how to make a profit in retailing

Retail Profit

Retail profit, from the book Retail Truths by Chip Averwater

Truth #43:  Profit is not immoral.

Some people feel that selling something for more than was paid for it is somehow dishonest—that a company can make a retail profit only by ripping off its customers.

They view every transaction as a zero-sum game: one party wins only when the other loses. They don’t recognize that in a good transaction both parties benefit—both get something they would rather have than what they gave to get it.

A shopper chooses the best value available to him to meet his particular need. The store that anticipated the need and met it more attractively than its competitors gets the sale. A retail profitisn’t due to ripping the customer off; it’s the store’s payment (and incentive) for anticipating and meeting the customer’s need.

If the customer is unhappy with his purchase, he’ll stop buying from the store. If the store is unhappy with its profit, it will stop selling the product or serving the market. But if both are satisfied, they’ll continue doing business together.

Retail profit is far from immoral. It’s the most effective and efficient economic incentive yet devised and has created for all of us the highest standards of living the world has ever known.

Retail profit, from Retail Truths by Chip Averwater

Truth #47:  Profit is not a luxury.

A business that doesn’t make a profit isn’t a business long.

Retail profit allows us to continue our work. It lets us take care of our customers as both we and they think they should be. It allows us to pay competitive wages and offer health and retirement benefits. Profit lets us maintain and improve the workplace.

Ironically those who feel a business shouldn’t earn a profit are the ones who feel most cheated when an unprofitable company cuts wages and benefits or goes out of business, leaving employees without work.

Retail profit from Retail Truths by Chip Averwater

Truth #48:  Retail profit is the sum of a thousand little improvements.

On rare occasions a product is so desirable and competition so limited that a store can turn a profit regardless of how well it executes. Some of us stand in long lines to get the latest electronics, newest video game, or hot Christmas toy because it’s the only way to get something we want badly. But those situations are rare and short-lived.

In the normal retail world, having the product is only the starting line of the competition and gets us nowhere close to break-even. Turning the bottom line from red to black requires a combination of many little details—effective advertising, convenient location, attractive displays, knowledgeable salespeople, visible signage, reliable systems, quick checkout ….

The formula isn’t secret. It just requires continuous attention, hard work, and persistence.

Stores use retail profits to build better workplaces, from Retail Truths by Chip Averwater

Truth #50:  Profit makes a better workplace.

Retail profit allows a store to pay higher wages, provide better benefits and perks, afford new technologies, and create a more comfortable and attractive work environment.

Profit relieves constant performance pressures and avoids looming threats of layoffs and dismissals; it gives management and employees latitude to try innovative ideas and promotions and to expand into new opportunities and products. It affords the personnel and equipment needed to serve customers well and create a base of customers who respect and appreciate the store and its employees.

Creating a good workplace is much easier when we have profits to work with.

Retail Truths with a chapter on retail profit

Truth #51:  Profit is every employee’s business.

Managers who assume employees aren’t interested in or can’t handle retail profit information underestimate their people. It would be a poor employee who never gave a thought to the store’s need to sell for more than what it pays.

Without access to actual numbers employees envision the store’s gross margin to be mostly net profit, and they assume the owner takes it home—profoundly wrong data for decision making as well as for engendering commitment.

With the exception of individual payroll information (which everyone expects to be confidential but never is), a P&L contains few numbers that are critically sensitive. Employees can not only understand income and expense items but can directly influence many of them.

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the book "Retail Truths: The Unconventional Wisdom of Retailing"
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