This article was originally published in Spring 2019.
An unforeseen revolution has made us all into super shoppers – and shops into receiverships.
The retail industry is in distress across the world. The culprit? Lack of profitability. Walmart, the world’s largest retailer, has seen its net profits fall from 3.5% to 1% between 2006 and 2018. Amazon loses money internationally, and – once you allow for profits in sectors which are far removed from e-commerce – makes no meaningful profits in the US. Skim through the financial results of most UK retailers and you will see much the same picture.
Walmart’s gross profits, however, have not been reducing – they actually increased from 23.5% to 25% between 2006 and 2018. And we see the same apparently healthy situation in some UK retailers. Overall demand is increasing.
So what is going wrong?
Businesses have simply been finding it impossible to absorb higher costs by increasing their prices. Their gross margins are sound – but their net margins are suffering. We hear laments about business rates being too high. Perhaps they are, but they only become crippling when their cost cannot be passed on to customers.