Those who grow their own food have benefits: The food is good. It’s fresh, and being fresh, it’s probably tasty. It’s probably healthier too. A lot of fresh food can be canned and stored, and indeed it is and was.
What about the furniture and clothes? In the 1800s, they were often made by hand. People would go to the general store and buy fabric, needles, thread, wood products, glue, chisels, etc.
After buying from general stores, people bought from catalogs. Sears Roebuck began selling watches and jewelry in 1888. Not long after, its product lines included sewing machines, sporting goods, musical instruments, saddles, firearms, prams, etc.
But this old lost art of homespun and catalog shopping has been mostly replaced by mass market, internet, supply chain channels and logistics.
There were relatively low costs when people made their own products. Of course, when they started buying off-the-shelf products, the costs might be out of reach for many.
I guess the prices fluctuated by supply and demand just like today. You know, when there is an increasing demand for certain items, the price goes up. When prices go up, there is less demand or people start looking for alternatives.
These same principles of supply and demand have been applied to economists over the years. Economists have found that when the prices of some product increase, many if not most people will stop buying that product or start shopping around. Then for other products, many if not most will continue to buy a product even if the price goes up.
Products in which people will start buying with a price increase are called “elastic” products. Think of a rubber band that gets longer and longer; this can represent people leaving a store and going here and there looking for other products.
Those products in which people will continue to buy regardless of a price increase are called “inelastic” products. The buyers are locked up. They won’t go away. They don’t leave the store and stretch out their search for better products.
Retailers want “inelastic” products and buyers for the most part. The best way to do this is to create a brand with your products. People watch brands and retailers expect their shoppers to stick with their brand during periods of rising prices.
Smart retailers will monitor clothing purchases and can sometimes use pricing strategies to push or entice people into certain products. Yes, it can be complicated but it can be very profitable for those retailers who know what they are doing.
So far we have talked about the “buy side” and the “pricing” that customers have to deal with. What about the costs faced by retailers?
The prices of many products are “based on costs”. This is in addition to price fluctuations based on fluctuations in customer demand. The simple formula is: Cost + Profit = Selling Price. Other products are “market based”. This is when the retailer will price a product based on what the market will bear with little regard to the retailer’s cost.
Large retailers (Walmart, Costco, Target, etc., cost-based) need to rein in their costs in an attempt to keep prices within a range to maintain strong customer demand. Specialty (market-based) stores have the luxury of selling at relatively higher prices with less cost, but their market base is typically smaller than big box stores.
Retailers have several cost categories. There is cost of goods sold for manufacturing companies and there are selling, general, and administrative costs. These take a large part of every dollar that retailers bring in.
If you dig into cost of sales, you’ll find logistics costs and these are closely monitored as logistics departments plan the best course for locating and bringing materials into the factory, storing, processing and shipping them abroad.
Logistics costs have been around 8% of nominal GDP, with road transport representing the highest percentage of costs. That’s a lot of money in the context of our broader economy. And retailers, manufacturers, suppliers, growers and distributors must navigate the complexities of logistics to stay competitive.
We haven’t even touched the groundwork for future innovative expectations such as hydrogen fuel cells, cloud logistics, OTA engine upgrades, UVA and drone delivery, bionic enhancements, on-demand 3D printing, warehouse sharing, semi-autonomous trucks, and in and in
But, we will leave these issues for another day.