Re: Surprising
I think you misunderstand the difference between Gross Profit and Net Profit (my simplified understanding is below). Retailers will generally aim for a gross margin of 40% which is not far off the 50% gross demanded by Maplin's banking covenants.
Gross Profit is the difference between how much it cost to buy the thing you've just sold and the amount you charged for it.
Net Profit = Gross profit less all business expenses (CapEx and OpEx)*
* - staff costs (inc salary), corporate functions (e.g. HR, purchasing), payments for buildings/vehicles and the like, taxation (business rates, tax on profits), other operational expenses like utilities (power, water, telephone, rubbish disposal), banking facilities (cost of credit/debit card merchant account and transaction processing, cash handling, cost of corporate banking facilities), cost of breaking bulk (buying 10,000 of something then storing them and distributing to stores while you sell them one at a time to customers). Then you have CapEx things like store refurbishment, buying+equipping new sites etc, closing unprofitable sites. This list isn't exhaustive and probably only scratches the surface.
Only once all that is paid do you have Net profit which is a lot closer to your 2% figure. A lot of that will be a payment to the business owners as a return on their investment (e.g. dividends to share holders) and some will be retained for future business development or paying down debt as it becomes due. There may also be exceptional charges on the accounts to cover (e.g. acquisitions, write off of goodwill, etc).
A company will need to generate a net profit higher than 2% otherwise they will struggle to attract capital/investors simply because of the "Why should I invest in your business and get a 2% return when I can invest in that other company with similar prospects and get a 5% return?" problem.
Note retailers will generally work on a 40% Gross Margin. How much of that percolates through to the Net Margin is quite another matter if only because they start to redefine Profit and they'll do accounting shenanigans like loading up with debt as explained here with Maplin. As explained by the article Maplin would have been reasonably profitable had it not been for all interest it had to pay on the debt it was loaded up with by its Private Equity owners!
Biting the hand that feeds IT
