Ok, a couple of people have been making comments in the region of
$70 = R700, not R1100, damnit!
Now, I've spoken about this before, and explained how $70 works out to R1100 and not to R700, but I think I'll do it in it's own thread, where we can discuss this and see exactly why this happens.
Now I'm not expert in importing, but I've imported quite a few things, ranging from RAM to VGA coolers, to keyboards, cpu coolers, software and a whole lot of other stuff. This has been for myself personally, as well as for The Prophecy Shop.
Now, there are a couple of factors which obviously increases the cost of importing. I'm listing a few of them here:
* Exchange rate is obviously number 1
* Shipping
* Import duties
* VAT
* Markup
These things are standard. It's really simple. You take your purchase price, include shipping with that, multiply with the exchange rate, and add VAT and markup to that.
So, a simple example of a R10/$ exchange rate with a 14% VAT and a 15% markup, on a $10 product with 1$ shipping is as follows:
10(product price) + 1 (shipping price) * 10 (exchange rate) * 1.14 (VAT) * 1.15 (markup) = R144.21
This means that a $10 product now costs R144.21, and not R100, which is the direct exchange rate converted.
Now, this is typically not the price that you'll pay. Reason is other costs that increases the price of this. I'm listing these below:
* warranties
* insurance
* varying markups
* exchange rate fluctuations
Now, warranties are a HUGE issue. For example, we import Mushkin ram, and we get about 2% of the units we sell back as warranties. We try and keep those till we get a couple of these units, and then ship them back. Problem is, shipping one stick costs about R800, and shipping 10 sticks costs about R1000. This is back to Europe. USA is slightly cheaper, but not by much. Now, waiting till there's 10 sticks, takes a couple of months. After a couple of months, we have lost quite a lot of money merely because of price drops. Something that costs 50 Euros now, costs only 30 in 4 - 6 months time, if it's not available. If it is available, you get swapped out for the 30 Euro version, meaning you've lost 20 euros (or around 40%) on the price you purchased it for, as you cannot now sell it at 50 euros, but must now sell it for 30 Euros.
Now, we've made a deal with Mushkin that we pay 2% less for each product, and then never RMA anything. This saves us shipping costs as well as financial loss because of end of life products and the constantly dropping price of products. But, it means we effectively take a risk that we'll never have a "bad batch" and get a 90% failure rate for a specific batch of products.
Secondly, insurance. Importing products means storing those products locally, which means insurance costs. We import quite a lot of Muchkin products, and it's usually about half our stock figure at the end of each month, so it's got a drastic effect on our insurance costs.
Thirdly, varying markups. Some companies needs to up their markup in order to make a profit. This may be because they run their company inefficiently, because they're just plain greedy, because they need to leave markup in there for distributors (if they sell directly to the public, like we do), etc. We therefore run Mushkin products on roughly double the markup that we run our normal products at. Simply because we sell to other resellers too, so we need to keep a bit of profit out for them too, otherwise we'll constantly undercut them with a large % and they won't sell the products any more. This is something that's happening to a company like Core and ZAstore. ZAstore is by far the largest retailer of apple products. This is because they are part of the Core group, and they get special pricing. For us to penetrate the Apple market, and sell products at ZAstore prices, means we have to run a markup of between 5 and 8%, depending on the product. No company can run on a markup that low. It's simply not feasible.
Lastly, exchange rate fluctuations. This is one thing that has a very, very large impact on our business. To explain this, I'll give an example.
My one supplier who sells Coolermaster stock made roughly a 25% loss on his ENTIRE coolermaster shipment (which is a couple of hundred thoughsand rand's worth of import, if I had to estimate). What happens is that they have a month to pay Coolermaster after the shipment is received. So, they ordered the shipment with the exchange rate of around R9 / euro. 4 weeks later, the shipment arrives, and the exchange rate is still R9 /euro. They worked out the price based on R9 / euro, and sold most of their stock in that month, ready to place the next order and get their stock roughly 4 weeks later. However, when they had to pay, the exchange rate had gone up to roughly R14 / euro. This is almost a 60% fluctuation in exchange rate. This means, that they sold their entire shipment of Coolermaster stock at 25% below their cost price, making a loss of a serious amount of money. A similar thing happened with us with the Mushkin ram, but thankfully we waited a while before we added prices to the website, so we only made a loss for a very short period of time.
This makes distributors very nervous. If they do that every now and then, they'll go bankrupt. So, nervous feelings forces them to increase the price before it gets to this point (the moment the exchange rate starts increasing, they increase their prices, even though they have stock sitting locally) and keep the price high long after the exchange rate has settled, for fear of it going up again.
You have to understand that one such shipment is worth about 4 or 5 shipments that gets sold at the correct price. It could cost a company more than a quarter of a year to make back the money that was lost on one such shipment. So if they mess up like this 3 times a year, they'll not have made any money that year, and ran at a loss or only just break even. Any company that merely breaks even every year, will eventually go bankrupt.
