As we close out on the first quarter of 2021, March is a great time to take stock of your retail shop’s performance and set realistic goals for the rest of the year. This is true both when your objective is to increase overall revenue as well as when you’re focusing on becoming more efficient with your operations.
“The key word in setting goals for the rest of 2021 is ‘realistic,’” said Vic Mason, World Pet Association (WPA) president. “It’s important to first take a look at how the pet community is doing, and then determine how your business is performing against industry benchmarks.”
In 2020, WPA released the World Pet Association Retail Operating Performance Report based on 2019 data. The report contains industrywide operating norms and performance metrics retailers can use to compare against their own results, including financial, operating and sales figures. If you want to stay on top of profits and losses on a quarterly basis, the following three metrics will provide an overview of performance, net worth and operating margins:
Overall Return on Assets (ROA)
While there is a variety of ways to assess profitability, a tried and true way is by calculating the return on assets, which will determine pre-tax net profits as a percentage of total assets. In other words, an ROA of 20 percent means that you are generating $1 of profit for every $5 invested.
Based on the participants who submitted data to the World Pet Association Retail Operating Performance Report, the average ROA for 2019 was 20.6 percent. On the upper level, some more profitable shops reported a 56.2 percent return. While ROA can’t pinpoint exactly why profitability is low or high, sales volume and product margins are usually the cause, explaining why big-box retailers can support a lower price point (and lower margins) on products if they have a significant customer base.
Return on Net Worth (RoNW)
Another good yardstick for measuring profitability is return on net worth, which provides a snapshot of the amount of profit generated from the dollars invested in the company by ownership. According to WPA’s report, a typical pet store (with animals) reported a net return on worth of about 44 percent. The study also found that pet shops with less than $1 million in sales annually had an average RoNW of 44.9 percent compared to 40.2 percent for those reporting $1 million or more each year.
Operating margins are often calculated by dividing a company’s operating income by its net sales. As expected, larger pet retailers reported margins of 48.2 percent due to their ability to leverage volume discounts compared to smaller sales groups (making less than $1 million annually), who reported average margins of 46.2 percent.
Margins also vary by type of product sold, with pet food delivering lower margins, while hard-to-find trends, human-grade food and high-end accessories generate higher margins if customers perceive them to be of greater value. However, product margins are based on many variables and tend to stabilize at a certain price point when customers are more careful about their purchases and comparison shop.
“One of the worst mistakes a pet retailer can make is undisciplined purchasing,” Mason said. “That’s why the best plan is to attend a pet industry trade event once a year and make it a tradition. Not only will you see the latest products and learn about buying trends into the future, you can also personally meet with premium distributors and manufacturers possessing a reputation for excellent pricing and customer service.”
SuperZoo, the most popular pet product marketplace, will be returning to Las Vegas this Aug. 17-19 as the only live event in North America for the professional pet community. At SuperZoo, pet professionals can find the latest trends at great prices, explore an extensive show floor, learn from experts about financial strategies, and meet with top manufacturers and suppliers.
“We are thrilled to be connecting with the pet community again at SuperZoo this year,” Mason added. “Particularly for independent retailers, it can be difficult to estimate the volume and type of products and supplies you’ll want for your store and secure them at a price point that will boost profits. SuperZoo is where you can make that happen, with expert guidance you can trust.”
To register for SuperZoo 2021, go to superzoo.org.
The World Pet Association (WPA) brings the pet world together so quality interaction and education between and among product suppliers and pet owners can create healthier, happier pets and a healthier, more productive pet industry. Founded in 1950, WPA brings thought leadership, innovative thinking and best practices to the pet industry, working to inform and educate the general public in order to ensure safe and healthy lifestyles for our animal friends.