On the margins

It?s not rocket science to work out that if the exchange rate drops from $1.95 to $1.45, if you?re converting from one currency to another, then somebody has to be disadvantaged if prices don?t go up by the corresponding amount.
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Why are we not seeing toy inflation running at 20 per cent? The exchange rate changes would require a 20 per cent increase in cost prices if there weren’t any other changes in the supply chain costs.

Some of the factories may be helping with cost savings due to labour or raw material changes (oil is now around $60 a barrel). But where have the other costs been absorbed if we’re not seeing double digit RRP increases?

If we’re not seeing these increases, whose margin in the industry is taking a pounding? And whoever’s margin is taking a pounding, is it good for the long term health of the industry? As a retailer (as anyone who has dealt with me will tell you) I need to earn my margin, but I also need strong manufacturers too.

I would suggest that, with the demise of Woolies, it’s an opportunity for retailers to revisit their expense budget-v-their expected income and allowing for a return on capital (cheap money is over – make your money work!) Review the required margin – this will help to focus on where the buying priorities should lay.

If retailers are absorbing trade price increases, my question is ‘why do that’? It’s right that we should be competitively priced, but in most cases your biggest competitor (Woolies) is out of business. For the first time in decades there is an opportunity to review these margins.

For toy retailers to be successful and continue to invest in their stores and aspire to the ever increasing standards expected by today’s consumer, we need to be able to compete on the high street and online, my guess would be that any retailer running at less than 40-45 per cent is struggling to make ends meet.

What is concerning me is the growing trend of manufacturers to deliver a 25 per cent brought in margin. That doesn’t work. And my challenge to manufacturers is when you’re working from the top down, why do you expect retailers to support those that publish RRPs that only support a 25 per cent margin?

Shelf space has a value, make yours work – don’t carry passengers!

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