When considering profit margin for retail stores is it important to remember the difference between gross or net margin. The gross profit margin is calculated by deducting the cost of the product from the amount it is sold for. Net profit margin looks at how much profit is left after all expenses have been deducted from sales.
This will include overheads such as rent or staffing. A good profit margin for retail varies greatly according to the type of retailer. Retailers such as supermarkets focus their strategy on high volumes of sales, but with a low margin on the products sold. The net profit margin of the large American retailer Wal-Mart is reported as just 1.
A smaller store, which makes fewer sales but has larger margins built into their product pricing, may be more profitable. Beyond all the idealism of being your own boss and chasing your dreams, every small-business owner's ultimate motivation is profit.
If your business isn't turning a profit, you might as well be earning a wage from someone else. Determining profits can be difficult, particularly for retailers, who face cyclical buying habits and often feel economic pressures as shoppers' disposable income decreases. Although determining a profit margin can be a useful tool to determine your business' success, there isn't a one-size-fits-all profit margin retailers should hope to achieve. Just as there are many types of retail establishments, there are different business models that call for different profit margins.
The type of retail establishment you operate may dictate your ability to raise margins. Specialty retailers and general merchandisers -- department stores -- were the most profitable sector of the retail economy in , according to "Fortune"magazine, with a 3. Food and drug stores operated on a 1. By looking at several financial metrics of a few types of small retailers, we can see the impact of online sales and rising costs on these businesses.
Some examples of these metrics, according to data from The Retail Owners Institute, are as follows:. The data reveals that the average gross profit margin varies by the industry. From this sample, supermarkets and grocery stores and beer, wine and liquor retailers are the lowest with Women's clothing and furniture stores are at the high end with The real picture of the condition of small retailers shows up in the analysis of changes in pre-tax profits.
The sample data shows that pre-tax profits over the past five years have been declining. Profits are down in women's clothing, jewelry, shoes and sporting goods. The others are basically unchanged or have small changes.
However, people love their pets and warm, fresh baked bread. Profits in pet supplies and baked goods are up. Retail sales are a huge component of the U. However, as noted in Forbes, even the online giant retailers are having a problem making a profit.
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