Retail businesses purchase products in bulk at wholesale prices, then resell the products directly to consumers through specialized outlets. Retail stores can deal in any number of product-types, and different retail niches feature different average profit margins. Understanding the profitability of different retail businesses can help you to decide which niche to serve with your retail operation.
Online merchants can be highly profitable, since they have drastically reduced overhead and labor expenses. Online merchants cut costs significantly by not building and maintaining physical retail store. Although they still must maintain warehouse facilities, and they must bring distribution challenges into the equation, online merchants can squeeze out much stronger profit margins than their brick-and-mortar competitors.
Non-store retailers, such as online merchants, earn an average profit margin of 23.94%, making them the top dog among profitable retail businesses.
Health and Personal Care
Health and personal care feature one of the highest profit margins of any traditional retail outlet. These stores sell a wide range of cosmetics, include make-up and toiletries, as well as pharmaceuticals and over-the-counter medicines. Popular health and personal care retail stores, such as CVS, offer photo-development services, sell limited food items and stock a variety of household goods in addition to their main focus on personal care items.
Health and personal care items are often priced at a premium, for branding purposes, regardless of their direct costs. Add pharmaceuticals and a photo service component with very low direct costs, and you have a recipe for high profit. Health and personal care stores earn an average profit margin of 14.82 percent, bringing them in at number two.
Home furnishings retailers, earning an average profit margin of 13.88 percent, are third among the most profitable retail operations. Often local sole proprietorships, furniture outlets can also be franchised outlets or large corporate chains. These stores sell furnishings such as beds, couches, lamps and tables featuring a range of quality and price combinations to suit a range of buyers. Home furnishings outlets have the advantage of selling all non-perishable items that can be difficult to waste or steal. Home furnishings, as with personal care items, can be priced well above their direct costs for branding purposes. A large segment of consumers is willing to pay premium prices for "high-end" furniture items.
Clothing retailers offer a mixed bag in terms of profitability. On one hand, upscale clothing can be sold at outrageous margins compared to the cost of materials and production. On the other hand, the intense competition of the fashion industry forces many retailers to keep their prices low enough to match or beat nearby competitors.
Clothing retailers come in fourth among the businesses mentioned in this article, but, at an average profit margin of 13.27 percent, fashion retailing still offers healthy profits for the retail sector.
Sporting goods come in last in this discussion of the most profitable retail business, but coming in last among the first is not always a bad thing. Sporting goods stores sell a wide range of fitness- and sports-related gear, clothing and accessories. Common items found in sporting goods stores include footballs and football pads, baseballs, boxing equipment, weight-lfiting equipment and training shoes.
Sporting goods stores earn an average profit margin of 11.92 percent.
David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.