undercutting an existing monopoly.
My colleages retorted that the monopoly would simply lower its local prices until the new business went out of business.
So does this mean that we _need_ laws to prevent monopolies and price fixing cartels, or is there a better, libertarian way?
I used to work in the electrical retail sector in the UKand at that point it was common to give discounts when required of up to 10% ( the staff discount level). Speaking to former colleagues it is obvious that this freedom is no longer there.
The main reasons for this seems to be that margins in the electrical industry are now much lower & prices have , and continue to fall.
E.g. in the mid 1990’s a Nicam stereo vcr would cost you about £250 for a bargain basement brand. I’m sure you could now get a mod range brand (e.g. philips) for around about £100.
Also, electrical retailers used to make large margins on their extended warranty products. This is now under threat of regulation.
Ah, planning again. It makes houses expensive, undermines infrastructure finances, means you have to live from where you work and shop and, now, makes fridges expensive.
Is there no limit to the harm it can do?
When I tried to bargain with the people on Tottenham Ct Rd with respect to their confiscatory prices, they were clearly not interested, despite my intent to purchase several hundred, and perhaps several thousand, pounds worth of goods. They knew that they were operating in a bubble. I took the half-hearted discount they gave me on a 64 mb compact flash card, content at least that I wasn’t spending my own money. I was curious why there was no where else to go.
When I got back to the states, I picked up a 256 mb compact flash card online for the same price as the one they offered to me at a discount to go with the free 64mb one the brick-and-mortar retailer gave me for buying one of the cheapest digital cameras in the store. Plus I didn’t have to break traffic laws to find a place to park.
In their defense, I’ll bet I’m not the only one who sometimes shops the high street to handle the goods, then buys them from someone else online. That’s pretty unfair on the guy paying for the storefront.
It would be even more unfair if I had also wasted the time of a helpful, knowledgable salesperson, as well, but we know that’s not going to happen.
Jeannie: I don’t know about you, but I don’t work in my kitchen like a woodworker works in his shop. I do, however, have to look at my appliances every day, and if an aesthetic bonus makes me happier (or makes a prospective buyer happier when I decide to sell the house), well, that’s value right there.
The woodworkers I know prefer beautiful tools to ugly ones, even at a price premium, as well.
One thing about US retail is that you can often get a cash discount if you deal with a “mom & pop” retailer, but generally you won’t get one from a chain store. Most chains deal largely in plastic anyway; when I worked big-box retail, we never brought in more than 10-15% of our revenue from cash purchases.
In general, though, mall retailers are about as expensive as a “mom & pop” store, even in the suburbs. The real discounting is in big boxes and Wal-Mart (and Target and K-Mart and the regional discount chains like Meijer).
The UK is an expensive and over-regulated place to do business, compared with the USA, but I suspect there might be cultural factors at work too. Germany is not exactly under-regulated: they all moan about their bureaucracy, but it remains labyrynthine, even worse than the UK. And yet the retail environment is different – more varied, more individual, richer and more rewarding than the UK. A typical Brit High Street is depressingly standard, the same homogenised mess of Boots, Woolworths, Dixons, Smiths etc, wherever you go; a German equivalent is far more likely, in my experience, to contain a goodly number of individual stores, family businesses, and not small either – they can be large, glossy, and fitted out to what seems by our standard a futuristic level of luxury. And different stores have different products, unlike the UK where you get offered the same things everywhere you go. I asked in several shops at home for a good spectacle case with a pocket clip – result, one crappy item in total. I visited 3 or 4 shops in a small Ruhr city, and was shown a total of 14 different types of clip cases – the one I bought is still going strong…. OK, a selective and trivial point, but although Brit retail bosses would argue that tight accounting & stock control makes them efficient, I think it results in limited choice & homogenised blandness, and just shows we have a skewed attitude to retail. IOW we’re not very good at it. Inflexibility on price is just part of that.
Tony: I think you are right, and it is not just independent stores but chains as well. Continuing with electronics, wandering around a Media Markt store in Germany you certainly see a far better choice of products than you find in any of the equivalent chains in Britain. (Plus the choice of products is more intelligent: you get the impression that the company’s buyers actually understand technology). This is no doubt “cultural”, but just what that means no doubt requires more research.
Your small, personal notice of the British situation may reveal a larger consequence in postindustrial microeconomic mechanisms: the internet may be a permenant and immediate hard goods and (to a somewhat lesser extent) services comparative device.
What you are noticing is fairly easy to predict becoming a permenant and extended feature of shopping in the future, more than you seem to realize. This will become even more true as computers become more handheld and smaller: if you’re shopping somewhere, it is easily concievable that in the very near future you can readily check prices, right in front of the item on sale. A “quicky check”, if you will.
This makes it a long term economic micro externality for our economies. The effects of this immediate price comparison will be cumulative and will eventually effect nearly all matters of inflation.
So the risks are possibly a lead to deflation, but also a situation that might allow for a lower tradeoff curve for interest rates: we can afford to be looser in monetary policy, and thus grow faster over the long haul- say, a one percent change* in the allowable rate of growth over a decades time. That’s big money over time.
Internet shopping may be a piece of the savior for Western economies. Discounts, huzzah!
*- A guess, obviously.
Tony H writes:
” A typical Brit High Street is depressingly standard, the same homogenised mess of Boots, Woolworths, Dixons, Smiths etc, wherever you go…”
Absolutely right! I also agree with much else that you say but would add one suggestion as to why this state of affairs has come about.
One of the biggest problems facing business in the UK is raising capital. This has not just afflicted the retail sector but is one of the underlying causes of the relatively poor performance of UK manufacturing industry since the 1960s.
The structure of our financial markets and banking is such that a useless bunch of tossers like the Dixons group (I’m sorry – I think I might have meant to type ‘cutting-edge, free-market capitalists totally committed to bringing high-tech products to the nation’) can raise money to exert a hegemonic grip on a single industry (white goods), while Mr and Mrs Maggs (our very own ‘Mom and Pop’) simply can’t raise the capital to compete.
There are, of course, of other factors – cultural, regulatory, geographic – but it is one and is, in part, why High St UK has become an uninspiring mile of tedium.
Yes G. Cooper, the rise of Dixons is a highly relevant analogue for the distressing state of affairs in High St UK. I like your description of them as a “useless bunch of tossers” but while fitting in many ways it does not describe their business acumen at all, because the latter is exceptional.
Confession: a long time ago I worked for Dixons (briefly), rising to the giddy height of Assistant Manager of the Bristol branch before escaping… On a training course I once peed next to Stanley Kalms in the gents’ at Dixon House – my brush with greatness. Like other big chains, it started as a “mom & pop” business in the ’40s, with SK’s dad having a shop or two in N.London, and it just growed & growed. Marketing is an extraordinary thing: together with brash merchandising it explains, on a high street level as opposed to the Kalms property & financial skills, the rise of Dixons. It says an awful lot about the relationship between the UK consumer and retailing, since Dixons have never offered the best prices (or quality, or value, or service) on the street, yet still the crowds flock there and swell the coffers. Maybe we’re lousy shoppers, as well as being uninspiring retailers.
The reason for this price disparity in the UK is something nobody ever thinks to look at, which is the costs imposed by the planning regulations. These are what drive the fantastically high commercial rents, and the equally onerous commercial lease terms which keep new competitors out.
Starting a competitive retail business in the US is like falling off a log by comparison, and both prices and service levels reflect that.
The other thing nobody ever stops to think about in the UK is that the planning restrictions all date back no further than 1947. This means that all the buildings people are so desperately concerned to preserve were built by commercial developers totally unrestrained by planners, while almost every truly ghastly structure in the country, having been built since 1947, was thoroughly vetted by the planners.
The commonly held blind belief in the UK that ‘government is good and therefore more government is better’ is the only thing which keeps this from being apparent to everybody.
In America (and Australia) discount retailers have been able to build large stores in large out of town shopping malls. In Britain this has not generally been allowed, in the name of preserving the high street.
This is certainly not my experience of retailers here.
The out of town complex near where I live is huge and well equiped with electrical, food and other stores, plus a Multiplex etc…
In fact, everywhere I’ve lived in the UK, except London (for obvious reasons that out of town is about 20 miles away) is like that.