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18% duty, am I still a contender?

duty fees

   
4:32 pm on Jan 4, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



My ecommerce store will be out of Canada, and my products are all being purchased from the US. I will be paying around 18% duty on my products.

From the mfg that I have contacted so far, they all want their prices to be double the wholesale costs.

The fact that I have to pay duty means I am out 18%, do you think I should continue on with this venture?

Say the average purchase is $50 and my cost is $25. So for a US based operation, they net $25. If I keep my prices the same, I would net $20.50. If I pass the duty on to my customers, the price will be $59.

Say I do $200K in sales, that 18% means $36K/year. I could probably get a fullfillment center at some point since I'm losing so much in duty already, and a full. service means I don't have to pack-ship my products.

5:11 pm on Jan 4, 2007 (gmt 0)

10+ Year Member



I don't know about in Canada, but if I were to pay tax in the US on a product and then sell it, I could claim the purchase was an exempt purchase and avoid paying the tax or get it back (for many types of taxes). I would think you would have something similar to be able to avoid paying that 18% (I assume this is the VAT added to your order from the manufacturer when it is imported into Canada).
6:00 pm on Jan 4, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



Great point.

That does make sense, if I buy it from the US, and then later sell it back to the US I shouldn't have to pay the 18% on it.

I'll look into it.

6:02 pm on Jan 4, 2007 (gmt 0)

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No, when anything made with fabrics crosses the border into the US, the US government charges you 18% duty of the wholesale cost.

Fabrics are not covered under NAFTA, because there is not such thing as free trade.

6:03 pm on Jan 4, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



That is a good theory, but in practice, you will be screwed for the money. Try arguing your case with US Customs and you will see what I mean.
9:24 pm on Jan 4, 2007 (gmt 0)

WebmasterWorld Senior Member bwnbwn is a WebmasterWorld Top Contributor of All Time 5+ Year Member



"say I do $200K in sales"

To me it looks like u will make 90k profit with the average sale of 50 you do 4000 sales a year or 10 a day.

I would assume this is a one man operation or family affair so why worry as 90k is a good living low stress and time to enjoy life and family.

Time to also get another business going.....

10:22 pm on Jan 4, 2007 (gmt 0)

10+ Year Member




No, when anything made with fabrics crosses the border into the US, the US government charges you 18% duty of the wholesale cost.

Fabrics are not covered under NAFTA, because there is not such thing as free trade.

This is not correct.

Fabric manufactured in the NAFTA zone is duty free when crossing NAFTA borders.

Fabric manufactured outside of the NAFTA zone but value-added into, say, garments may or may not incur duty costs when crossing borders. (It gets complicated - depending on where goods are cut, sewn, etc).

Garments manufactured in the NAFTA zone of fabrics that originate in the NAFTA zone are duty-free.

Garments manufactured outside of the NAFTA zone incur duty when crossing into the NAFTA zone. If your garments are being manufactured in, say, China and imported to a distributor in the US, the distributor will pay duty to US customs on the import value.

If you then turn around and buy those garments from him and have them shipped from the US to Canada, you will pay duty on them to Canada customs. I believe that it is theoretically possible for the original importer to the US to reclaim the duty he paid in that case, but I am not certain. (I have been through something similar on goods going from Taiwan->US->Canada->US and I am able to get the duties paid to Canada back, but it takes _months_.)

Basically, though, if you are importing into Canada where the origin is outside of the NAFTA zone, your best bet is to try and import them directly without passing through a distributor in the US.

Another option is to set up a fulfillment operation in the US so that you avoid the extra border crossings. If you expect most of your customers to be US based, this is almost certainly the way you want to go. From experience, crossing the border between the US & Canada for consumer purchases adds time, trouble, and loss to your equation. (Its not as bad from Canada->US as the other way around, but I've had problems with both directions.)

1:53 am on Jan 5, 2007 (gmt 0)

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From the mfg that I have contacted so far, they all want their prices to be double the wholesale costs.

Red Flag!

No manufactuter can tell you what to sell your product for. Its called priced fixing. Many have tried, and many have been fined heavily.

I would avoid any manufactuer or distributer, that even brings up, what you will be selling your product for.

Find a manufactuer, that will drop ship the product for you, and you will save the hassle of shipping from USA to CANADA to USA again.

3:55 am on Jan 5, 2007 (gmt 0)

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lgn1,

Not many people are willing to dropship it seems ( I get that feeling at least).

It really depends on the industry and the size of the mfg. Dropshipping won't work when someone orders 2-3 products from different mfg, the shipping costs will be trippled that way.

3:56 am on Jan 5, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



oh, and I have spoken to 6 or so mfg and all but 1 have said that I have to double the price and some even say that I can't sell on ebay (not that I was intending on it).
4:28 am on Jan 5, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



Ussually, you need to deal with distributers until you reach a certain sales level, before you can even approach a manufactuer, and even then, many manufactuers will not deal directly with the retail end at all.

The fact that 5 of 6 manufactuers, is still trying to control the supply chain, rather than concentrating on manufacturing and promoting the product, is kind of strange.

After all, most corporations, have realized that trying to control prices in the supply chain is virtually impossible, counter productive, and ultimately results in loss market share, and has given up on this practice.

In addtion, the record companies were successfully sued in 2002 on price fixing via MAP policies, which was once considered one of the last safe bet on price fixing.

Are you sure you are talking to the right people, and not just a bunch of middlemen who are trying to scam you, by pretending to be manufactuers or distributers of a particular product.

4:59 pm on Jan 5, 2007 (gmt 0)

10+ Year Member



oh, and I have spoken to 6 or so mfg and all but 1 have said that I have to double the price and some even say that I can't sell on ebay (not that I was intending on it).

Technically speaking, they cannot force you to charge any specific price. They can use Minimum Advertised Price contracts to keep you from advertising your low prices and there can be some gray area there. Google "Minimum Advertised Price" and dig around, you'll find a fair bit of info on the topic.

However, what is legal and what actually occurs are two different issues. Many small manufacturers/importers/whatever do not realize that they are not allowed to set prices that their retailers charge. Others know, but do it anyway, realizing that the odds of ever getting penalized as a small manufacturer are close to nil.

It is common for manufacturers to limit the channels that you sell through and as far as I know, there are no laws or regulations (in the US) preventing that.

7:46 pm on Jan 5, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



>>>>(Its not as bad from Canada->US as the other way around, but I've had problems with both directions.)

We have problems both ways too. Apparently, we have given up trying to get any duty back from the US government. Now we just build it into the final cost for the consumer.

I just talked to the person who handles border issues here in the operation. They confirm what you say about it being very complicated because it depends even on where the cotton was grown and where any manufacturing occured. Finding out all the answers apparently is the roadblock.

1:45 pm on Jan 6, 2007 (gmt 0)

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Others know, but do it anyway, realizing that the odds of ever getting penalized as a small manufacturer are close to nil.

In other words, these companies are unethical. If they have no concern for the law of the land, they probably have no problem, trying to rip there customers off also.

Sounds like you are in the clothing business. I heard rumors that the markups were around 300 - 400 percent in the retail clothing trade, since alot of clothes are marked down 70-80% when they go out of style. If this is the case, doubling your price is a bargain for the customer.

5:19 pm on Jan 6, 2007 (gmt 0)

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Sounds like you are in the clothing business. I heard rumors that the markups were around 300 - 400 percent in the retail clothing trade, since alot of clothes are marked down 70-80% when they go out of style. If this is the case, doubling your price is a bargain for the customer.

For a small manufacturer, the "norm" in the clothing business is to take your per unit manufacturing costs (labor+materials) and either double or triple them to come up with your wholesale pricing. Sell a reasonable amount at those prices and you will be profitable, though not insanely so compared to other businesses.

Wholesale pricing is generally between 40-50% of the ultimate retail pricing on the goods. If a retail merchant follows that formula and is able to sell most of the goods, they will be profitable, but not insanely so.

8:21 pm on Jan 6, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



Yeah so if you buy something at $25 and retail it for $50, marking it down by 80% means you lose $15.

($50 * .2 = $10 - $25 = - 15)

6:14 pm on Jan 8, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



Even if these small manufacturers are forcing me to sell at a specific price AND preventing me to sell on ebay, what is a guy to do? (keep in mind these are speciality items that I can't buy elsewhere)

They can easily just stop selling to me if they don't like my practices, and its not like I am going to take them to court over it hehe.

9:30 am on Jan 9, 2007 (gmt 0)

5+ Year Member



Actually it sounds to me that you are in a favorable situation that the mfg insists that the goods are sold at a high price. Even with the 18% duty this should allow you to make a nice profit. If they didn't control the prices you would likely not be able to compete with US based webshops on this product.
Calculate how many sales/month you have to make before a fullfillment service in the US makes sense. Obviously, passing on the duty (or some of it) to the customers will decrease sales. Therefore you should only do this if you believe it will improve your overall result. The customers are not likely to care that your expenses are higher than other competitors.
6:09 am on Jan 10, 2007 (gmt 0)

5+ Year Member



No manufactuter can tell you what to sell your product for. Its called priced fixing.

A manufacturer recommending a retail price is not called price fixing. It's called "MSRP". Price fixing is when different companies selling the same product conspire to set the price for the product in question.
3:58 pm on Jan 10, 2007 (gmt 0)

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the contract reads:

You must agrees to preserve the value and integrity of the brand by not advertising retail prices in any manner more than 5% below the current MSRP.

4:43 pm on Jan 10, 2007 (gmt 0)

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There you go... "advertising". Sounds like you can sell it for whatever you want, you just can't advertise any price that is under 5% below MSRP

You see this a lot on many sites including amazon. Instead of a price you'll see "see the price when added to your cart" and a message stating why they can't advertise the price.

[edited by: Philosopher at 4:44 pm (utc) on Jan. 10, 2007]

5:36 pm on Jan 10, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



Yeah so if you buy something at $25 and retail it for $50, marking it down by 80% means you lose $15.

Sometimes cash flow trumps profits. Inventory sitting on a shelf unsold is costing you money. Converting it to cash, even at a loss, allows you to acquire new inventory (or pay existing bills!).

If you are dealing in the apparel industry, you have to factor this into your business plan. Just what do you plan on doing with those final 3 #*$!L lime green bloomers that have been on the shelf for the last 18 months?

High fit and finish apparel is a risky business.

WBF

6:50 pm on Jan 10, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



those final 3 #*$!L lime green bloomers

LOL, caught by the poison filters!

That was supposed to be 3 triple extra large, but Brett doesn't like to see 3 X's lined up in a row!

WBF

10:55 pm on Jan 10, 2007 (gmt 0)

10+ Year Member




You must agrees to preserve the value and integrity of the brand by not advertising retail prices in any manner more than 5% below the current MSRP.

This is called MAP (Minimum Advertised Pricing) and is standard & legal (though I believe there are some gray areas).

11:46 pm on Jan 10, 2007 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member



Minimum Advertised Pricing (MAP) is illegal. Their has not been very many cases yet. Once of the biggest cases was the record industry (doesn't that surprize you) settled with the state for a large sum of money.

But since few have been caught, many are still doing it.

One tactic to deal with idiot companies that does (MAP), is to set up a shell company, that buys the products, and sells on the web for some huge markup. It will not get very many sales, however the bulk of the stock will be sold at cost to your other website. This site will sell the stock at whatever price it wants, to get maximum turnover.

You will be small at first, and the manufactuer will not have a clue, whats going on. Once you get big enough, you are one of their primary customers, they will Kiss Your A*s to keep you as a customer.

Maybe not a 100% ethical, however the company you are dealing with are breaking the law. (if they know it or not).

This is my high horse. I absoutely despise companies that try to control prices, as it destroys the prinicpals of a free market society. If these companies want fix prices, perhaps they should move to North Korea.

4:25 pm on Jan 11, 2007 (gmt 0)

10+ Year Member




This is my high horse. I absoutely despise companies that try to control prices, as it destroys the prinicpals of a free market society. If these companies want fix prices, perhaps they should move to North Korea.

I can agree in monopoly or cartel situations where there are restrictions (practical, legal, or otherwise) on new competitors entering the market.

But, in situations where the market is effectively open to anyone who wants to enter, I fail to see how the free market suffers in the least from manufacturers controling the price of their goods.

Take for example, a company that doesn't wholesale at all. Surely you would agree that they are free to set whatever prices they want for their goods and that they are as much a part of a free market as a company who decides to sell to all comers. Yes?

Why does the landscape change just because they now accept wholesale accounts? Why is it ok to set the prices in one situation but not the other?

If I want to sell my brand of widgets for $1000 and not allowing discounting, that creates an opportunity for you to start a company to sell similar widgets for $500. That's a free market. Only if there is something stopping you from creating the lower cost product is the market restricted.

 

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