[lotsofpulp]

>Retail/amazon operate at a much higher margin than most people realize.

Then why don’t their 10-Ks and 10-Qs show it? There is a reason it has a reputation of being a cutthroat business. Out of all the big retail businesses, only Home Depot/Lowes has 8%+ profit margins, and Apple obviously.

https://www.macrotrends.net/stocks/charts/WMT/walmart/net-pr...

https://www.macrotrends.net/stocks/charts/BBY/best-buy/net-p...

https://www.macrotrends.net/stocks/charts/COST/costco/net-pr...

https://www.macrotrends.net/stocks/charts/KR/kroger/net-prof...

https://www.macrotrends.net/stocks/charts/ACI/albertsons/net...

https://www.macrotrends.net/stocks/charts/TGT/target/net-pro...

https://www.macrotrends.net/stocks/charts/JWN/nordstrom/net-...

https://www.macrotrends.net/stocks/charts/M/macys/net-profit...

https://www.macrotrends.net/stocks/charts/WBA/walgreens/net-...

https://www.macrotrends.net/stocks/charts/CVS/cvs-health/net...

[erkt]

Because net profit margin is different from gross margin. The products are still marked up way higher than that bottom line number. PMn is the margin after you add in all the over head costs and those really have little to do with whether they are loosing money by selling a product under their target mark up.

Best Buy making a gross $250 on a $1000 priced TV or $50 when discounted to $800 still isn’t loosing any money unless they are at their credit ceiling and cannot replace the good sold. They make zero if A customer standing in their store deciding not to even give them $50 and giving it a to a competitor on their cellphone. Tho is absolutely profit opportunity lost, even if it is small.

[lotsofpulp]

>Retail/amazon operate at a much higher margin than most people realize.

This statement encompasses the whole business, for which the profit margin is the relevant metric, not gross margin. And it is clear that the standard retail business is not one in which you can earn a lot of money. Just because a specific item sells to a customer for more than what it costs to buy just that specific item from the supplier, does not mean the business's margins are high. There are myriad costs that have to be accounted for, such as spoilage, theft, inventory, transportation, labor, returns, etc.

Some things sell for higher margin, some things sell for lower margins, but at the end of the day, the stores clearly operate at very low margins. Hence why so many go out of business all the time, and all the brick and mortar we have left are the biggest ones with the largest volumes.

[erkt]

That is not what we were talking about though. We were talking about how much discount you can force out of a retailer via price matching which is a function of its Gross Margin. a 25% discount at the register doesn't mean a bottom line 25% subtraction from Net Margin. Those numbers are distantly connected and most operating costs (minus COGS) are fixed.

[lotsofpulp]

That might work for a few customers, for a few products sold at high margins. But mathematically, if the business started giving everyone 25% discounts, and they already only have a 2% profit margin, then it doesn’t pencil out that it could survive.

Bottom line is if a business, and an entire industry in this case, has 2% to 5% profit margins, across 10+ publicly listed businesses, across decades of operation, it means they are selling goods at about as low of a price as possible (averaged over all goods). Some will be high margin, some low margin, some negative margin, but at the end it’s only resulting in a couple percent of profit.

[erkt]

Consider the case of a business operating at excessive margins with huge room to discount but doesn’t. Their fixed costs must then be spread over few transactions and lower their net margins to almost nothing. Instead a business operating at a much more socially optimum price point sells a huge amount of goods at a lower mark up and gets to spread those fixed costs over a lot more transactions. Their Gross markup may be less than the high priced store but their net margin can be higher.

I set a lot of prices during the pandemic. Any average business found that they were granted some degree of monopoly power and could generate higher net margins with less competitive prices. Many of us found the simplest solution was to just pass on all costs to the consumer because they had no choice but to take our price or not get their good.

Times are different and there is competition but many businesses have still forgotten how to increase gross margin by having a sale.

Not to get into politics but tariffs are the same way. The elasticity of demand for a good determines the monopoly power of the supplier/retailer and how much of the tariff gets passed on to the consumer. Highly interchangeable products will not see the full tariff passed on to the consumer because that would mean forgoing all sales. The importer will determine how much gross margin they can give up without loosing money…but the producer in the foreign country also does the same math. Do they completely give up the American market to save inventory for other markets or do they eat some top line profit and still make some sales.

Many goods will indeed be pulled from the market, but if the producer fails to find replacement customers in other markets they will look back at 300M Americans and reconsider whether they can give their importer a better price while still making something. If the good expires, like say a case of white wine, or becomes obsolete in the case of say a lightning charging cable there is additional pressure to make the decision before the surplus simply becomes unseeable.

If a good has no viable alternatives and is relatively shelf stable expect all tariffs to be passed along because the products price is already disconnected from its cost and the business producing it is closer to a monopoly than not.