Margins Vs R.O.F.E. for retail

Retailing is under pressure, all the established retailers are suffering declines in profitability, and the media is full of retail CEO’s  bemoaning the eroding margins.

 Australians appetite for flat screen TV’s over the last couple of years were is amazing, we now have  TV’s in almost every room in the house, and prices have dropped precipitously as volumes have increased, and we are  unwilling to pay for fat retail margins.

Surprise, surprise.

The reduction of the 40% margins for retailers, delivering from $530-600 for a unit 2 years ago, to single digit margins and $40 through the till today has all the retail CEO’s crying poor.

The change in the retail competitive environment has not been matched by the performance measures bricks and mortar retailers employ, and their business model is becoming redundant.

Retailers focus on dollars through the till, product and category margins, and returns for floor space. Generally they forget that business is about making a return on investment until the AGM, not counting margins that get chewed up by working capital requirements down the supply chain.

E-retail is driving a stake through the heart of  bricks and mortar retailing of electronics, and it will come in white-goods very soon. E-Tail  retailers focus on the return on funds employed, not margins. When you take the customers order and 10% deposit before you pay for the stock, and get the balance COD, it matters little if the margin is $40 when the volumes are skyrocketing, because the funds employed are very low.

 

About strategyaudit

StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
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