Among the avalanche of information at last week’s Coles briefing, CEO John Fletcher gave a couple of examples of how the other China story is still running – the manufactured goods deflation story, the flip side to the commodities demand story.
He didn’t word it like that of course – instead it was all about Coles’ buying power. As a stocking stuffer from Kmart this Christmas, you’ll be able to buy an LCD DVD TV for $399 – and Fletch says it really works. Or there’s the ever-popular MagLite, recommended retail $126.85, but just $39.95 for Santa.
But you don’t have to wait until December. The junk mail overflowing my letter box yesterday included the latest Kmart sale handout with a notebook computer for $799. OK, it’s not the biggest beastiest laptop with chrome-plated grease nipples and twin overhead fox tails (to quote Bob Hudson), but it’s a respectable enough machine to handle your email – Intel Celeron M1.3GHz processor, 256 MB RAM, 40 GB hard drive, DVD-ROM/CD-RW combo drive, wireless and such other stuff, whatever it means. More than enough for a News Corp executive.
Or there’s the surround sound DVD player for $59. And the fridges and other white goods, or the $119 petrol whipper-snipper with a two-year warranty – that’s less than the local mower shop will charge to service the thing a couple of times.
And so it goes. Aside from plugging Kmart, the point of the story is that retailing anything that can be made in China just continues to get harder. The low prices sound great, but if the price of what you’re selling halves, you have to sell twice as much of it to make the same profit.
And that’s where the supply chain pressures come in – moving twice as much stuff means the transport industry is in Coles’ cost reduction sites. Fletcher said as much, but that was largely lost among all the other information.
Coles is putting Toll and Fox and anyone else with a truck, train or boat on notice – Fletch and his executives are coming to demand bigger discounts, because their 2008 bonus depends on it.