Retail pricing

A comment in the thread on the US tariffs on EU wine etc got me thinking.

The comments on store like Total Wine and others taking advantage of the consumer, I don’t know, but if they are normally selling a wine at X and to replace that wine it will cost XX then it makes sense that you would need to bump up your prices to be able to stay afloat in this business. That money to repurchase has to come from somewhere right? Take gold for example. If the price of gold increases, it isn’t just on the “new” gold you buy, it is the value of all the gold including what you have in your pocket.

The implication is that the retailers entire stock should, in theory, be marked to market every day. Ignoring practicalities of that, while I’m sure there are certain economists who would be nodding furiously, I’m not sure that most consumers would see it that way.

The obvious debating point would be to ask how often retailers reduce prices when replacement costs go down.

It sounds to me as if there is something wrong in the financing of all this, either the cost or availability of credit to the retailer (or middle woman etc). It seems to me that the customer expects to pay the cost of what they are getting, including reasonable financing, marketing, overhead, and profit margins on that product. They are not planning on financing the retailers future inventory. If the retailer is trying to get them to do that something is wrong.

I think another flaw in the mark to market model is that retail businesses are usually just in the business of selling. They aren’t also buying from their customers. (If they were, that changes everything).

How is inventory carried on retailers’ books? Assuming that wine is not regarded as held for investment wouldn’t it be carried at cost? (Possibly written down if it’s Meiomi. Sorry, slapping my wrist).

I actually own a business that was impacted by the tariffs since late 2018. 10% then to 25% increase from China in our industry. I think most of what you said is accurate. We raised our prices as soon as possible, but the market limited our ability to do so. As competitors raised slightly, we raised a little more. We were pretty intentional about trying to change “the market”. We would have never had this capacity if not for the tariffs, as they created a strong desire to raise prices by our competitors. If not for the tariff, competitors would have just held much lower and capitalized on increased sales. Point being is that preemptively increasing the price allows the company to take in new market data, since you know the old data is soon to have little relevance.

Regarding the books, retailers should actually be doing there taxes on an Accrual basis, which means that they cannot expense the inventory until its sold or thrown out. Until then it is an asset. That is not to say that many do not “lose it” in there inventory so they can pay less taxes now then “find it” later to sell it, which would increase their future tax burden.

So the first hurdle they face is being profitable with new costs. The 2nd hurdle is a cash flow issue since their assets will go up if they need to sustain their current inventory levels to sustain their revenue/profit. The 3rd big issue is monitoring how it will impact there suppliers and producers. That is a lot harder to determine and needs to be monitored.

The concept of mark to market assumes that the retailer has no impact on the market which is what makes it a little misleading.

Interesting points.

I walked into my Total Wine today with a 20% coupon. I was surprised to see what appeared to be a total price re-set on Bordeaux. Pricing up $5 to $15+. For example, Lanessan at 29.99 over 24.99. Potentsac up $5. Etc. I assume it’s a tariff reset, but in anticipation of I think.

That’s the TW increase that was discussed in detail in the tariff thread.

Yeah but Robert is talking about Bordeaux. That could also be the annual Bordeaux price increase because it’s a vintage of the century or a vintage for your grandchildren or whatever excuse they use to increase prices. The sly dog thought he was going to get a deal and he did. He got yesterday’s price!

I used to work at a store that priced off replacement cost, and we did this every time.

The did the reset in October. $39 became 49, $56 became 69, $66/69 became 89, and so on.

F’ck ‘em. I left. Made no purchase. Tore up my little coupon in feigned outrage.

I dropped 5k there last year. This year; zero.

I think it’s just Total Wine. In Maryland they were almost always the highest price in many wines.

I’m comparing Total Wine today to Total Wine just several months ago. At least in FL, they were always more than B21 or ABC, but with the 20% coupon, it got good. Plus, deeper selection. At pure retail, they suck.

It seems like T-W is assuming there is inelastic demand for BDX, and that price increases can be passed through 100% to customers. That may be true in the short run for some things that are irreplaceable - like gasoline or oil if you have an ICE care - but as time goes on people can adapt.

I’d posit this: most of the people who can buy $50 or $100 bottles of French tarriffed wine have enough wine already that they can sit out the trade war for a while, drinking down their stocks. Or in extrema, look at self importing, and perhaps dodging customs duty that way.

There’s a T-W coupon sitting on my kitchen counter too and I haven’t been in since the summer so I was thinking of swinging by this weekend. But maybe that just a waste of time if everything has just been marked up as Alfert observes.

middle woman

You mean like a Ted-Kennedy/Chris-Dodd middle woman?

I thought this was supposed to be a family friendly board.

In general, I assume most retailers have to price most wines based on how competitors price wines. If costs go down for new wines as you posit, they will have to reduce prices is their competitors do. Obviously, there are hard to get wines where the wines will sell at virtually any price, but I have to believe this is not true for most wines produced in any quantity.

And not political

Er, no, to point one.

I would think the big box stores would be more prone to increasing prices based on that expected increase. I think many smaller stores will continue to sell at retail price and raise their prices when the tariffs arrive.

In a similar situation, California raised tobacco taxes twice, the latest was 65%. We compete with not only the big box stores and small retailers, we also compete with e-commerce, in that we can’t sell on line because of our base prices are higher than in most states and customers can order their smokes online for less than half the price. To stay afloat we stopped standard mark up prices and instead added the pre-tax profit amount to the new wholesale price. We make the same amount on the sale as we did before but we are cheaper than other CA stores that continue to use standard mark ups. That would probably work for us on wine too, if necessary, though west coast sales of European wines might be lower than east coast, based on what moves and what is requested around here.

Robert, they increased their prices by 20% in anticipation of your voucher

Yeah, every retail operation I know about prices this way. If costs go down, sometimes you’ll keep the higher price, but only if you think there is still value there.

My guess is that most consumers who shop at Total Wine are not watching pricing as carefully as those on this board, and they most likely do not shop around and compare prices with other retailers. They ‘assume’ since they are going to a larger shop that the pricing will be ‘competitive’.

Anyone noticed any price changes at CostCo? My guess is no but just wondering . . .