Retail Markups on Cheap Imports
Claim on public TV show attacking capitalism: Wal-Mart has bigger
markups on the prdoucts it imports from China.
True or false?
True, I would guess.
Suppose Walmart is currently selling a toy ball it buys from an
American factory for 2 dollars, selling it at 3 dollars, a 1 dollar
markup that yields zero profit because Wal-Mart’s costs are 1 dollar
for the item. This is a 50% markup.
Then Wal-Mart starts buying the ball for .25 from a Chinese factory.
It still costs 1 dollar for Wal-Mart to sell the ball, so it charges
1.25 now. Now there is a 400% markup.
Wal-Mart’s sales, however, will rise. So if there are fixed costs,
the average-cost-pricing markup might actually fall from 1 dollar to
.75. In that case, the new 300% markup is actually a lower markup than
the old 50% markup.