I often read these threads regarding the 'ole LP vs. LDS debate and I "go nuts" when some of you start posting about markup and profit margin etc. etc. I have to say some of you don't really understand the retail business and how it is suppose to work.
There is really no way I can begin to go into these business concepts at length here. I have spoken with some who have earned a MBA and once again simply didn't have a clue about retail business. I do want to try to clarify a few items and hopefully some will read this and understand why there is a difference between LP and a LDS.
Markup-take the cost of an item and mutiply it by a number and you get another bigger number- meaningless and doesn't have anything to do with retail.
Margin- the difference between the cost of and item and the amount that an item is sold for expressed in a %- VERY IMPORTANT number- this is the number you need to decide how much your "markup " is going to be.
Profit-Gross and Net-this can be determined several ways but simply put Gross is before expenses and Net is after everything is paid (what's left)
The biggest problem with LP vs LDS debate is that many people on this board look at a price that LP offers an item for and then compares it to an LDS and states that the LDS is trying to "rip them off" becasue of the difference in price. If the dive shop is trying to sell an item, let's use a mask as an example, for $75 and LP has it for $55. Is the LDS charging too much NO,NO,and NO. Is LP selling it too cheap, possibly.
The dive shop is probably operating on what is refered to as a "keystone" markup which is a 100% markup or actually a 50% margin. LP is probably operating on a lower margin, maybe, 20% (just guessing). LP is relying on VOLUME sales to make enough money at a lower margin to make a profit.
Now here is the kicker of why LP is such a problem for a dive shop and why some of us, or me in particular, don't like what LP is doing.
Most mfg.'s do not allow the LDS dealer (by virtue of a dealer agreement, and by threat of possibly losing their dealership) to sell on the internet.
LP acquires scuba gear by sometimes suspect methods, often refered to as "gray market", back door, overseas just about anyway they can other than buying direct from the mfg. with a dealer agreement.
The LDS can't compete or it will be difficult because they can't gain the volume sales to allow them to lower their prices without violating their dealer agreements.
Anytime a business sells an item at a lower price than what is their needed margin then they have to make up the loss by selling more items or other items for more.
An LDS often has a limited market, the area around their store that divers will travel to to make purchases. LP is "Worldwide"
It often said that an LDS should focus on other aspects of their business, service, instruction, etc. My experience is that these areas simply aren't that profitable and divers aren't willing to pay more for say air fills, or reg rebuilds. Services that LP doesn't offer.
I could go on but I find it difficult to "type" all this. In short it will be a sad day if and when the "dive shops" go away. They are dwindling fast.
If LP had to abide by the same constraints as some or most dive shops I am confident they would be operating their business in a different way.
If you purchase items from LP, in my opinion it's no different than buying a TV off the back of a truck. You don't know where it came from, and you don't know why it's so much cheaper. You don't care that there isn't a mfg. warranty, you're getting it cheap enough.
There is really no way I can begin to go into these business concepts at length here. I have spoken with some who have earned a MBA and once again simply didn't have a clue about retail business. I do want to try to clarify a few items and hopefully some will read this and understand why there is a difference between LP and a LDS.
Markup-take the cost of an item and mutiply it by a number and you get another bigger number- meaningless and doesn't have anything to do with retail.
Margin- the difference between the cost of and item and the amount that an item is sold for expressed in a %- VERY IMPORTANT number- this is the number you need to decide how much your "markup " is going to be.
Profit-Gross and Net-this can be determined several ways but simply put Gross is before expenses and Net is after everything is paid (what's left)
The biggest problem with LP vs LDS debate is that many people on this board look at a price that LP offers an item for and then compares it to an LDS and states that the LDS is trying to "rip them off" becasue of the difference in price. If the dive shop is trying to sell an item, let's use a mask as an example, for $75 and LP has it for $55. Is the LDS charging too much NO,NO,and NO. Is LP selling it too cheap, possibly.
The dive shop is probably operating on what is refered to as a "keystone" markup which is a 100% markup or actually a 50% margin. LP is probably operating on a lower margin, maybe, 20% (just guessing). LP is relying on VOLUME sales to make enough money at a lower margin to make a profit.
Now here is the kicker of why LP is such a problem for a dive shop and why some of us, or me in particular, don't like what LP is doing.
Most mfg.'s do not allow the LDS dealer (by virtue of a dealer agreement, and by threat of possibly losing their dealership) to sell on the internet.
LP acquires scuba gear by sometimes suspect methods, often refered to as "gray market", back door, overseas just about anyway they can other than buying direct from the mfg. with a dealer agreement.
The LDS can't compete or it will be difficult because they can't gain the volume sales to allow them to lower their prices without violating their dealer agreements.
Anytime a business sells an item at a lower price than what is their needed margin then they have to make up the loss by selling more items or other items for more.
An LDS often has a limited market, the area around their store that divers will travel to to make purchases. LP is "Worldwide"
It often said that an LDS should focus on other aspects of their business, service, instruction, etc. My experience is that these areas simply aren't that profitable and divers aren't willing to pay more for say air fills, or reg rebuilds. Services that LP doesn't offer.
I could go on but I find it difficult to "type" all this. In short it will be a sad day if and when the "dive shops" go away. They are dwindling fast.
If LP had to abide by the same constraints as some or most dive shops I am confident they would be operating their business in a different way.
If you purchase items from LP, in my opinion it's no different than buying a TV off the back of a truck. You don't know where it came from, and you don't know why it's so much cheaper. You don't care that there isn't a mfg. warranty, you're getting it cheap enough.
) because I just decided to keep the business local. But I did so to my financial detriment ... and more that just a 10% difference. The economics of that equation won't survive.
