Retail and Wholesale: Industry Margins

INTRODUCTION

When an item is purchased via a retailer or wholesaler, the price that is paid (Purchaser Price) differs from the actual Producer Price of the good. This is because it includes the cost for transportation and the cost of the wholesale and/or retail service of selling the item conveniently to the consumer. The cost of transportation and the wholesale/retail service are called Margins. The Producer Price of a good plus the costs of Margins equals the Purchaser Price/Total Revenue of the good. 

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When analyzing an Industry Output Event with the specification of one of the Retail or Wholesale Industries listed below and you do not make any changes to the Margins Advanced Field, you will not see your total Output Event Value appear in the Direct Output in the Results of the Event. This is because Purchaser Price is the default setting for any Retail/Wholesale Industry Output Event. With these default settings, IMPLAN interprets your Event Value to be the Purchaser Price of sales made by the retailer or wholesaler specified. When Producer Price is selected, the Direct Output in the Results of the Event is IMPLAN's estimation of the Output for the specified retail or wholesale Industry. 

Without knowing the specific good purchased, IMPLAN can only identify the portion of the Purchaser Price that the Producer Price of the specified Industry is expected to make up. Commodity Output Events can be used when the good purchased is known. 

The following retail industries are included in the IMPLAN 546 Industry Scheme:

402 Retail - Motor vehicle and parts dealers
403 Retail - Furniture and home furnishings stores
404 Retail - Electronics and appliance stores
405 Retail - Building material and garden equipment and supplies stores
406 Retail - Food and beverage stores
407 Retail - Health and personal care stores
408 Retail - Gasoline stores
409 Retail - Clothing and clothing accessories stores
410 Retail - Sporting goods, hobby, musical instrument and book stores
411 Retail - General merchandise stores
412 Retail - Miscellaneous store retailers
413 Retail - Nonstore retailers

The 546 Industry Scheme breaks out what was formerly one wholesale industry into the following wholesale industries: 

392 Wholesale - Motor vehicle and motor vehicle parts and supplies
393 Wholesale - Professional and commercial equipment and supplies
394 Wholesale - Household appliances and electrical and electronic goods
395 Wholesale - Machinery, equipment, and supplies
396 Wholesale - Other durable goods merchant wholesalers
397 Wholesale - Drugs and druggists’ sundries
398 Wholesale - Grocery and related product wholesalers
399 Wholesale - Petroleum and petroleum products
400 Wholesale - Other nondurable goods merchant wholesalers
401 Wholesale - Wholesale electronic markets and agents and brokers

Margins are only applicable in Industry Output Events with a retail or wholesale Industry as the Event Specification.  

When you are in a scenario where Margins are applicable because you've entered Purchaser Price, equivalent to Total Revenue, as your Industry Output, simply leave the default selection of Purchaser Price. If your Event Value is Producer Price, equivalent to Marginal Revenue for the retailer or wholesaler, you'll need to change the Margins selection in the Advanced Field of the Event to Producer Price.

INDUSTRY OUTPUT MARGIN OPTIONS

Purchaser Price

Purchaser Price (formerly Total Revenue) represents the increased income resulting from the total sale of goods and services. Purchaser Price in an Industry Output Event, with a retail or wholesale Industry specified, indicates to the software that the Event Value is a retail/wholesale sales price, and includes Margin Costs for transportation, wholesaling, and retailing services, in addition to the Producer Price of the goods sold. 

In the case of applying Margins with the selection of Purchaser Price in an Industry Output Event, there is no way for IMPLAN to identify the item purchased. The only Direct Output Effect in your Results to be the Industry specified. When Purchaser Price is indicated, the Direct Output will be estimated based on your Output Event Value multiplied by the Industry Margin Coefficient. This coefficient is the portion of the Event Value that gets assigned as the Margin cost associated with the Industry specified in the Event. 

For example, let’s say we know visitors during a week long event in our Region spend on average $15 per day at the gas station. If there are 1,000 visitors spending $15 per day at gas stations in our Region for 7 days, the total spending at the gas stations by these visitors would be $105,000. To model this in IMPLAN we’d be limited to modeling this via an Industry Output Event with the “Retail - Gasoline stores” Industry specified because we do not know the item that these visitors are purchasing at the gas station. It is most likely gas, but they also might purchase things like snacks and slushies. Because the $105,000 is the total spending at the gas station, this value is a Purchase Price and should be the Margin Advanced Field selection.   

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The 2018 Retail Margin Coefficient for Industry 408 - Retail - Gasoline stores Industry is .224.  This can be found in the file Margins.

This means on average 22.4% of the Purchaser Price at a retail gas station is the retail gas station’s revenue, or Producer Price. This Producer Price is the value of the retail gas stations service of selling goods in a convenient place; in other words Producer Price in this example is equivalent to the retailer’s Output. 

Therefore, when this Event is Run, we’d only see $105,000 x .224 = $23,520 of Direct Output to the Retail - Gas Store Sector and no other Direct Effects (when Dollar Year = Results Dollar Year). The other ‭$81,480 of spending at the gas station would be a leakage‬ in this analysis because without knowing which Commodities were purchases with the $105,000, IMPLAN cannot appropriately estimate what portion of the $81,480 is the Producer Price of Commodities and what portions of this value is the transportation cost and wholesaling cost. 

Note: When additional Event Values are entered in the Advanced Menu (Employment, Employee Compensation, and/or Proprietor Income) IMPLAN assume that even when Total Revenue has been selected in the Industry Output Event, these values can only be known for the Industry specified, the retailer or wholesaler. Therefore, no Margins will be applied to these values. Margins are only applicable to the Output Event Value. 

Producer Price 

Producer Price (formerly Marginal Revenue) represents the increased income resulting from the sale of one or more unit of goods and services. Producer Price in an Industry Output Event with a retail or wholesale Industry specified indicates to the software that the Event Value is only the Output value of the retail or wholesaler's service of convenience, and does not include the value of the product sold or any other wholesale or transportation costs. 

By selecting Producer Price in an Industry Output Event with a retail or wholesale Industry specified, you are indicating to the software that no Margins should be applied, and therefore the full Event Value will be applied to the multipliers of the Industry specified, just as the software would treat the Event Value for a non-retail/wholesale Industry Output Event. Here, the full $105,000 will show up as the Direct Effect in the retail Industry. Although it is possible to know the Producer Price to a retailer, it is much more common to know the Purchaser Price paid at the retail/wholesale establishment than the Producer Price.

RELATED TOPICS

Marginable Commodities: Total Revenue versus Marginal Revenue

Retail and Wholesale: Commodity Margins

 

Written November 8, 2019 

Updated April 12, 2021