To Discount or Not to Discount in 2009 |
The big squeeze: to discount or not to discount in 2009
Discounting; everyone's doing it to keep revenue flowing.
Gerry Harvey, Harvey Norman’s eclectic Chairman is upfront about the current conditions stating that the retail giant has suffered a 32% drop in profits in the three months to September 2008.
"In all the time I've been around, electrical and computer margins have never been hit as hard as they are at the moment, because you have so many retailers out there just trying to survive on a day to day basis," Mr Harvey said.
For smaller players, particularly in the retail sector, it is a case of 'damned if you do and damned if you don't'. At the very least, you need to understand the impact on your profits. Essentially, by discounting you are giving away some or all of profits. The key is to understand the impact and just how far you can go.
Consider the following example – a business with a 30% gross profit margin who offers a 25% discount (certainly nothing unusual about that in today’s market) requires a 500% increase in sales volume just to maintain the same position – and in almost all cases that’s just not going to happen. The result generally is that the business trades below its breakeven point and generates losses. And, you can only do that for a limited amount of time.
Contact us today for assistance and we’ll put you in touch with specialists who can work with us to reduce the cost of your cash while we ensure that any change takes into account your business and taxation needs.
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Discounting for smaller players, particularly in the retail sector, it is a case of damned if you do and damned if you do not. At the very least, you need to understand the impact on your profits. Discount or Not to Discount in 2009 Article