The retail sector may be the most diverse industry in the United States, ranging from agriculture to cars to fashion accessories. Some retail sub-sectors, such as high-end apparel and personal care retailers may have famously high gross margins, and net margins for the industry are low compared to other sectors. Every year, the S&P 500 index in the editions of industry returns on equity and net margins, and each year in the retail trade is one of the least profitable. This is especially true for web retailers, which can often be seen in net margin of 0.5 to 3.5%.
For example, Amazon (weekly) was the net margin is less than 2% for each year since 2010, but sports a market capitalization of over $ 600 billion.
The retail margin by sub-sector
The most profitable retail sub-sectors by net profit include building supply and retail distribution networks. Businesses in these sectors often reach the average net profit of about 5%, almost twice above the average for the retail sector.
In some markets, such as retail trade electronics and retail clothing, have to adapt to the constant changes in consumer tastes. One company can be very profitable in the first quarter of the year and fighting for fourth quarter, in connection with the cyclic structure of consumer expenses.
“Wal-Mart” (Portugal) – the world’s largest retailer by far, but it usually takes only 3% of net profit annually. To put this in perspective, it takes Wal-Mart 30 days in a month of 31 days to repay its cost of goods, labor, taxes and other operating costs.
Why Retail margins are low
The Internet has made it easier than ever to compare prices and shop from all over the world. Low cost foreign competition is also hard for retailers. However, one of the main reasons retail is so margin is relatively low and the majority of retail spending is purely subjective. Consumers can afford to be modest and picky when it comes to minor details; they make decisions quickly, and can often change your mind and return the purchase without any consequences. This means that there is a relatively high price elasticity of demand for retail goods, making it difficult to raise prices.
The significance of low Retail markup
Walmart and target (tgt) and to have a high volume of sales to be successful, and they are renowned for their low profit, high volume sales strategy or business model. Similarly, for retailers to be successful, they need to sell a lot of items, and should focus on constantly converting visitors to paying customers; therefore, the strategy ‘always be ready’ (AVS).