Tuesday, July 12, 2005

The China Price

Apparently there is one phrase that is more frightening to Wal-Mart's suppliers than any other. It's called "The China Price." This means that Wal-Mart is comparing prices between the product you sell and what they can get from China. China can produce finished, sellable products for an unbelievably cheap price to American retailers. And Wal-Mart has taken advantage of this. I've heard estimates that 80% of the durable goods in a Wal-Mart store are from China.

I witnessed this firsthand recently. The floor lamp here in my office became a strobe light last week because of an electrical short in the base. It was about twenty years old so I decided to replace it.

I visited several stores to compare styles and prices. Several stores featured a particular lamp that was quite stylish and bright. But I could not believe the price.

This was a six-foot tall floor lamp with six bulbs (not included). It looked excellent. The price? $19.99. I had expected to pay perhaps as much as $100 for a lamp like this. But twenty bucks?

Needless to say, I snapped it up. It was easy to put together, and the quality is top-notch. (So much for assuming lower quality from Chinese products.)

I'm sitting here wondering, "How could they even ship this thing from China for $20?" It's pretty heavy, since the base is weighted to keep it from falling over. I guess I have a lot to learn about the economies of scale in manufacturing and distribution. How much could a factory worker in China be paid to assemble a product like this? The materials must have cost at least $5. That leaves $15 for the worker, factory costs, shipping and the retailer.

This just doesn't add up in my head.

Anyway, China can produce these durable goods in tremendous quantities at good quality at excellent prices. That is an established fact.

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