This is an article based on an Indian scenario, so all numbers are in Indian rupees. A US$ = app 45 Indian rupees (Oct 2010).
“A vendor buys vegetables from the wholesale market for Rs 1,000 in the morning and sells these for Rs 1,200 by the end of the day. This is a 20 per cent return every day or 6,000 per cent a year (assuming she works 300 days a year).” (Source)
Well, is this a practical estimate?It appears to be so. Because, even assuming that the vendor is not able to invest his profits and invests only the principal that remains with him the next day and every subsequent day (Rs 1000 every day), on an investment of Rs 1000, he has made 200*300 = 60000, or 6000%
Now, let’s look at a vendor who spends only Rs 100 per day on expenses and invests the rest. That is, he is able to save Rs 100 out of the 200 first day, so if he starts with Rs 1000 the first day, he spends Rs 1100 the next day and sells it for 1320, the third day, he spends 1220 and sells for Rs 1464 and so on. By the end of the year, he will end up with over trillions of trillions – of dollars. Yeah, it is true, you do the math yourself.
OK, that is just fantasising, because beyond the first few days, he will not be able to scale. But, a constant investment of Rs 1000 everyday for a 20% return end of day is possible, and we know it is happening.
Which means, if a vegetable vendor is selling Rs 10,000 worth of goods everyday, he will have an income of Rs 6,00,000 per year – Rs 50,000 a month. Is this really true in India? It could be fascinating to find out.
And that also makes me wonder? Why aren’t retailers worth hundreds of billions? It is fairly apparent retailers have hefty profit margins all over the world. Is it because the scale factor starts kicking in soon enough? What are your thoughts?
Anyway, what are the profit margins for the world’s largest retailer – Walmart? I dug up, and found that its gross profit margins were over 25%, but its net profit margins were about 4%. I bet this huge gap doesn’t exist for a small retailer. So, somewhere along the scale, a retailer’s net profits start decreasing dramatically.