We all know the obvious reasons to shop local. Keep the profits in your community. Support your neighbors. When you shop at a big box store, your money goes to a corporation’s shareholders all over the world. But the general consensus is that prices are higher if you shop local. So when it comes time to check out at a local retail store, you think, “Great! I’m doing my part.” But a part of you would like to walk away with the extra jingle in your pocket. You ask yourself, “Will I really see the extra money I spent come back to me?” Why must it cost more to shop local?
Popular opinion would say that local stores have less buying power. They have to pay more for their products. Thus, they must charge more. While this is true to an extent, the bigger truth is that big box stores came to market with a more sophisticated pricing strategy. Traditionally, stores doubled cost on their products. This allowed breathing room for overhead and profits, and a simple way to know how much is made on each item sold. Big box stores realized that consumers only pay attention to what they spend on big ticket items. They sell those items at low prices while increasing their prices on small ticket items. Consumers ignore the prices of these small ticket items which they buy in greater quantities.
A traditional hardware store would pay $100 for a lawn mower and sell it for $200, while a big box store would sell it for $100 at no profit. The same hardware store would pay 50¢ for a box of screws and sell it for $1, while the big box store would sell the same box for $3. You don’t call the neighbors to brag about the $2 you saved on a small box of screws. Truth be told, you probably didn’t even notice. But if you save $100 on a lawn mower, you may invite the neighbors over to celebrate. You only buy a lawn mower every decade or so, God willing. How many times a year do you need screws or other small hardware? The big box stores easily made up for smaller profits on big ticket items with big profits on small ticket items that you buy every day. The consumer will always remember the $100 they saved on their lawn mower, but may never notice the hundreds of dollars extra they are paying on many small purchases throughout the year.
Small, local retailers obtained a negative price imagine as a result of the big box pricing strategy, and many perished. Some were able to survive with their superior customer service. But as shopping options continued to grow with online shopping, superior customer service was not enough to get customers to pay more. The independent retailers that have survived did so by becoming wise to modern pricing strategies. With the help of national distributors that service independent stores all over the country, they have gained intel similar to that which you would find in a national home office of Lowe’s or Home Depot. These distributors gain buying power by buying in bulk and supplying small stores. They do pricing research to help small stores stay competitive on big ticket items, while making sure they are getting their extra $2 on a box of screws.
The big box stores were very successful in developing a positive price image, but the small stores have conformed. They no longer have inferior pricing and they still have superior customer service. So before you assume you are saving money at a big box store, check prices. Many small stores now have their prices online.
–By: Mick Blankenship