Toothbrush Supplier

Price of goods USA made versus China made?

How much does a store have to pay for an item from china versus an item made in the USA.. I am getting wary of products from China as are many others I speak with. If a toothbrush sells for $3.00 retail here how much did it cost from a supplier from China versus a USA supplier? What about the baby formula that has made the babies ill? How does the price to the wholesale supplier compare for comparable products? Does the US not have the factories to produce our own items or is the cost difference really that great?

Many industries operate on margins of a few percent. Big retailers, such as Wal-Mart, typically have operating margins well under 10%:

http://walmartspace.blogspot.com/2005/09/wal-mart-operating-margins.html

(Operating margins do not include expenses such as interest on loans, cost of maintaining the corporate administration group, etc. They are significantly higher than profit margins)

Only a portion of these costs are actually the cost of the product to the retailer, but even a 10% difference in those costs makes a big difference in the retailers margin and profit.

Wal-Mart is famous for squeezing its vendors’ margins:

http://www.bloggingstocks.com/2007/05/25/dell-looks-to-wal-mart-to-crush-margins-and-destroy-brand/

Wal-Mart is the classic example, but the above is true in general. For example, here is some data on Target:

http://seekingalpha.com/article/93383-wal-mart-vs-target-a-better-starting-point

So the net answer is that if the retailers see that their customers don’t see a difference, even a slight difference in the cost from the factory is a very big deal for them.

This is less true for the factories that make the cosmetics, toothpaste, etc. from Chinese ingredients, but only a little for those who want to sell at the bottom end stores such as Wal-Marts.

As for actual factory costs, that is very hard to establish. People went to foreign suppliers not because American factories couldn’t produce as cheaply, but because they didn’t.

Many American factories were old and less efficient (i.e. more expensive) than a brand new factory would be, but the company is going to build a brand new factory to replace an old one, why build it in the U.S. when it could be build cheaper in China?

(Right after WWII, both Germany and Japan had to rebuild all the factories that the Allied bombs had destroyed. That is one reason that by around 1955, they German and Japanese factories were much more efficient than the American factories which had never been destroyed and hence were much older.)

So there is every reason to believe that new factories in the U.S. could produce goods for only slightly more than the cost in China (using more automation and less manual labor than the Chinese factories), but if all the customers are going to go for the cheaper brand, even that “slightly” becomes significant, so there haven’t been many building those factories in the U.S.

On the other hand, with all the media attention to the quality of food and drug products from China, perhaps the American buying public will be willing to spend a bit more for lower risk. But even then, while I can see it for toothpaste and baby formula, I don’t see it for toothbrushes and other goods.

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