The first few months of the year are a great time to take stock of your pet store or retail store's performance and set realistic goals for the rest of the year. Whether your goal is to increase overall revenue or improve operational efficiency, don't miss this timing.
In 2020, the World Pet Association (WPA) released the WPA Retail Operational Performance Report, based on 2019 data. The report contains industry-wide operational standards and metrics. Pet stores can use it to compare and evaluate their own performance, including financial data, operational efficiency and sales revenue. If you want to break even on a quarterly basis, here are three metrics that will give you insight into your results, net assets and operating margins.
Overall Return on Assets (ROA)
While there are several ways to assess profitability, one proven method is to calculate the return on assets, which will determine the net profit before taxes as a percentage of total assets. In other words, a 20% ROA means that for every $5 you invest, you generate a $1 profit.
The average ROA for pet stores participating in the data submitted to the World Pet Association Retail Operating Performance Report was 20.6% in 2019. Some of the more profitable pet stores posted returns of up to 56.2%. While ROA does not accurately reflect profitability, sales volume and margins on pet supplies are usually the reason, which explains why some pet stores with high volume can afford lower retail prices (and lower margins) because if they have a large customer base, they can comparatively sell more at lower margins.
Return on Net Worth (RoNW)
Another good measure of profitability is the return on net worth, which is the profit that can be generated from the assets used to invest in the business. According to the WPA report, the return on net worth for the average pet store (including pet sales) is about 44%. The study also found that pet stores with annual sales of less than $1 million had an average ROA of 44.9%, while pet stores with sales of $1 million or more had a ROA of 40.2%.
Operating Margins Operating Margins
Operating margins are usually calculated by dividing a company's operating income by its net sales. As expected, large pet retailers recorded a margin of 48.2% because they have the capital and ability to take advantage of volume discounts, while smaller pet stores or retailers (with sales of less than $1 million per year) recorded an average margin of 46.2%. As a result, small and medium-sized pet stores or retailers can reduce cash flow pressure by stocking through wholesalers or distributors that offer light wholesale, mixed wholesale, such as Petionship Singapore one-stop pet supply wholesale platform.
Margins also vary depending on the type of product sold. Pet food products generally have lower margins, while new concepts such as artificial meat snacks and products made from environmentally friendly materials, and high-end pet products such as smart hardware and customized apparel have higher margins. However, product margins are also based on many variables and tend to stabilize at a certain price point as customer interest increases.
"One of the worst mistakes a pet store owner can make is to buy out of order," Vic Mason, president of the World Pet Association (WPA), said. “That's why the best plan is to attend a pet trade show once a year and make it a habit." Not only do you get to see the latest products and learn more about future buying trends, but you also get to meet in person the high-end dealers, brands and manufacturers that are known for their great prices and customer service. With COVID-19, even though you can't be at an offline pet show, you can use the Internet and social media to seriously search for new brands and suppliers to make that all-important purchase for your pet store.
To get the latest pet business insights from Petionship, please read our curated blogs for pet businesses.
Petionship is an all-in-one pet supplies wholesale platform in Singapore and spans across Asia Pacific, offering the best value pet products for pet shops, online stores and retail businesses. No minimum order quantity required with flexible terms! Become our retail partner today to enjoy 5% off for your 1st order!