Complexities of large retailers can offset the benefits of economies of
TORONTO, Nov. 7, 2013 /CNW/ - High overhead costs have the potential to
offset strong gross margins, according to a PwC survey of retailers across the grocery, apparel and specialty
The 2013 Retail Benchmarking Survey, released in partnership with the Retail Council of Canada, found that while larger retailers may have several advantages due to
their size, the benefits of the economies of scale are often offset by
the complexities and duplication of functions that exist within these
The survey also found that retailers with higher gross margins are also
more likely to have higher costs, especially in marketing and
merchandising. While this has a cyclical effect, the data shows that
cost management is a stronger factor in determining net margins than
"Retailers face the challenge of managing their retail formats to create
a differentiated customer experience while at the same time balancing
their operating costs and gross margins," says Ilya Bahar, PwC's National Consulting & Deals Leader, Retail and Consumer.
"However, simply focusing on sales is not the answer—retailers need to
look at areas for cost containment while still maintaining a
The nature of costs can differ between regions as well. For example,
while Canadian retailers enjoy higher sales and margins per square foot
than their US counterparts, Canadian businesses also face higher labour
and occupancy costs.
Other highlights from the Retail Benchmarking Survey include:
Of the three retail categories surveyed, grocery has the highest sales
per square foot - a median of $510, compared to $336 for apparel
and$325 for specialty.
Driven by unique fashion products (as opposed to the relative
homogeneity of grocery merchandise), apparel retailers enjoy the
highest gross margin (median of 58%)—well above the 30% for grocery and
41% for specialty. However, apparel also sees higher store expenses
than the other two categories due to significantly greater occupancy
Grocery spends the least on head office expenses, with a median of 5.8%
compared to 15.8% for apparel and 11.5% for speciality. This is likely
due to pressure from lower margins. Overall, across all three
categories, marketing and supply chain costs represent the largest
portions of these expenses.
"Not all retailers experience the same cost challenges—these can differ
depending on the size, location and category of the business," says
Bahar. "To this end, it's crucial for retailers to determine where they
fit on these scales and use this information to see where they can
reduce expenses, and if possible, redundancies."
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About PwC Canada
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country are committed to delivering quality in assurance, tax,
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© 2013 PricewaterhouseCoopers LLP, an Ontario limited liability
partnership. All rights reserved.
PwC refers to the Canadian member firm, and may sometimes refer to the
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About the Retail Council of Canada
Retail Council of Canada (www.retailcouncil.org) is the Voice of Retail. Founded in 1963, RCC is a not-for-profit
association which represents more than 45,000 stores of all retail
formats, including department, grocery, independent merchants, regional
and national specialty chains, and online merchants.
SOURCE: PwC (PricewaterhouseCoopers)
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