“I did say items low in inventory would price through ahead of things that had been successfully overstocked ahead of the tariffs.” …unless they use the gas station pricing model.
When a gas station gets a refill delivery from the wholesaler and the price is higher than the last delivery, the retail price goes up immediately, even if the underground tank is half full before the delivery. The justification is that the per-gallon cost of the new delivery is the “replacement cost” of the gas they own at a lower price. But if the price of the next delivery is lower, they’ll hold the retail price high so as not to “lose money” on the gas sitting in the tank that they bought at the higher price.
The same will happen with hard goods in retail stores. They’ll reprice their existing inventory at “replacement cost” with tariffs included, even though no tariffs were paid on it. Then when Trump caves (yet again) and lowers or drops the tariff, the shelf price will not go down until the tariffed stock is gone.
Michael Snyder also had a slightly similar post about Walmart and Target upping their prices as well (http://theeconomiccollapseblog.com/walmart-and-target-are-really-jacking-up-their-prices/) which I'm linking also. However his articles are more general than yours', nor are they quite as detailed; which I always like about yours'. Also he didn't have the image of the Target employee switching prices. Speaking of images, thanks for linking my squirrel pic. Keep up the great work!
If our experience with Obamacare and Covid supply chain disruptions taught us anything, it is this: if the actual price increase to the retailer due to a tariff is say 25%, they will raise their consumer price by 35% (or more) and pocket te difference.
Given that corporate profits have doubled since 2019, while productivity has barely risen, it’s pretty easy to figure out why that is the case.
The picture of the Target example of the iPhone cord (assuming it’s true) is a good example. The tariff on that cord is not 80%.
So why did the price rise by 80%?
For the same reason retail cost increases during Covid far outstripped the actual wholesale cost increases.
I agree. What often happens is the retailer adds the tariff to their cost of goods sold, just like they do with transport costs, then they apply their normal markup to the full cost of goods sold. That results in the tariff being marked up, too. And, so, as you say, if they are able to do that to their customers without getting a customer rebellion, they pocket the extra markup and make more money than ever. Most likely, in this case, it will cost retailers to do that in the form of lost sales because customers are already sick to death of high inflation and will be curbing their appetites; so, round two will not go as easily.
Still, it will happen to some extent wherever they can do it without a customer strike. What also MIGHT have happened with the cord at target was that Target had the misfortune of ordering it when Trump had the tariff much higher for a day, not knowing that, if they waited just one more day, the tariff would be cut by almost half.
Either way, I totally agree with your statement of how this tends to work. The tariff becomes part of the cost of the good being sold, and the markup gets applied after it is added in. That can easily be a 100% increase in the cost of the tariff to the consumer. The old Bon Marche (now Macy's), for instance, used to mark up the cost of each good sold with a 2.2x. multiplier. In a case like that, a $100 tariff becomes a $220 addition to the regular price, which means that, while the Bon had to pay the $100 tariff, it pocketed the additional $120 as pure profit. (I use that old example only because I know what their standard multiplier for markups was.)
“I did say items low in inventory would price through ahead of things that had been successfully overstocked ahead of the tariffs.” …unless they use the gas station pricing model.
When a gas station gets a refill delivery from the wholesaler and the price is higher than the last delivery, the retail price goes up immediately, even if the underground tank is half full before the delivery. The justification is that the per-gallon cost of the new delivery is the “replacement cost” of the gas they own at a lower price. But if the price of the next delivery is lower, they’ll hold the retail price high so as not to “lose money” on the gas sitting in the tank that they bought at the higher price.
The same will happen with hard goods in retail stores. They’ll reprice their existing inventory at “replacement cost” with tariffs included, even though no tariffs were paid on it. Then when Trump caves (yet again) and lowers or drops the tariff, the shelf price will not go down until the tariffed stock is gone.
David, Good article once again which i will be linking today @https://nothingnewunderthesun2016.com/
Michael Snyder also had a slightly similar post about Walmart and Target upping their prices as well (http://theeconomiccollapseblog.com/walmart-and-target-are-really-jacking-up-their-prices/) which I'm linking also. However his articles are more general than yours', nor are they quite as detailed; which I always like about yours'. Also he didn't have the image of the Target employee switching prices. Speaking of images, thanks for linking my squirrel pic. Keep up the great work!
You made me laugh, Thank You.
Always a bonus.
If our experience with Obamacare and Covid supply chain disruptions taught us anything, it is this: if the actual price increase to the retailer due to a tariff is say 25%, they will raise their consumer price by 35% (or more) and pocket te difference.
Given that corporate profits have doubled since 2019, while productivity has barely risen, it’s pretty easy to figure out why that is the case.
The picture of the Target example of the iPhone cord (assuming it’s true) is a good example. The tariff on that cord is not 80%.
So why did the price rise by 80%?
For the same reason retail cost increases during Covid far outstripped the actual wholesale cost increases.
I agree. What often happens is the retailer adds the tariff to their cost of goods sold, just like they do with transport costs, then they apply their normal markup to the full cost of goods sold. That results in the tariff being marked up, too. And, so, as you say, if they are able to do that to their customers without getting a customer rebellion, they pocket the extra markup and make more money than ever. Most likely, in this case, it will cost retailers to do that in the form of lost sales because customers are already sick to death of high inflation and will be curbing their appetites; so, round two will not go as easily.
Still, it will happen to some extent wherever they can do it without a customer strike. What also MIGHT have happened with the cord at target was that Target had the misfortune of ordering it when Trump had the tariff much higher for a day, not knowing that, if they waited just one more day, the tariff would be cut by almost half.
Either way, I totally agree with your statement of how this tends to work. The tariff becomes part of the cost of the good being sold, and the markup gets applied after it is added in. That can easily be a 100% increase in the cost of the tariff to the consumer. The old Bon Marche (now Macy's), for instance, used to mark up the cost of each good sold with a 2.2x. multiplier. In a case like that, a $100 tariff becomes a $220 addition to the regular price, which means that, while the Bon had to pay the $100 tariff, it pocketed the additional $120 as pure profit. (I use that old example only because I know what their standard multiplier for markups was.)
Whoohoo! Ain't business grand!
“Let them eat tariffs.”