The magazine Entrepreneur published interesting research results on the profitability of many different types of small businesses. We would have guessed that (online and/or offline) retail and wholesale would have been among the top 15 at least, but they are not.
This raises the question what entrepreneurs in retail and wholesale should do to boost their profitability.
If any company wants to increase profitability (ROI), it should:
- Increase margins
- Reduce Operating Expenses
- Reduce Capital Employed
There are 2 main ways to increase margins:
- Customer Excellence
- Process Excellence
The 2 main cost components in the supply chain from finished goods to end-user are:
- Physical handling and transportation
- Sales and marketing
And the proven method to reduce capital employed is to increase supply chain responsiveness [please also read our blog Supply Chain The Bare Essence].
The good news is that Supply Chain Responsiveness also increases sales and margin by reducing out-of-stocks and it contributes positively to the customer experience, which improves customer loyalty and consequently reduces sales costs in percentage of revenue.
In short, when wholesale and retail work together to develop a supply chain that is responsive to actual end-user behavior and they develop an consistent omni-channel strategy, they will be able to implement a strongly improved customer experience at nowadays significantly lower costs. This can bring them back in the top 15 of the profitability rank.