I was just thinking, major retail stores in the current system are highly subsidized (for example, artificially-low interest rates that encourage shopping and consumption, socialized roads and transport, tough regulations imposing barriers to entry) and still have a hard time staying in the black. In a totally free market, could major retailers compete with some guy selling TVs from his garage? What do you think?
The guy in his garage does not have TV advertising, supersized buildings, and thousands of employees to pay for, so that is more profit is his pocket. Right?
Retailing is an important application of branding and trust-building. People will not spend a thousand dollars on a television from some random guy’s garage. They will spend it at the large chain that they know has been reliable in the past for them and for other people.
I would if the box has never been opened, and it comes with a warranty from the manufacturer.
Don’t assume that large chain stores have a monopoly on branding and trust-building. The guy in his garage is perfectly capable of offering a return policy and what not, to win the customer’s trust.
They have a hard time staying in the black, because they also are also subsidizers.
Yes.
I’ve been the small guy. It’s hard to compete with a massive inventory. People don’t just buy video cards. They buy controllers. They buy monitors. They buy hard drives, fully assembled systems and video games. They want USB mice, optical mice and mousepads made out of metal. It can be very inefficient for the consumer to pay multiple shipping charges or drive to multiple locations when they can one stop shop.
The larger your inventory, the larger your discounts at wholesale. The largest your discounts, the higher your margin. Not to mention, as your inventory expands, so too does your capacity to have loss leaders. A small firm with only a few discounted products selling out of a garage will have a hard time choosing which of a limited inventory can be run at a loss.
For a small guy to be competitive, he has to offer something or a combination of things to differentiate from established players. More inventory, different inventory, higher quality goods, more service(s), lower prices. All of those things come at a cost to profit, whether it is smaller margins or higher overheads. The way to offset those, is to carry a larger inventory and gain wholesale discounts. Which now makes you a larger firm all over again.