Today more and more businesses are struggling to make a reasonable return on the investment the owners are making in either time or money. The primary issue in this becomes apparent when you start to consider that there are any number of businesses that when you take an outsiders look at the business you start to wonder how do they make money.
The costs involved in operating a business and the commitments that are made towards the operation of the business such as leasing, and other contracts mean that many businesses are running on razor thin margins and find that it is more a case of it literally costs to much to close the business down then to continue operating at a small loss. Taking into account the costs of leasing, staff, out goings on the lease, cost of goods sold, insurance, and any number of other costs that most businesses are paying just to operate you suddenly start to realize just how amazing it is how some of these businesses do continue to operate.
From an average estimate, without staff, a retail store needs to make a minimum of $100,000 per year in profit, to cover expenses and pay out a bare minimum to the owner. To consider just paying 1 or 2 staff, you would need to at least double that to $200,000 and depending on the business to have it fully managed with staff, you could easily be looking to take the required profit up to $300,000 or more to cover expenses, staff and payout at least some return on investment to the owner.
When you take even these rough estimates into account you suddenly take a different view on so many of the retail stores that are in your local shopping center. Maybe the CD/DVD shop that sells products averaging between $10 and $40, to have the store fully staffed and managed, they need to sell an average of 500 products per week at an average sale of $25, now i am sure that many of these businesses do make this but, when you really consider the competition in some centre’s these actually achieving these sort of figures becomes even more amazing.
For example a major shopping center, may have 2 or 3 CD/DVD stores, plus 2 or 3 department stores that also offer these products, and the prime consideration here is that the major department stores often discount the price of CD/DVD and the major shopping center’s are often the more expensive places to lease. The ability of some of these stores to survive in these market conditions, is just really amazing. Maybe not so much amazing but definitely highly challenging, especially for independent operators. Chain store’s for the most part will be purchasing in much higher volume’s and receiving discounts from their supplier’s accordingly. Which to some extent helps them better meet profit requirements to cover expenses. However most independent store’s don’t have this sort of benefit.
Moving to the range of larger chain store’s around, It is obivous that the focus is not to make a profit on a single product or even a single range of products. But more to make a small profit on every sale. For example a profit (after all expenses) of $1 per sale may seem ridiculously small to some people. However if you consider a large retail chain may have 300 stores, which make an average of 50 sales per store per day. Which throughout all there stores would be approx 15,000 sales per day. Which would equate to almost $5.5million in profit for one year. Compare the same scenario to a single store with the same 50 sales per day at a profit after expenses of $1 per sale, comes in at less then $20,000 per year, if i owned just that one store i would be better off with a job.
What is amazing through is how with the correct procedures it is quite easy to replicate a particular store so that when you may have one store making a profit of $20,000 you could duplicate that into 5 stores and make $100,000 per year, however very much so this depends on the ability of the owner to release control to the procedure’s that can be put into place and multiply the potential income through quantity of sales rather then trying to squeeze extra profit from a particular product.
Moving past what i have discussed already, i believe that it more so comes down to a need to increase the number of sales be it through better advertising, multiplying the number of stores that you have, or whatever it may be for your business. While increasing customers or profit in small increments say 10% you will see a fairly similar result. Where as if you can create a method where you can double your number of customer by opening a second store, or multiple them by 10 through opening 10 stores, you are many miles ahead of anyone trying to do the same thing with the profit on one store. Maybe it will be possible to double profit, however beyond this you just cannot multiply the profit of one store by 10, unless of course it has a lot of potential and has been very poorly managed, which is not really the point.
At the end of the day the only way to make a good return on investment with retail is to multiply the opportunities. This is primarily achieved through purchasing in volume, spreading the cost of some administrative expenses across multiple locations and removing yourself from the equation. In reality the more you need to be involved, the less potential to expand you have.