Turnover is vanity, profit is sanity
04 November 2018
On Page 1 of the `How to run a successful business’ handbook should be the phrase `turnover is vanity, profit is sanity’.
How many times have I written and you read over the past several months of retailers complaining about the erosion on profit caused through volume being force fed by manufacturers desperate to keep factories running at a level where economies of scale can kick in and generate the profits expected by shareholders?
This time it’s the turn of BMW/MINI retailer, William Morgan, to warn in surprisingly stark terms that this is unsustainable and the sentence in its annual reports – `the pressure on retained margin will continue until supply equals demand’ – is about a clear a message as it can give. Ouch!
That was written by the company in relation to its 2017 financial year so god only knows what it’s going to be like the next time around when the full impact of WLTP and shifting all those derogated models will have kicked in. We’re seeing colossal discounting in the showrooms, be that through pre-regs or simple cash off the front end of the deal. Either way it doesn’t seem to make a lot of economic sense and depending on the brand, it’s going to take until next spring at least for this mess to work its way through the system.
Let me acknowledge that the picture is far from universally bleak and plenty of individual retailers and groups are still making money. Not a lot relative to the turnover maybe, but it’s better than the alternative as they say.
But aren’t we seeing some retailers falling victim to the vicious circle syndrome? If you make less money per unit sold the only way forward is to sell more of them…or to sell smarter and do something different, to find new ways of generating profitable revenue.
Answers on a postcard please.
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