Cheap: The High Cost of Discount Culture [Book Review]

Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell covers a wide variety of topics, but the main idea I got from reading it, was that we are too focused on price, and not enough on value. We have shifted from quality, durability, and craftsmanship towards quantity at the lowest possible price. I previously wrote about how it’s harder to judge quality these days as it relates to Coach Outlet stores. Next time you buy something, think about what you actually know about who made the product, the materials or ingredients used, and how long it will last before you have to buy another one.

Thanks to globalization and a relentless pursuit of efficiency, we now have $1 chicken sandwiches, $5 toasters, and $10 IKEA coffee tables. That saves us money, right? However, also notice that it’s often the crap in our lives that gets a bit cheaper. The real essentials – rent, education, healthcare, gas, never seem to get less expensive. On top of that household wages are stagnant, partially because all the jobs making stuff have gone to the countries with cheapest labor before our workforce has had a chance to learn to do something else. Look at the current unemployment rate. So are we really coming out ahead?

The book includes an interesting history of the evolution of retailing and the creation of the discount superstore. There was a time before Wal-mart when small shops sold specialized products through educated salespeople. Now, everything is propelled by mass advertising everywhere, followed by do-it-yourself shopping. Now, I personally like reading tons of peer reviews on Amazon before buying a product, but you have to admit that the genius of a store like IKEA is that so much of the cost is shifted onto the consumer. We load up the huge boxes onto a shopping cart ourselves, cram it into our car, drive it back home (paying for the gas), and build it ourselves with hours of labor.

There is also the interweaving of behavioral economics topics you may be familiar with by academics like Daniel Kahneman and Dan Ariely. For example, you probably get excited when you buy something marked down 60% at the mall. We’re all genetically wired to get hyped up for that, so it’s not surprising. Well, these days basically everything is marked down. Only 20% of department store merchandise is actually sold at full price. If everyone is getting the same “deal”, is it still a deal or just manipulation?

On a related note, discount stores often tout “everyday low prices”, but they really just try to compete hard on things that we buy most frequently and are most familiar with. Wal-mart actually has higher than average prices on about 1/3rd of its inventory. On the items for which prices are lower, the savings is 37 cents, with about 1/3rd of items carrying a savings of no more than 2 cents. The loss leaders draw us in and make us feel like we’re saving money, but the other things we toss in our basket make the profit.

Although some of these trends are unlikely to be reversed, we should remember that it’s not all about the price tag. An example of how things “should” work is the grocery store Wegman’s, which I am not familiar with but sounds a lot like Trader Joe’s on the West Coast. Locally-sourced products, good wages and benefits for employees, and good service create an atmosphere that is not solely focused on price (although it is still an important component).

Comments

  1. Although I am a bargain hunter, I have become particularily frustrated with cheap electronics and kitchen appliances. I’ve been through 3 crockpots in 5 years, my Kitchenaid food processor only lasted 3 years, etc…

    I would gladly pay 3-4x more for a good product that would last 10-20 years like the appliances of old. But I rarely even find an option to do that. Is there possibly a market for quality electronics and appliances? Are there others like me willing to fork the money over in the beginning?

  2. Wegman’s is amazing. I’m a huge fan. It sounds ridiculous, but it always comes up with my significant other when discussing possibly moving out of our area (we’re not the only ones: http://bit.ly/mRgUfd).

    It’s not perfect, and its aisles are still packed with plenty of crappy non-local items (you can still pick up a bag of Doritos), but the produce, prepared foods, bakery items, cheese, meat, fish, etc. are unmatched by any grocery store I’ve ever been to, and the staff is friendly and helpful without fail. I’ve literally never had a bad experience in that place, and I can’t think of another retailer I can say that about… maybe Apple.

    I’ve not been to a Trader Joe’s, but I know someone who has… and he says Wegmans is better :-P

  3. Ha, I do like TJs myself. They have some great private label products, and honestly I don’t take advantage of their fresh stuff as much as take advantage of the premade things. “Two buck chuck” wine is pretty famous and mostly drinkable. I didn’t know until today that they refused to carry any products from China at all in their store.

  4. @Jules – I’m sure there are, but it’s just hard for such companies to make such products because we can’t tell that they will indeed last longer, in order to pay more for them. It’s like a race to the bottom (price).

  5. As a young boy I was always impressed with the quality of my grandfather’s old tools. Once, I told him that I wished they still made tools like his today. His reply was that most of his tools fell apart a long time before I was born and he threw those away. The few quality tools he bought were the only ones still in his shop and the only ones that I ever saw. His lesson was that not everything made in America decades ago were durable.

  6. Like James says, there is a lot of nostalgia for the way things used to be that isn’t all based on facts. Many of you probably aren’t old enough to remember, but I remember back in my college days (early ’80s), you could go to any drug store and buy replacement tubes for your television – the reason being, it broke down often enough that you needed to replace tubes in your television.

  7. Well obviously not everything can get cheaper, that follows from the fact that we have inflation. FWIW, here is the average breakdown in spending:

    41% housing
    17% food
    17% transportation
    7% medical care
    6% education
    6% recreation
    4% clothing
    (the rest is smaller stuff)

    Historically housing has tracked inflation, food has probably been slightly less than inflation, clothing has become cheaper, and transportation has also been around inflation. Education and medical care have increased at a higher rate than inflation, but they are a small % of total spending.

  8. Some studies estimate that WalMart saves the average consumer $2,000/year, which is a nontrivial amount.

  9. Is it irony that I just bought this book for $5 at Borders bookstore as it was going out of business?

  10. I am another member of the cult of Wegmans. We live just outside their territory and constantly wish they would move into our area. Their flagship store outside Rochester, NY, is like a temple to food. The fact that they are consistently ranked in the top ten companies to work for is just astounding for a supermarket chain. Why it is so difficult for other companies to see beyond short-term gain and follow the Wegmans way is hard to fathom.

  11. Some things have improved in quality. For example, both foreign and domestic cars are now vastly more reliable than they were decades ago. Just think of all of the corner service stations each with their own tow truck. Those garages and fleet of tow trucks were kept busy with breakdowns. Now they’ve been abandoned because cars just don’t break as often With my last three cars in 23 years I have had only one breakdown which left my stranded and needing a tow. With my previous car I kept the phone numbers of local tow drivers in my car so I was ready when it broke down.

    For smaller consumer products there are a few luxury brands focusing on quality and everyone else who just have their products assembled at some factories in China or equally cheap place. The Chinese factory often will assemble competitors’ products on parallel assembly lines, so why should I care whether I buy Brand X or Brand Y other than by which is cheaper. They are built by the same assembly rules from essentially the same parts with the same labor. Price is the only difference. Even warranties don’t matter much because between time and postage to return the item it is often more expensive to get a refurbed one than it is to just buy a new item.

  12. HOW DARE YOU COMPARE WEGMANS TO TRADER JOES!!?!?! But seriously, Wegmans is not just a store like TJ’s. Wegmans is a way of life. It is gods gift to bring joy to the common man.

  13. Where is the nearest Wegman’s to a major metro area that is ideally accessible by public transportation? They all seem to be a bit out of the way for a business traveler or even a tourist.

  14. 45131 Columbia Place. Sterling, VA 20166. If you’re even in Washington DC on business its about 5 miles taxi ride from Dulles Airport.

  15. My mother passed on this amazing documentary The Century Of The Self in regard to the history of consumerism. It is a long documentary but very very captivating and interesting. I watched it on YouTube but you can get it from Netflix… worth it!!

  16. I’ve chased quality like a cat chasing it’s tail. I came to the conclusion that name brand means nothing. Too many producers that gained respect over many years were willing to buy cheap shoddy stuff and slap their name on it so that they could have half a dozen good quarters. I can’t find any good way to really figure out what will last and what won’t.

    After going through two short lived washing machines with the best names in the business, I bought the second cheapest one I could find. It has done just as good a job and has lasted just as long.

    I do try to buy stuff made in the US or Germany, because if they are still manufacturing in those countries it is usually good quality (Well except GM and Chrysler).

  17. Yay Wegman’s! I live and work as a physician in Rochester, which is home territory to Wegman’s. I can absolutely attest to the fact that they treat their workers as well as their customers and their community very well.
    My only complaint at all about their business practices is that for financial and practical reasons, they’ve moved out of the city neighborhoods, which means that many people with limited transportation in lower income neighborhoods are stuck using “convenience” stores for food. For us, though, it’s great, and we almost never go to the much closer local competitor.

  18. The book looked interesting so I picked it up from the library. I’ve only just started reading it but I’m picking up vibes that the author is finding fault with the idea that in a competitive market, the guy offering the best bang for the buck gets the business. Henry Ford sold millions of cars because they were cheap. Nothing wrong with that.

  19. @Davis – Thanks, I’ll try to visit this wondrous place sometime :)

    @DDELJ – Your mention of washing machines are timely, as I found myself in the same problem and just bought the cheapest pair since they were something like 50% lower on some special sale. I’m guilty of just buying on price as well!

    @Beth – That’s interesting, I wonder if Wegman’s could survive if they just raised all their prices 10-15% when opening an urban branch with higher rents.

    @Warren – From what I recall, she actually liked Ford because he made it a point that this workers were (at least theoretically) paid well enough that they could actually afford the product they were making. So workers could afford the car, and sold millions.

  20. Just curious where you got those stats on WalMart not being so cheap.

  21. Wal-mart being cheap is a sham. I walked in there the other day to buy a car charger for my phone and they wanted $15 dollars for it. Passed and bought one online for $2 plus shipping that included a car charger, wall charger and usb cord. Although I cant speak tot he quality, they havent given me trouble yet!

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