Thursday, March 5, 2015

The Economics of Shopping Locally

"Hit the point once. Then come back and hit it again. Then hit it a third time - a tremendous whack."  - Winston Churchill on persuasive argument

Consider a home owner who makes $10/hour and lives 17 miles from the closest big-box hardware store.

Something happens.  It could be the plumbing downstream of the sump pump gave up the ghost after forty years of service.  Or it could be that the hot water heater died.  Or perhaps it could be a roof leak.

The first trip to the big-box store results in a $70 dollar bill.  The homeowner purchases six black iron nipple (two diameters, three different lengths), hose, a cheap, promotional pair of channel locks, a can of WD40, a roll of duct tape and a headlamp flashlight.

The second trip to the BB store results in a $50 bill.  He buys hose clamps, a good pair of channel locks, batteries for the headlamp, bandages, antibiotic an a twelve pack of anesthesia.

The third trip to the BB store resulted in a $10 ding to the wallet.  I bought Teflon pipe tape and ear plugs.

Let's add up the costs.



Wages


I never met anybody who earned $10/hour who vigorously argued that they were overpaid.  

In general, their employer is required to pay them $15/hour after a forty hour work week.  Therefore, their time will be valued at $15/hour.

Three trips, one hour driving and a half hour in the store = 4.5hr*$15/hr = $67.50 

It is worth noting that the cost of wages does not include the time actually working on the project.  A little bit of expert guidance reduces the number of false starts and wasted effort.  One-and-done also saves "wages" at the job site but that will not be accounted for in this analysis.


Driving


According to the AAA, it cost about 60 cents a mile to drive a vehicle in 2014. 

Three trips at 34 miles per round trip adds up to $61.20


Wasted purchases


Between one-quarter and one-third of the purchases were unnecessary.  The buyer was distressed and was overbuying.  One-quarter of $130 is $32.50

The total cost


The total money wasted by shopping at that "cheap" store down the road was $131.20 ($67.50 wages, $61.20 driving costs, $32.50 unnecessary purchases).  That is a very stiff toll for somebody making $10/hour.

Where did the perception of "cheap" originate?


It came from that cheap, promotional pair of channel locks.

That beautiful, chrome plated pair of channel locks warped the first time you put some weight on them.  They cost $12.95 while the channel locks at the local hardware store cost $17.95.

So, guess how much the second pair of channel locks from the BB store cost?  Yup.  $17.95.

So make a habit of shopping your local stores first, not last!

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