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To: Skeeter Bug who wrote (122243)	3/30/2001 11:05:50 PM
From: Glenn D. Rudolph	Respond to of 164684

do people pay more than the minimum cost for said goods? many times, yes. does this help margins? yes! SB, I have givin this much thought since I believe it will affect me long term. I can't say how this will play out for sure but he is what was the past. Retailers that competed on price would sell some items at almost no margin and sell a few items with quite a good margin. Grocery stores are known for this. None of the retailers large or small are really turning a large profit on a net basis. There becomes a point where there has to be a reasonable return on invested capital. The the unkown is up in the air a little. I suspect as price comparing becomes even easier due to a further roll out of broadband, there will no longer be loss leaders and some higher margin items to make up the difference. The return on invested capital requires most retailers (grocery stores not included) to turna net profit of 3% of revenue. Otherwise, there will be no retailers. Prices can drop and these margins be maintained by a reduction in inventory shrinkage, a reduction in inventory write downs and the use of technology to reduce labor for the same job. The retailer is only a service provider and a retailer needs 3%. The consumer needs the service so this 3% has to stay built into the model. It is my guess that the price to the end consumer will come down about 6% which is taken off gross margins. The retailer is going to make this up vis better efficiencies which means we are going to see a shakeout in the industry over the next 5 to 10 years. I see on area that will suffer and this has been going on for yearsd already. That is product quality. One can't buy a well built pump that pumps water into a raised septic mound because the consumer is price sensitive. The lowest price pumps are all that sell so corners are cut in the manufacturing. The consumer ends up with a lower intitial cost but has to replace the pump more often which is less efficient in the long run. Most shirts today do not have their buttons sewed on well and it is not obvious until one owns it a bit. Items with easier to compare specifications are different such as a computer, a TV, home theatre, etc. I am assuming these items become obsolete prior to them wearing out. The question remains is how long will the consumer put up with substandard quality products and if they do not, will they pay more for better quality? I really do know the answer on a mass scale. I do know the consumer has hurt themselves in many ways being price sensitive during the last ten years. It is difficult to find quality products even if one is willing to pay for it. Who gains by that?

To: Skeeter Bug who wrote (122243)	3/30/2001 11:06:04 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

do people pay more than the minimum cost for said goods? many times, yes. does this help margins? yes! SB, I have givin this much thought since I believe it will affect me long term. I can't say how this will play out for sure but he is what was the past. I surely do not know Retailers that competed on price would sell some items at almost no margin and sell a few items with quite a good margin. Grocery stores are known for this. None of the retailers large or small are really turning a large profit on a net basis. There becomes a point where there has to be a reasonable return on invested capital. The the unkown is up in the air a little. I suspect as price comparing becomes even easier due to a further roll out of broadband, there will no longer be loss leaders and some higher margin items to make up the difference. The return on invested capital requires most retailers (grocery stores not included) to turna net profit of 3% of revenue. Otherwise, there will be no retailers. Prices can drop and these margins be maintained by a reduction in inventory shrinkage, a reduction in inventory write downs and the use of technology to reduce labor for the same job. The retailer is only a service provider and a retailer needs 3%. The consumer needs the service so this 3% has to stay built into the model. It is my guess that the price to the end consumer will come down about 6% which is taken off gross margins. The retailer is going to make this up vis better efficiencies which means we are going to see a shakeout in the industry over the next 5 to 10 years. I see on area that will suffer and this has been going on for yearsd already. That is product quality. One can't buy a well built pump that pumps water into a raised septic mound because the consumer is price sensitive. The lowest price pumps are all that sell so corners are cut in the manufacturing. The consumer ends up with a lower intitial cost but has to replace the pump more often which is less efficient in the long run. Most shirts today do not have their buttons sewed on well and it is not obvious until one owns it a bit. Items with easier to compare specifications are different such as a computer, a TV, home theatre, etc. I am assuming these items become obsolete prior to them wearing out. The question remains is how long will the consumer put up with substandard quality products and if they do not, will they pay more for better quality? I really do know the answer on a mass scale. I do know the consumer has hurt themselves in many ways being price sensitive during the last ten years. It is difficult to find quality products even if one is willing to pay for it. Who gains by that?