Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell

The book includes an interesting history of the evolution of retailing and the creation of the discount superstore. There was a time before Wal-mart when small shops sold specialized products through educated salespeople. Now, everything is propelled by mass advertising everywhere, followed by do-it-yourself shopping. Now, I personally like reading tons of peer reviews on Amazon before buying a product, but you have to admit that the genius of a store like IKEA is that so much of the cost is shifted onto the consumer. We load up the huge boxes onto a shopping cart ourselves, cram it into our car, drive it back home (paying for the gas), and build it ourselves with hours of labor.

There is also the interweaving of behavioral economics topics, for example, you probably get excited when you buy something marked down 60% at the mall. We’re all genetically wired to get hyped up for that, so it’s not surprising. Well, these days basically everything is marked down. Only 20% of department store merchandise is actually sold at full price. If everyone is getting the same “deal”, is it still a deal or just manipulation?

On a related note, discount stores often tout “everyday low prices”, but they really just try to compete hard on things that we buy most frequently and are most familiar with. Wal-mart actually has higher than average prices on about 1/3rd of its inventory. On the items for which prices are lower, the savings is 37 cents, with about 1/3rd of items carrying a savings of no more than 2 cents. The loss leaders draw us in and make us feel like we’re saving money, but the other things we toss in our basket make the profit.

You’ll see after reading the book that many trade company business models are somewhat related to the concepts of retail and service industry pricing models.  Its a great read filled with history and will either open your eyes to a new outlook on the retail structure of reaffirm what you’ve been thinking all along with info you might have previously not know about.

You can pick the book up here.