From the archives – when UK Vat was 17.5%. Ask an expert: Why are UK prices so much higher than US for the same audiphile gear?

Gentlemen. The Manley Stingray looks fabulous does it sound as good as it looks? In the past you have queried the difference in US and UK prices and I notice the Stingray is nearly £500 dearer in the UK than the states, but what happens the other way round when a British manufacturer sells to the states does it cost them more than us.

As is usual with these things, one quite naturally compares the retail price of an item between the 2 countries. Here's how it works behind the scenes. I'm not including the greedy UK importers in this example though and it is true to say that NOT all UK importers are greedy!

The US maker supplies the US retailer directly i.e. no distributor. This is a VERY important point as will become clear shortly. So let’s say that $1,000 is the US retail price and let's say (for illustrative example) the maker supplies it at 80% so that the seller makes (say) 20% profit. Usually higher, but in this example it's not really the point and so if I may I'll stick with 20%

Generally the US maker still wants to receive $800 irrespective of who he/she supplies to – even abroad. Maybe, just maybe they’ll reduce $800 by 10%. So this means that the trade price to the UK importer is now the US retail price x 80% x 90%. So let’s assume the American retail price is $1,000. Thus using the above, the trade price to the UK importer is (before bulk discounts) $1000 x 80% x 90% = $720. Given today’s currency exchange rate, this is a UK importer buy-in price of £358.94.

On top of this the UK importer will incur carriage at say £90 plus 2.5% import duty (£8.97). Thus before he has made a profit, his costs are £358.94 + £90 + £8.97 = £457.91

To keep like for like, again in this illustrative example, we’ll say the importer wants to add a profit for himself of 20%. Thus the trade price to the retailer is now £549.49. Clearly the UK retailer will want at least 20% (Usually higher, but in this example it's not really the point and so if I may I'll stick with 20%) and he/she has to charge VAT @ 17.5%. This means £549.49 becomes £659.38. Add VAT and this becomes £774.78 inc vat.

Using the identical exchange rate as was used earlier, then this equates to $1,554.47. This is 55% more than the US retailer $ retail price. Discounts to the customer erode this of course.

If you take into account that 20% is the bare minimum to make it worthwhile for the importer and the UK retailer, it is frankly amazing that the system works at all.

There is of course flexibility / elasticity to ensure it does work. For example, the prudent US maker might well reduce the trade price to lower than the above example. Moreover carefully application of freight consolidation and shipping by sea might substantially reduce the freight costs, and so on.

Anyway, I hope this has enlightened you a bit.

As for how it works when UK makers supply to the US, I have no real idea. Sorry.

Howard Popeck

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