Making things in a deflationary climate

Argos' amazing ?9.99 barbecue
The economics of making things is all over the place these days. I guess I understand how Argos can sell this really handsome steel barbecue for £9.99 (that’s how much it costs if you visit a store) or John Lewis this beautiful six colour photo printer for £49.95 (likewise, it seems to be cheaper in-store than on the web site) or Dell this amazingly good PC for £369.00 (including delivery) but what I don’t get is what happens once the margins have been driven out of the system entirely.

Presumably someone in Argos’ supply chain is actually making some money on those barbecues but this continuous downward pressure on prices must mean that, in the end, once all the profit has been flushed out and passed back to the customer (this is a good time to be a customer), no one makes any money at all… Then what?

Links: The Economist and Paul Krugman, famously, on deflation and how to prevent it. Tesco saw deflation in non-food products in the last quarter. So did Japan (again).

2 thoughts on “Making things in a deflationary climate

  1. Yeah, well, maybe it’s a loss leader in the summer to get people to visit the store.
    Or, it is viable to source in China four thin steel tubes (4 x 10p), two thin steel disks (2 x 12p), thin steel windshield (8p), grill (22p), two wheels (2 x 30p), other bits, say, (40p), packaging (50p), total parts = £2.44, assembly and packing labour maybe 10p, shipping (10,000 per container) = 50p (can you ship a container from China to the UK for £5,000, sounds fair to me) = £3.04 to the port, leaving almost £6 for inland distribution and handling and tax etc. I would imagine that UK handling costs more than the entire manufacture and shipping and guess Argos are selling maybe 1,000,000 with a 50p profit on each. Or not 🙂

  2. I’ve yet to see any action on it, is the picture just a ‘serving suggestion’ or are we actually going to use it?

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