Prices Down Means Profits Up – Now and Then

by David Jenyns on March 9, 2009

The enormous growth of suburban shopping centers and discount stores in the past decade is reflected in the dramatic rise of E. J. Korvette, whose stock rose from a 1959 low of l7s to a high of 128d in 1961. The discount store, characterized by low store overhead, low mark-up and fast turnover of merchandise, once was considered as a renegade form of retailing.

This low expense ratio is achieved, according to Goodbody analysts, through the high volume of sales generated in proportion to workers employed, square feet of store space, and dollar investment in inventory.

High traffic flow, achieved without proportionately high advertising costs, has given discounters a leverage which has reduced expenses proportionately to sales.” Because of its low initial capital investment, a discount store usually becomes profitable in six months whereas it takes about three to five years for a regular retail store to get into profit.

Particularly low in start-off expenses is the discount store with a large proportion of its operations leased to others. Because of its basically leased operation, such a store needs about only $125,000 to open a 125,000 square foot new store compared with about $1,100,000 for a new store operating its own department. Modern retailers have embraced the discount chain phenomenon, and investment opportunities still exist for the careful investor.

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