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Can You Make A Profit From Buying
Wholesale Electronics?
Part One By Robert C. Potter
On more than a few occasions I field questions from people who want to buy electronics in bulk. People that are entering the entrepreneurial arena for the first time, or who are new to auction selling, want to pursue consumer electronics believing that they have a higher than average profit margin.
And, like most people who are new to sourcing wholesale supply for this particular product category, their pricing and profit expectations are often unrealistic. Despite the popularity of consumer electronics, calculating your purchasing expenses, overhead, advertising, and the gross profit after expenses can be a disappointment to your bottom line.
Consider two companies that are the category killers of the consumer retail electronics market, Circuit City and Best Buy. With hundreds of stores across the United States, and an incredible corporate support system, you would think that their overall corporate profit margin after expenses would be in the fifty to one hundred percent range.
If you guessed either number you would be woefully wrong. The profit picture can be best illustrated by reading about Best Buy's financials for the year of 2006, entitled: "Best Buy Profits Disappoints, Shares Fall".
Best Buy Profit Disappoints, Shares Fall
By Nicole Maestri
"The sales turned out better than what most people had expected," he said. "Unfortunately, the margins were under more pressure, and as a result they missed earnings. Best Buy's gross profit rate for the third quarter was 23.5 percent of revenue, down from 24.4 percent a year earlier.
"The retailer attributed the decline to increased sales of lower-margin products, like notebook computers and video game consoles, and hefty promotions during the Thanksgiving holiday shopping weekend.”
Full Article: Click Here
Even though Best Buy had a good third quarter, their overall gross profit margin fell from 24.4 percent, to 23.5 percent. It is hard to imagine, but for all the money and expense that is put into buying and promoting consumer electronics, that their profitablity would be more pronounced.
Keep in mind this quote from the article: "Retailer attributed the decline to increased sales of lower-margin products like notebook computers and video game consoles, and hefty promotion during the Thanksgiving holiday shopping weekend." You might be under the impression that computers, as well as video game consoles would provide huge profit margins for the company.
Sidebar: For a better explanation about gross margin, below is an
excellent article (link below) written by Ted Hurlbut, for Inc.com..
Gross Margin -- The Overlooked
Metric By: Ted Hurlbut
Copyright © 2006 Mansueto Ventures LLC. All rights reserved.
Inc.com, 375 Lexington Avenue, New York, NY 10017
But the reality is that these products (computer and video game consoles) are costly to manufacture. The more expensive it is to produce a product, the slimmer the profit margin there is for the seller. Imagine what an up hill battle you would have if you ever wanted to jump into the electronics retail market game as an independent seller?
The millions of dollars spent on marketing, promotion, real estate, and payroll, while trying to achieve a fluctuating profit margin that at times can be as low as ten percent, and not much higher than thirty, would try the patience of most Entrepreneurs.
Sidebar: For an interesting prospective on video console profits,
click “ Playstation 3 Is A Suicide Mission”..
Playstation 3 Is A Suicide Mission
Click here to go to part two of “Can You Make A Profit From Buying
Wholesale Electronics" By Robert C. Potter.
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