Margins on CPUs

[MrTeal]

I'm in the market for a new computer, and in addition to my normal suppliers at Newegg and NCIX I've been looking at Micro Center. I don't think I'm going to go with them because of how difficult it would be to return if I had an issue, but the prices they sell for have me wondering what the margins are on CPUs and motherboards.

My understanding has always been that these kind of components would have pretty small margins, but Micro Center has had pretty consistent promotions with $50 off a MB when you buy a i5-2500k. I was looking at picking up a Gigabyte GA-Z68AP-D3 and a 2500k, which would only be $240, before any MIRs. It's not like Micro Center is a bigger company than Newegg (a quick wikipedia search shows $1B revenue for MC vs $2.5B for NE), and this promotion has been going on in various forms for awhile now.

Are the margins on CPUs actually large enough that Micro Center can sell those products and still make money on them?

 

[Idontcare]

A loss leader or leader[1] is a product sold at a low price (at cost or below cost)[2] to stimulate other profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. A loss leader is often a popular article. Sometimes leader is now used as a related term and means any popular article, in other words one sold at a normal price.[3]

Source

 

[Bill Brasky]

Just so you know, Microcenter doesn't make any money on selling cpus. It's the attach items they make their margins on. This is why the stopped/cut back on sales on CPU's by themselves, and now give bundle options. By requiring bundles, they are more likely to sell other, higher margin items, that are needed for system building.

 

[nyker96]

I respect what previous poster say, but my theory is that since their combo deals are in-store only, they get more people to visit their store, so the sales person probably can sell you all kinds of others things you might not need in the process. Also they might just use the combo deals as a form of advertisement so people in general knows about Micro Center and how cheap they are. This in itself might be worth the loss they take on the combos.

 

[Bill Brasky]

Just so you know, Microcenter doesn't make any money on selling cpus. It's the attach items they make their margins on. This is why the stopped/cut back on sales on CPU's by themselves, and now give bundle options. By requiring bundles, they are more likely to sell other, higher margin items, that are needed for system building.

 

[Meghan54]

Psssst......Bill, MicroCenter will sell you cpus all day long without you having to buy a single other item---and you get the "cheap" price, too, such as the 2500k for $179 and the like.

MC doesn't and has never required one to buy a bundle to be able to take advantage of MC's cheaper cpu prices, at least none of the 5 I've shopped.

 

[pcsavvy]

Also stores count on impulse buys. How often have you gone to the store with the intent of buying only 1-2 things but you leave with either 3-4 things or buy something entirely different?
I went to Microcenter once with the intent to purchase a cpu but they were out of stock and so I ended up leaving the store with new computer speakers, spent about $20 more than I wanted to.
I live faraway so I really didn't feel good about driving all the way home with empty arms.
It takes some strong discipline these days to walk away without buying a thing or leaving with what you came for only. Those marketing folks have done the research and know how to push those consumer buy buttons.

 

[Edgy]

Significant margins up front = no. Most resellers, large or small pretty much has similar up front margins that don't deviate much (few dollars at best) unless we're talking about OEM (tray) or gray market products. The reason is complex but to simplify - stable pricing that can be controlled (relatively speaking) by CPU manufacturers.

Everything everyone pointed out here are valid points.

However, large re-sellers like Newegg, MC, Tigerdirect, etc., get backend rebates from CPU manufacturers based on their sell through performance on quarterly basis plus any discounts they get from their channel distributors. Additionally they also get dedicated marketing funds to run promotions directly from CPU Manufacturers.

Even if total amount in funding for all of the above is less than 5% of net sales amount, it will be enough to cover any losses incurred running such bundle discounts on select CPU/MB combinations.

My point is that after everything is said and done, benefits are many but it is extremely rare for any large re-sellers like Newegg, MC, Tigerdirect, etc., to see net loss on overall profitability due to bundle discount promotions on few items such as CPU/MB combo.

 

[BarkingGhostar]

Psssst......Bill, MicroCenter will sell you cpus all day long without you having to buy a single other item---and you get the "cheap" price, too, such as the 2500k for $179 and the like.

MC doesn't and has never required one to buy a bundle to be able to take advantage of MC's cheaper cpu prices, at least none of the 5 I've shopped.

Also, they price match NewEgg. So, if the motherboard is available and cheaper are, say, NE then you can get a price match and a cheaply-priced CPU.

 

[Zap]

Are the margins on CPUs actually large enough that Micro Center can sell those products and still make money on them?

Let's approach this from another angle.

How large do people here think margins should be?

 

[MrTeal]

Let's approach this from another angle.

How large do people here think margins should be?

Well, their margins can be whatever they can sustain, really. It doesn't bother me if a company is keeping high margins, it just surprises me a little. We don't have Micro Centers in Canada, so I wasn't familiar with the chain until pretty recently, and I was just a little shocked by the pricing. As I said, I was under the impression that commodity items like CPUs are fairly low margin for retailers, and the majority of their profit comes from items like high margin peripherals and services like extended warranties, system builds and support. I know in some retail chains big ticket items like kitchen electrics that people comparison shop to get a better deal often run with margins for the retailer under 10%, I figured it would be about the same for CPUs.

Newegg's price is 20+% more than Micro Center though, so I was curious whether MC sells them as a loss leader as Idontcare suggested, or whether they margins on CPUs actually are that high.

 

[monkeydelmagico]

I respect what previous poster say, but my theory is that since their combo deals are in-store only, they get more people to visit their store, so the sales person probably can sell you all kinds of others things you might not need in the process. Also they might just use the combo deals as a form of advertisement so people in general knows about Micro Center and how cheap they are. This in itself might be worth the loss they take on the combos.

No business can sustain losses. If they are making less than 100% profit, even from the combo deals, I'd be suprised.

I do in store pickup, go to the customer service window, and get my junk. No sales pitch or pressure tactics. Just friendly quick service.

However, it is VERY difficult to walk out with only what you intended to get walking in......the place is a candy store.

 

[drizek]

MC does not have 100% margins. That's insane. If it was that bad Intel would just sell them on their website.

The margins are probably a lot higher on i7 CPUs for both Intel and MC, but the i5 at $180 is not going to be making them a lot of money at all. There's a reason why no other retailer wants to compete with them.

 

[OILFIELDTRASH]

I'm also pretty sure they get them cheaper than newegg or anyone else since they sell them in such high volume. Either way it really doesn't matter as long as they keep CPU prices low.

 

[Belegost]

I'm fairly sure newegg, and amazon outsell MC for CPUs, MC only has those deals in store, which is a limited number of places, newegg sells to anywhere in the US. The nearest MC to me is 150 miles, the 5 hours of driving equates to 200 dollars in wages, hardly making saving 50 on a CPU a bargain, not to mention the gas costs.

I think MC does sell them as a loss leader, but not only to get in-store purchases, but also online traffic, someone posts a CPU deal here, and often I go look to see what I'm missing, this grows mind-share.

 

[VirtualLarry]

However, it is VERY difficult to walk out with only what you intended to get walking in......the place is a candy store.

This is very true. One of the last times I went with a friend, and he walked out with all of the parts to build a system, pretty-much.

I think that was when I went in to pick up some 7K2000 2TB Hitachi drives (in retail box). They were $110 ea, slightly expensive, but I prefer retail-box drives for longevity, my person feelings are that many drives are damaged during shipping, and retail-box drives survive better. (Btw, the drives ended up being 7K3000 2TB drives, once I had opened the boxes.)

I later picked up some OEM 5K3000 2TB drives from Newegg, for $80 ea, this was a month before the floods and the HD price hikes.