High-Profit Dealers Became More Profitable In 1999
By Amy Gilroy -- TWICE, 9/25/2000
OMAHA, NEB. -- The Mobile Electronics Retailers Association (MERA) released its second annual cost-of-doing-business survey, finding that the higher-profit dealers are getting even more profitable.
Thirty-four retailers participated in the survey by submitting their financial P & L (profit and loss) statement to a third-party accounting firm. This was compared with 40 participants in 1998, according to Rick Mathies, MERA director of operations.
The study broke out a category of high-profit dealers (25 percent of the most profitable retail respondents vs. the remaining 75 percent). While the typical MERA dealer generated an operating profit margin of 2.4 percent in 1999 (about the same as in 1998), high-profit dealers showed an operating profit margin of 7.7 percent (up from 5.6 percent in 1998).
This signifies that high-profit dealers earn an additional $53,000 in profits per million dollars in sales, whereas last year the gap in profitability was only $29,000. "So it looks like high-profit margin dealers are getting better at it," Mathies said.
Average gross margins for dealers as a whole remained identical to 1998 at 43 percent. However, the study divides retailers into three volume categories: less than $1 million annually; from $1 million to 2.5 million; and more than $2.5 million.
The gross margins for dealers in the low-volume category were up 3 percent to 46.1 percent. The gross margins for retailers in the mid-volume category were down 10 percent to 40.7 percent compared to 50.5 percent gross margins in 1998. And for high-volume retailers doing over $2.5 million annually, average gross margins were up 3 percent to 41.6 percent.
Across all sales volumes, the average MERA dealer's pretax profit remained almost identical to 1998 at 2.7 percent.
When broken out by volume, again the mid-volume retailers' pretax profit dropped by 4 percent to -0.1 percent, while the low and high volume retailers saw profitability gains of 1.7 percent for dealers doing over $2.5 million annually, and 0.1 percent for dealers doing under $1 million in volume.
The study found that the average MERA salesperson (across all volume categories) sold $280,914 in merchandise in 1999, down from $310,000 in 1998.
Broken down by volume, the mid-volume retailers saw a decline in sales for the average salesperson by $78,000 a year to $302,397. Conversely, the low-volume dealers' average annual sales gained by almost $14,000 a year to $268,960, and the salesperson at the high-volume retailers saw an annual sales gain of $31,000 to $294,099.
For all MERA dealers, the average dealer compensation per salesperson is 11.5 percent of his or her salary, down slightly from the 1998 level of 12.7 percent.
For high-profit retailers, in particular, the average dealer compensation declined by almost 9 percent since 1998, hitting 10.8 percent, down from 19.3 percent.
The study also looked at owner compensation rates, which were significantly down from the previous year. Owners of high-profit dealers earned only 1.5 percent of sales in 1999 vs. 6.4 percent of sales in 1998. For all dealers, owner compensation dropped to 4.3 percent, from 5 percent in 1998.
Examined by region, margins were down on the West Coast, East and the Northeast, but higher in the Midwest and Rocky Mountains, compared to the previous year.
Although in 1998 the margins were the highest on the West Coast, the Rocky Mountains led in 1999 with margins at 48.4 percent, followed by the West Coast with margins of 46.5 percent and the Midwest at 42.4 percent.
The East showed margins of 40.1 percent, and the Northeast at 35.9 percent. Margins were down 7 percent in the Northeast, 6.4 percent on the West Coast, and 5.4 percent in the East, compared to 1998.
But margins were up 4 percent in the Midwest and up 1.9 percent in the Rocky Mountain area.
Pretax profit margins were down from 1998 in the Northeast and Midwest but up in other regions. Pretax profit margins were highest in 1999 in the Rocky Mountain region at 4.7 percent, followed by the West Coast at 3.7 percent and the Midwest at 2.3 percent. The Northeast had pretax profit margins of 1.6 percent, with the East trailing at 1.5 percent.
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