Two Dollar Shop

I just cannot believe how cheap some things are in the ‘$2 Shop’. Now that’s the New Zealand $2 Shop, so it’s more like US$1.25, which would be the ‘Buck and a Quarter Shop’?

For instance, take this Mechanical Pencil set. You get 6 pencils, an eraser and a refill pack of 30 leads, all for $2 retail. That’s $1.78 before sales tax. Now I’m no expert on industry margins, but I imagine the $2 Shop national buyer probably paid the Chinese manufacturer about $0.95 (plus shipping), so the manufacturer probably made them for $0.70. Take out the eraser, refills and packaging, that means each pencil probably cost about 9 cents (US 6 cents) each, to manufacture. You can use other retail and manufacturing margins to produce other figures, but which ever way you look at it, they were manufactured for staggeringly small amounts of money. I know the design of these pencils is ultra basic, the quality is questionable, the leads are very weak, etc but still, I really struggle to get my head around it.

Then there is the power and value of a brand, as you can get this similar mechanical pencil for NZ$2 with “Winnie The Pooh” branding. So, 6 generic pencils plus eraser and refill leads OR one loose open stock "Winnie The Pooh" pencil for $2, making old Pooh worth something like an extra 600% mark-up. That is perhaps appropriate given that Pooh is one of the worlds most famous pencil persons. After all, the English system of lead hardness grading was invented for him. Pencils are marked B for “Bear”, HB for “Helping Bear”, BB for “Brave Bear” and so on – well at least that’s what he thinks.

Economics is a strange and wonderful thing. Perhaps the “Catch 22” variety is at work here. I’m sure we all know the massive mark-up we pay for name brand items, particularly expensive name brands, but when you sit down and analyse it, it’s just mind-boggling.

Footnote: Original drafts of this posting created with Woodchucks excellent California Cedar Products “Forest Choice” woodcase pencil, a mighty fine piece of wood in any economic system.