Driving through my town, I noticed a telling sign, businesses that once were a thriving part of the community, are now merely vacant buildings with “for lease” signs in the windows. Two popular restaurants, two art and frame shops, two kitchen and bath retails showrooms. Rents are high, sales are down. Where are these business going? My favorite frame shop told me he is going back to wholesale downtown. The sign in my favorite restaurant said they can’t afford the landlords increase in rent.
I have heard my client’s mention the deals they find when searching the internet for the best prices on cabinet hardware, plumbing fixtures or even large ticket appliances. I am all for getting a bargain, but I prefer to buy local and put my money back into my local economy and encourage clients to do the same. If you see a better price, show your local store, if they want your business, they will make an effort to provide a better discount.
On the other hand, when competing with predatory internet businesses, local stores sometimes cannot compete. When one client showed me she could buy a water filter for a price cheaper than what my cost is on the same product, I complained loudly to my distributor. The distributor said they unfortunately have no control who the manufacturer sells to. Why do manufacturers allow these wholesale internet bandits sell at prices far cheaper than what local businesses can buy it at wholesale prices? It is outrageous that manufacturers have little loyalty to local businesses who promote their products, stock their product, pay overhead and payroll costs to maintain a storefront to sell their product only to be undercut by an internet seller who is selling the product at cost or below cost. Is this the direction we are going? Should we all close our local stores, eliminate our employees, and open our business on the internet to compete?
Consumers need to be mindful of the undercut. There are severe financial repercussions. Look at the state of Aloha Airlines for example. The airline filed for bankruptcy due to what it called “predatory pricing” by Mesa Air Group Inc’s go! airline. How can an airline compete with $1 fairs?
go! operated at a loss according to their 2006 financial report. Losing a reported $20 million in its first 16 months of operations. Aloha and Hawaiian reported combined losses of nearly $65 million since go! began operating.
What is wrong with this picture? Why would an airline sell flights so cheap that they are operating at a loss? Is this good business? Knock off your competition and become the dominant airline. Let’s see if you can get a $1 fair when they have the monopoly.
So in the short run even though consumers benefited from flights at unbelievable cheap prices from go! airline, in the long run when Aloha and Hawaiian Airlines are put out of business by unrealistic cheap flights, consumers will be hit with higher rates in the long run. The economic repercussions will have a devastating effect on the local economy. With Aloha in bankruptcy, 3,500 Aloha employees will be out of work. Small business people who depend on inter island flights every day or every week will be effected.
So what do you gain from rock bottom prices? Employers, employees, consumers will suffer with these tactics. We all lose from predatory pricing. Think before you buy and always buy local when you can.