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No their 75% gross margin is not average. Please provide examples if that is true. No one has yet provided one.

By the way scott s6 it's usually not considered that ethical to go back and edit your mistakes out of your posts without explaining the changes.

how about you provide examples that it isnt average, if your so hell bent on proving us wrong, do the work yourself, not make us research it, because my bias will make me cite evidence of my point...i dare you to find 10 examples that a 70-80 % margin is abnormal...heres an example that i bet your familiar with: sodapop at fast food restaurants: it costs them less than $0.10 for the cup and soda, and Mcdonalds sells their soda for $1.00, so they have a 90% gross margin, other places have an even higher margin, like movie theaters, thats closer to 99%

Let's see I'll just name 10 companies and then look them up.

Walmart
Kmart
Mattel
Macys
Coke
Pepsi
Sony
samsung
Mcdonalds
google




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Walmart 25.3%



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Kmart 23.9%



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Mattel 48.1%



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Macys 45.7%


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Coke 65.6%


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pepsi 57.6%


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sony 34.9%


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samsung 33.6%



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mcdonalds 41.3%


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google 64.9%


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Are you happy now? I even tried to pick some with notoriously high gross margins like coke and pepsi.


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now try it yourself, pick any company outside of pharmaceuticals and try to find a gross margin higher than GW's. I'm not saying they are the record holders but pick just about any company and their gross margin will be lower.

try again with companies relevant to GW, i mean they produce and sell, not just receive then resell, reselling always has lower margins because your paying another company for their product then marking it up a little bit to make money yourself...most of the companies you listed do that...the 3 that dont: Google, coke and pepsi...they are all over 60%...also, cite sources...it makes your argument more valid

you are confusing gross margin with markup which is the same thing scott did before he went back and corrected himself.

Yes turn it around on me that's the ticket, you guys make an extraordinary claim and I have to prove it's wrong. Have fun with that. I tried though

then explain gross margin to me, Mr. economics...

edit

forget it, skipped back to page two.


http://research.financial-projections.com/IndustryStats-GrossMargin

Gross margins by sector, interesting stuff if we consider the banking sector and GW side by side. Both are apparently evil empires and yet they end up with so little.

Abercrombie and Fitch has a gross margin of 63.7%


You buy cheap and get the gak most return on your product or service I don't see a problem with this.

Gross margin doesn't include certain costs that you would need to look at the GW financial statements to properly categorize (ie. it may not include the cost of their store and warehouse rent or it may, depending on what the accountants wanted to write down)

Here's an interesting bit at the bottom of the Wiki page for Gross profit margin:

In some industries, like clothing for example, profit margins are expected to be near the 40% mark, as the goods need to be bought from suppliers at a certain rate before they are resold. In other industries such as software product development, since the cost of duplication is negligible, the gross profit margin can be higher than 80% in many cases.

Just looking at it from the outside, GW fits in there pretty closely with the developers and their respective business models don't seem much different when you consider how low their reproduction costs (stamping out the N+1 piece of plastic) are in relation to their development costs("It costs a million bajillion dollars to AutoCAD a new vehicle sprue!!!")

That being said, I imagine Scott-S6 would have a better idea of the specific details that might lead to GW having margins more in line with a toy company than a hybrid software developer/retailer (other than the obvious ones)

Damnit, I ate my copy of 'Economics for Dummies'!

Hmm dont know if this is the right topic but I've recently scanned through the other british companies and looks like they're hitting hard times with the new taxes and stuff (I'm a poor ignorant american, dont burn me) People like Victrix, Perry, Mantic, and probably a few others are increasing their prices. Any connection to GW's price increases? (did they do it a head of time?)

SilverMK2 wrote:You have crazy import taxes though. Probably because your customs people have to check that every package coming in doesn't have any seeds or animals hiding in it or something

Nah, our import taxes are quite low. The issue is with the AU$ having appreciated so much in the last couple of years. GW prices from country to country are fixed, so when you get a currency appreciate or depreciate as much as the AU$ has you get some really screwy price differences.


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aerethan wrote:The problem with GW pricing is their overhead as a company. No other model company puts a store every other town like GW does. I myself drive about an hour to the closes lgs to play, bypassing a closer GW.

GW is an overinflated company that needs to just close out stores where LGS's exist or move to strictly becoming a manufacturer in order for retailer cost to go down, and thus retail prices to drop.

You say GW has a problem, and needs to adjust. But GW is the only long term, financially successful miniature company in the industry. It's fair to say their model works for them, and that people on the internet saying their business model is wrong are probably talking out their bottoms, just a little.


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Howard A Treesong wrote:There are a lot of plastic manufacturers churning out high quality plastic kits now and all are cheaper than GW.

Yes, but how many have built a customer base that's anywhere near GW's?

GW's economies are all messed up, sure they have colossal overheads from all those stores, but what about economy of scale? If they don't benefit from their scale meaning they have to charge significantly more than many smaller games companies then their business model is flawed.

Umm, I don't mean to be rude but that's gibberish. Overheads are fixed costs that are not affected by the number of units sold, such as lease costs on each store. Economies of scale are related, in that increasing the total number of sales reduces the costs of the fixed overheads per unit sold, but they're not related in the manner you imply. That is, a company can have high overheads and high sales, just by the nature of the business they operate, while another company can have modest sales and no overheads - for instance, GW vs a guy who makes moulds in his garage and sells them on ebay.

When will they simply run out of people prepared to drop such a lot of money for little plastic?

When they run out of customers that's their problem, not ours. All we have to worry about is whether we're willing to pay what it cost.


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asmith wrote:I don't think you are correct here at all. GW operates at a very large gross margin much larger than just about any business you can think of. The fact that they can barely turn a profit despite this huge margin I think is attributable directly to these stores. To put it simplistically they are earning a lot of money and then spending it all before it shows up on the profit line. Bad business practice is not something that provides value to consumers, with GW you are paying directly for it.

You're assuming it is bad business practice. When you isolate the core point of difference between the only long term, profitable company in the industry and use it to claim they have a bad business model, you're probably being silly.


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asmith wrote:So name a company with a higher gross margin. Better yet name one with several hundred percent gross margin. I know you can't because the highest gross margin you can even theoretically achieve is 100%

Gross margin is a completely irrelevant measure unless you are comparing to a company with a nearly identical business model. It is merely reflective of the relative proportions of direct and fixed costs.

Your later effort contrast gross and net profit as some kind of indicator of business efficiency indicates an almost complete lack of understanding of management accounting. Have you had any financial training?

What asmith is missing is that GW, very unusually, both manufacturers and retails it's product.

It's gross profit seems to be high but that's because you are comparing cost of production to sales at retail.

Not cost of production to sales at trade price (as you would with most manufacturers) or cost at trade price to sales at retail.(as you would with most retailers)

This is why comparing their gross to most other companies is erroneous.


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asmith wrote:No their 75% gross margin is not average. Please provide examples if that is true. No one has yet provided one.

By the way scott s6 it's usually not considered that ethical to go back and edit your mistakes out of your posts without explaining the changes.

I was throwing terms around fairly loosely. I clarified my position for you.

I notice you have failed to offer an example of a company in a similar sector which has substantially higher net profits to justify your "low profits" comment.


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MikeMcSomething wrote:Gross margin doesn't include certain costs that you would need to look at the GW financial statements to properly categorize (ie. it may not include the cost of their store and warehouse rent or it may, depending on what the accountants wanted to write down)

Quite so, it generally doesn't include anything which is not a cost of production. What you classify as production cost varies dramatically which is why the figures Asmith posted for other industries are not comparable.

The GW stores are not a cost of production and are not included in their figures along with warehousing and all sorts of other costs associated with operating the retail arm. As such, the difference between their gross and net is very large.

McD's consider their retail outlets and staff to be a cost of production (since they make the food there) so their net and gross profits are virtually identical. (the only other cost is the staff and facilities that aren't retail - i.e. regional and head offices)

I promised myself I wasn't going to post in this thread again but I'm doing it anyway

"This is why GW price seems so out of line, for most things that most people buy they charge a lot more money compared to how much it costs them to produce."

This has been my whole point throughout this f'ing thread. The only sidetrack was the fact I had to spend a page and a half support the "ridiculous" assertion that GW makes a higher gross margin than just about any other company you buy things from. (We do have a nice illustration here of the mental contortions people will put themselves through when they are wrong, first their margin was low (later "clarified"), then it was about average, now it is high but that fact is irrelevant).

GW prices are high on comparable items because of their business model. This is the point I was trying to make, using gross margin as an indicator, and now you guys are parroting almost the identical thing back to me and declaring victory.

As to the question of whether or not they have a bad business model, it is only my opinion of course. I think it's most telling is the fact that over the last several years when their profit has been low, what was their fix? It was to close many of these stores. Their stores are why the prices of their goods are so high compared to most other goods you buy from anywhere else. This is what I have been saying and it's nice to see you guys have come around to my way of thinking.

Jesus H Christ people you guys love to argue for arguments sake don't you?

asmith wrote:"This is why GW price seems so out of line, for most things that most people buy they charge a lot more money compared to how much it costs them to produce."

I disagree that that is true. Having seen the cost prices of lots of items straight from the factory, they are a tiny percentage of the final retail price.

The figures you quoted don't support your point in any way as those companies do not manufacturer and retail. Even when you do find an example that does you will need to be very careful that the GP is calculated with equivalent costs. GW do not include the costs associated with retail in their GP. Many companies do include this.

ETA, I'll give you a specific example. This table lamp - http://www.wilkinsonplus.com/Table-Lamps/Wilko-Boston-Table-Lamp-Ceramic-Base-Printed-Shade/invt/0275039?htxt=PsAGyAqy/DSGVBgOHPBfATKVETOKIWHcwqoICuDrG/xTcDPfxIrYzUvEu76RzzM6wutKTeo9AOCB%0AtDs76aYYKg%3D%3D
Retail for £26 - £22 before tax.
Since I personally ordered the container loads of those from the factory I know exactly what the factory sold them for. I also know what the factories typical margins are and I specified all the components so I can estimate the production cost of that item. Approx $10 - £6.50
That's a GP (assuming that one company was manufacturing, distributing and retailing them) of 70%. This retailer competes in the lowest end of the retail market. The majority of our customers operated on vastly higher markups.

Of course, neither the factory, the importer or the retailer had a GP of 70%. Which is why your comparison was erroneous.

asmith wrote:GW prices are high on comparable items because of their business model. This is the point I was trying to make, using gross margin as an indicator,

Except you haven't shown us any comparable products yet. And, you miss the point that their GP is cost of production compared to retail price so cannot be compared to manufacturers that sell to trade or retailers that do not manufacture.

asmith wrote: I think it's most telling is the fact that over the last several years when their profit has been low, what was their fix? It was to close many of these stores.

In the US. Which is less than a third of their sales. Might it not also be hypothesised that the reason sales are so low in the US compared to Europe is because of the lack of store coverage? If you compare sales vs population in the three main areas (northern europe, rest of europe, USA) northern europe dramatically outperforms the others. Northern Europe also has a dramatically higher store density.

They have also closed many stores throughout Europe in the last few years, not just the U.S.

This is true, stores in poorly performing locations have gone. Northern Europe has not seen the mass withdrawal that the US has seen.

You are missing the point that the comparable items I am talking about are other items that people purchase every day.

And you miss the point that none of the examples you gave are comparable.

Walmart's GP cannot be compared to GW's as Walmart does not manufacture anything. They also have costs included in their GP that GW does not. If you compare only the cost of manufacture to retail (as GW do for their GP) then you'll find that GW's GP is pretty standard. (I gave an example of an everyday product, you have not done so)

And you still haven't offered an example of a company in a similar sector which makes significantly more net profit to justify your "low profit" claim.

Im confused , tell me if im reading this right.
are they saying that :

Scott-56 : GW isnt making much money off us , considering their Net Income is so low.

asmith: GW is indeed making tons of money off us , its not customer's fault GW chose to waste most of the Gross Profit on up keeping their local shops.
something like that?

That's exactly right luna! On that note I'm retiring from this thread.

Edit: Again!

No, what I'm saying is that Asmith's point of "gw is making loads of money" is rubbish since he hasn't offered a single example of production cost to retail price to compare GW's figures against. Also, their net profit isn't low - it's comparable to many other companies making toys and games.

As for GW wasting money by running shops - why would closing all the shops lower the price of the product? Suddenly, they're selling the product at a dramatically lower price. Sure, they aren't paying for the shops but the retailer is and that's still being paid for by the customer.

Asmith has offered absolutely nothing to support his idea that GW stores are much less efficient than indy stores and that would have to be the case for GW's policy of selling mostly through their own stores to be "bad management".

asmith wrote:GW prices are high on comparable items because of their business model. This is the point I was trying to make, using gross margin as an indicator, and now you guys are parroting almost the identical thing back to me and declaring victory.

I only came into this thread on the third page, but I can tell you from the first time I read about people trying to use gross profit in this thread, I thought there was very little understanding of what it can actually be used to establish.

As to the question of whether or not they have a bad business model, it is only my opinion of course. I think it's most telling is the fact that over the last several years when their profit has been low, what was their fix? It was to close many of these stores. Their stores are why the prices of their goods are so high compared to most other goods you buy from anywhere else. This is what I have been saying and it's nice to see you guys have come around to my way of thinking.

The only way you could determine if their profit was low was to compare them to others in the industry. Which is difficult, as GW is the only public company in the wargame miniatures market. Which tells you something right off the bat - this isn't a particularly profitable industry. In fact, GW is the only company to manage to be profitable over a a few decades in the industry. As such, singly them out for having a poor business model is a silly thing to do, unless you have particularly solid information to argue your case.

And given you dont' have solid information, but loose speculation, and absolutely no effort to measure the benefit of the mainstreet stores to the size of GW's customer base, it's fairly safe to conclude you really don't have much of an argument.

Jesus H Christ people you guys love to argue for arguments sake don't you?

More to the point, how many people in this thread are attempting to analyse a business without any financial training?

sebster wrote:The only way you could determine if their profit was low was to compare them to others in the industry.

Very true. However, they make a better net profit than Bandai toys and hobby and about the same as hasbro. This suggests that they aren't way off the mark.

sebster wrote:More to the point, how many people in this thread are attempting to analyse a business without any financial training?

I've got a decade of purchasing experience for a decent size company. Costings and profitability are a big part of that.


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sebster wrote:but I can tell you from the first time I read about people trying to use gross profit in this thread, I thought there was very little understanding of what it can actually be used to establish.

Quite right. Since gross profit is something that companies use internally, there are no hard rules regarding exactly which costs should be included. Using it to compare two business is pretty futile.

On the bright side, most of the Chinese stuff I got was of better quality than the FW produces in their own shed.

It's simple. GW and FW need massive profits to supply all of their people with rocket packs and space yachts.

Unfortunately, they can't retain any staff because their workers tend to buy small tropical islands to retire to within two years of starting with the company, leading to massive turnover.

Ahh, many's the day I kick myself for becoming a plastic surgeon to the stars, when I could have made far more money in the lucrative "plastic soldiers" industry.

:(

LunaHound wrote:asmith: GW is indeed making tons of money off us , its not customer's fault GW chose to waste most of the Gross Profit on up keeping their local shops.

But Asmith is totally missing the point.

If GW didn't have shops they wouldn't be selling the product at retail and realising the big GP. (most other companies GPs are lower because they only see a portion of the profits - the manufacturer, distributor and retailer all take a piece of the pie, GW keeps the whole pie. They're also including costs in the figure that GW do not - the distributor and retailer count the costs of distribution and retail against their GPs, GW counts only the cost of production)

Take the shops out of the equation and GW's costs go down. However, their income is also dropping sharply because they aren't now charging retail for the products they're charging trade and their GP has just dropped.

None of this has any bearing on whether the shops are a good idea or not.


There are two things that have to be examined to decide if the shops are a good idea or not.
Firstly, financial. While the shops cost money, they also realise more income than moving the same product through an independent. So, would closing the shops save more in operating costs than they gain in added income?
Secondly, social. Having the shops allows GW a presence in those areas. Are there indy retailers to take up the slack if the store closes? In the US, possibly. In the UK, certainly not. Also, is a GW store better or worse at bringing in and retaining customers than an independent?

Even if it was more efficient to close the stores (and there isn't sufficient information in the financial reports to make that judgement) it could still be disastrous in some areas.

So, Assault on Blackreach Box going form $85 AU in the first 6 months of release, to nearly $150 AU as of 2 years later, does not ring 'profiteering' alarm bells in anyone elses mind?? Scumbags. If World of Warcraft went from $15 p/m to $30, I wonder how many people would quit playing it?????

Have you seen what you actually get in an Ironclad Dreadnought Box? 2 SMALL Sprues, AND 1 base. $75AU.

Keyhole sniffers, of the lowest kind.

They have my Vitriol and spite. After 20 Years of playing, they pretty much have my retirement fund in the Bank.

Scum and Villainy. Oh, and the Models are AWESOME!

Plastic Crack........

Scott-S6 wrote:Very true. However, they make a better net profit than Bandai toys and hobby and about the same as hasbro. This suggests that they aren't way off the mark.

Sure, but just being a toy companie doesn't necessarily make them particularly good for benchmarking. You really need to look at size and business models as well. Also, I'm not convinced GW is really in the same industry as those other toy companies, as the product and customer base is very different, if GW raised the prices again, people would leave, but very few would swith to buying Transformer toys, they'd be more likely to switch to Rackham or Privateer.

I've got a decade of purchasing experience for a decent size company. Costings and profitability are a big part of that.

Thing is, I'm a CPA with training in this very field, and a management accountant by trade, and I don't think I've got the body of knowledge to make any real insight into GW as a business.

But I've got enough knowledge to know a lot of what's going on in this thread makes no sense at all.

Quite right. Since gross profit is something that companies use internally, there are no hard rules regarding exactly which costs should be included. Using it to compare two business is pretty futile.

It's not just that, gross margin is, more than anything else, relfective of the business model. It tells you how a business is operating, not whether it's operating properly or not.

Consider two businesses selling widgets. Company A manufactures the widgets at a direct cost of 50c each, and sells some in it's own store for $5, and sells some more to Company B for $2. Company B changes the label on the widgets and sells them under it's own name, also for $5.

If the overhead costs of the factory, and the required return on the capital invested in that factory worked out at around $1.50, both companies would be exactly equally profitable. But if you directly compared their gross profits you'd see Cpy A was $4.50, and Cpy B just $3.


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akira5665 wrote:So, Assault on Blackreach Box going form $85 AU in the first 6 months of release, to nearly $150 AU as of 2 years later, does not ring 'profiteering' alarm bells in anyone elses mind??

No, because profiteering is a word with a real meaning. Particularly, it refers to raising prices to take advantage of an emergency, such as a flood or a war. It makes absolutely no sense when being used to criticise a company making plastic toys.

If World of Warcraft went from $15 p/m to $30, I wonder how many people would quit playing it?????

I suspect Blizzard would know exactly how many people would drop out, and this would be the primary factor in setting their price at $15.

They have my Vitriol and spite. After 20 Years of playing, they pretty much have my retirement fund in the Bank.

Which is fine. You don't owe them your business, any more than they owe you models at a price you'd like to pay.

Hello,
It's funny the day after I read this I saw one on Ebay from China, it was out of packace and did not quite look right, I think it was aq daemon prince. So expect the knock-offs, and really pay attention to who your'e buying from.

Regards,
Carl

sebster wrote:

Scott-S6 wrote:Very true. However, they make a better net profit than Bandai toys and hobby and about the same as hasbro. This suggests that they aren't way off the mark.

Sure, but just being a toy companie doesn't necessarily make them particularly good for benchmarking. You really need to look at size and business models as well. Also, I'm not convinced GW is really in the same industry as those other toy companies, as the product and customer base is very different, if GW raised the prices again, people would leave, but very few would swith to buying Transformer toys, they'd be more likely to switch to Rackham or Privateer.

Quite so. But if Bandai hobby division was making 40% net then we could compare that to GW and say - maybe they could do better if they sold to trade and abandoned the stores. Since they're in the same ballpark then there's nothing to say that their business model is obviously on the wrong track.

Quite right. Since gross profit is something that companies use internally, there are no hard rules regarding exactly which costs should be included. Using it to compare two business is pretty futile.

It's not just that, gross margin is, more than anything else, relfective of the business model. It tells you how a business is operating, not whether it's operating properly or not.

Consider two businesses selling widgets. Company A manufactures the widgets at a direct cost of 50c each, and sells some in it's own store for $5, and sells some more to Company B for $2. Company B changes the label on the widgets and sells them under it's own name, also for $5.

If the overhead costs of the factory, and the required return on the capital invested in that factory worked out at around $1.50, both companies would be exactly equally profitable. But if you directly compared their gross profits you'd see Cpy A was $4.50, and Cpy B just $3.

Exactly. Which is why Asmith's example figures were completely pointless - no businesses on the list that were comparable at all.