99centstore.jpgEver wondered how the west’s discount stores manage to source so many cheap-and-cheerful goods and sell them at the same rock-bottom price?

The answer, of course, is that they source everything from China where supplying the single-price market — €1 in Europe, 99p in the UK, 99c in the US and ¥100 in Japan — has turned into a fast-growing albeit ruthless industry, according to this Sunday Times story.

Like a lot of westerners, EngagingChina is an regular visitor to these discount stores. The quality of the goods leaves a lot to be desired of course, but such is the fascination that these stores hold, we just keep coming back. Big western retailers like Tesco and Asda have also spotted the attraction of this market and they too are adding one-price sections to their stores.

The Sunday Times describes the mysterious process by which a piece of cheap plastic leaves a Chinese factory for 22p and ends up on a discount-store shelf in the UK priced at 99p.

The single-price buyer is the toughest in the world as every cost has to fit inside that magic retail price. The Chinese suppliers exist on wafer-thin margins, the Sundays Times is told by a jaded western buyer who takes the plane to Ningbo, in Zhejang province. Ningbo has been a trading post with the west since the 16th century and is now
home to many of the suppliers to this peculiar one-price market.

The article describes the hard bargaining that takes place as the buyer incessantly scours the countryside around Ningbo for suppliers willing to provide him with goods for an Free On Board price of just 22p — that’s the maximum price the buyers can pay, apparently. The difference between that FOB price and the retail price of 99p is eaten
up by shipping costs, tax and duties, and the retailer’s healthy margin.

While entertaining, the Sunday Times article is pretty depressing and of course, it describes just a very small part of what China exports today. The trap that readers in the west fall into is assuming that a country that makes cheap screwdrivers and plastic toys cannot also make upmarket cars and sophisticated telecommunications equipment.
It can and it already does.

Technorati : , ,