Retail Pricing – Higher Profits Through Improved Pricing Processes

Abstract

The average profit margin of European retailers is a mere 0.7 %. Most companies blame the difficult economic environment for this low profitability. Yet the disastrous situation is largely self-inflicted, as is indicated by two facts.

First, for years growth has been slower in the retailing industry than in private consumption, indicating a structural problem within the industry. In Germany, for instance, while private consumption grew by some 3.2 % p.a. from 1994 to 2003, revenue growth in the retailing industry stagnated during the same period and even decreased, by 2.8 % in 2002 and 1.0 % in 2003 (see Figure 1). Traditional retailers were hit particularly hard, and their profits were depleted by massive price wars induced by competition for customers and market shares. Secondly, some companies have been able to grow despite the trend. Hypermarkets and discounters such as METRO Group, Carrefour and Aldi, and also focused retailers such as IKEA, Zara, and Hennes & Mauritz have grown. These retailers have continued to increase their revenues and profits year after year. They prove that a difficult economic environment is not necessarily an obstacle to growth.