Cost and Selling Price

Hi Michael,

In the last footnote to your essay, you talk about customers paying about 10 times the dealer cost to buy rugs in touristic parts of Turkey. This is a remarkable markup.

You also say that buyers of certain designer label goods pay similar multiples of dealer cost. Do you mean that retailers have a 900% markup on those designer label products? That doesn't sound right to me (I don't mean morally; I mean that I am surprised enough to be skeptical).

Would you clarify this, please?

Thanks,

Steve Price

May be a misunderstanding. I mean that the whole chain involved in selling takes this 900%. A jeans is made for
8 $ somewhere and costs 80$ at the end retail point.
The same for rugs.
To be sure I went to a certain place in Cappadocia. A wonderful new building in the style of an old Kervansaray.
Two witnesses, Prof. Peter Thiele, the former director of the Linden Museum in Stuttgart, and his wife. On purpose I was dresses like tourist Ömer ( a famous Turkish tv-film), but western style, short trousers, cotton hat, photo-camera. The selling personnel offered all languages: German, English, French, Italian.
They offered carpets with truely nomadic spirit, for people like us with such a distinguished style. The seller was a handsome and cultivated guy - but an Istanbul dweller from the Black Sea. I saw two carpets, semi-antique, that I remembered from Konya.
Coming back to Konya I researched the selling price and compared to what they offered it for: yes, 1 : 10.

The same figures some very famous "chains", big department stores with branches in Istanbul , Cappadocia and at the coast use.

But to be honest: with the most common goods that we buy here ( a cotton shirt, seen at an American internationally known chain, from India offered for 130 DM at that time - and from India I know what it costs to make it). Carpet dealers are not that special, and 1 : 10 is something the smaller firms never get.

Yours sincerely

Michael

Michael

Hi Michael,

The selling price of 10 times the cost from the producer sounds pretty high to me, but isn't shocking. It includes all the costs of marketing (overhead for the shop, advertising, and so forth), profits for whatever middle men there are in the process, transporting the goods from the producer to the retailer, the cost of the money that is tied up in the goods until they are sold, a return on the money the retailer has invested in his business, and allowance for the fact that a certain percentage of what the retailer buys is stuff that he'll never be able to sell at full price.

I'm not a business person, so I don't have a very good feel for what's reasonable in those categories, or what other categories of expense might be involved. If someone had asked me to guess the ratio of prices at the level of the producer and retailer, I would have guessed something like 5 fold. So, 10 fold is higher than my instinctive guess, but not so much higher as to sound outrageous.

Regards,

Steve Price

Hi Steve,
where I had the chance to check it back with normal consumer goods, especially from "global firms" who normally have their centers in the West, 10fold was the average result. That applies for the whole chain, as you suggested here.
With carpets it applies for the big firms that have their branches in Istanbul, somewhere at the coast, in Cappadocia. I have two witnesses as I mentioned and a lot of indirect witness. Like: I know what the lowest quality of a Sultanhani Iranian gabbeh type rug costs to make including the chemical wash, I know for what it is sold at the spot and I know what they charge at .... in Nurosmaniye Caddesi in Istanbul.
Smaller firms do not charge that much, normally. For antiquities the calculation is totally different anyway.
Again: our thesis was that even at this high end edge of the normal carpet market it is not outrageous when compared to products of Western firms to which we are more accustomed than to carpets or kilims.

Different Strokes

Steve,

I happened to be talking with a dealer of antique rugs just yesterday and the subject was about a customer who brought in a rug purchased a couple of years ago wanting to exchange it for another rug in the dealer's inventory.

The customer asked to get the amount originally paid for the first rug as a full payment for the second rug of the same price. Often "new" rug stores advertise a Return and Trade Up policy that allows the customer to bring the old rug back and trade up from the price of the original rug.

The dealer did not allow this transaction. He allowed the customer to leave their old rug on consignment and they would be given the full amount minus a nominal commission to the dealer for selling the rug. The dealer explained that the purchase of the second rug is in effect a completely new transaction, which creates a process costing the dealer money in terms of taxes, overhead, etc, so he cannot justify such a trade-up policy due to the relatively low profit built into each rug. He said that if he was one of the big downtown stores selling new rugs at a 400% markup, then it would be a profitable transaction.
He knows the costs of new rugs and the prices they are sold for. He cannot mark up his merchandise that much, because no one would buy anything from him.
The new rug dealers also can get some of their merchandise on consignment from the wholesalers and mark it up their 400%, but only pay the wholesaler when the rug sells, just like WalMart.

So, if the retail dealer is marking the rug up 400%, the wholesaler is probably adding another several hundred percent to cover the "cost of money" paid for the rug originally, plus shipping, warehousing, moving and maintaining the retail dealers inventory until the rug is finally sold.

There is probably a whole lot more to the process, but as long as the retail customer gets a rug he likes, everybody is happy.

Patrick Weiler

Thank you for at least an essay on kelim and restoration.
Since we do not yet have pictures I will wait for comment on the restoration, but I agree with Vincent, my first reaction would be the same: not to restore.

Now about ‘customers paying about 10 times the dealer cost to buy rug in touristic parts in Turkey’
Well I can maybe dream about something like that happening maybe one day...
Normally I try to sell 1:2 and even that is not always possible! This is not sufficient to cover costs (rent, electricity, taxes...) and live, but since we do not ‘live’ only work no problem!
Now this does not say that the price of the piece is not in a rate of 1:10 because it is possible the ‘man in between’ uses a higher rate... systems of business here are complicated.
Life did become very expensive in Turkey last years, and people can not survive on a salary what was normal 3 years ago, for example price of fuel is today more expensive here than in Europe!
To my idea prices of Turkish handmade products will become more expensive and than it will be impossible to sell... This moment something like 80 % of the new kelims sold here are NOT Turkish but imported products.
Ludwina Akbulut

I like that we come to be more practical. I agree with you, Ludwina Akbulut: the rate 1:10 is possible with these big chains, not for a normal shop. And the increased cost of everything in Turkey is reported correct.
The system works, in short, like this: one pays high amounts to the touristic firms who transport groups
, in advance, before the season starts. This firm is then responsible to bring high number of bus loads
to you. The leader of the group will want to charge a commission, sometimes even the bus driver.
You must import people who are fluent in English, French, Italian etc. (but must not understand too much from carpets) from Istanbul to the place in question for the touristic season. This personnel is not cheap and one cannot pay them exclusively on a commission basis.
Customers do not want to bother with carrying home kilims or carpets, have custom problems etc. So they must organize a kind of delivery to the home service and this costs money in addition.
Little shops cannot organize that. More often than not they cannot cooperate and would not like that as they compete strongly with each other. For this reason the Konya people could never get regularly bus traffic - the opposite: the group guides told horror stories to their clients to prevent them to shop in Konya. They should keep their money till Cappadocia, where their firm and themselves would get better commissions then in Konya.
In Turkey the state is omnipotent but such an easy task like forcing shops to apply correct eticettes
( where is this silk carpet been made ? ) it never tried. The laws are there, but they are not enforced. The owner of one of this big poche shops in Nurosmaniye Caddesi in Istanbul has an uncle in Ankara who is influential in one of the present ruling parties .... it works like this. Correct labeling (the task of our previous essay on carpets and wines) would help a lot. I never opted for dealer bashing: the solution would most likely be correct grading, sell the cheap things cheap. An uprooted piece cannot be sold at the same price like the real one.
To move things back to our original intention: why selling fakes is not just cheating. Mr. Rifesser got normal money for his work so he was not forced to call his statuettes antique. The carpet market is so bizarre ( and this includes the behaviour of the Western customes as any market is a creation of all people who contribute to it in various functions) that this is not possible. Plus: if one compares the expenses to make them and their selling price they are much cheaper than cheap normal production material bought at those poche big touristic warehouses.

Regards

Michael Bischof

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