There are many 100yen stores in Japan, such as DAISO and Seria. In the U.S, it is called a one dollar store. In this article, I would like to explain why 100 yen stores are profitable and how they work.
High profit margins
First, the profit margin of 100 yen stores varies greatly depending on the product.
The cheapest items cost about 10 yen, while the most expensive items cost over 100 yen.
Naturally, products with a cost of more than 100 yen will result in a loss just by selling them. However, the gross profit margin of a 100 yen store is usually around 30%.
In a thin-margin retail business, a profit margin of 30% is quite high, but why is it possible to maintain such a high profit margin remains a burning question. “The answer is buying in bulk”.
Customers who come to a 100-yen store buy a variety of useful goods and products, and if they buy 10 items, the price will be 1,100 yen (tax included), which also comprises low-cost items. Therefore, even if you buy products with a cost of more than 100 yen, the overall profit margin will be about 30% due to some products having a lower cost.
Products with a cost of over 100 yen are considered to be bargain products, and they are designed to attract customers. Instead of being able to cut prices, 100 yen stores adjust the cost ratio of their products.
Hence, the main strategy of 100-yen stores is to use these bargain products as bait to sell products with high profit margins as well.
Lower labor costs
Secondly, the fact that labor costs are not very high is another secret that makes 100 yen stores profitable.
Compared to supermarkets, the work of a clerk at a 100 yen store is not difficult. The main tasks are cashiering and stocking, and the store can be run by only two or three part-time workers. Compared to supermarkets, the number of people needed is not as many and the work is simpler.
For a companies, reducing the overall employee compensation will increase profits. Therefore, lay-off of full-time employees, together with increasing the number of part-time employees is a way to diminish labor costs.
In the retail industry, where the pressure on labor costs is great, the question of how to reduce the number of employees is not so straightforward. On the other hand, industries that do not require costly labor, such as 100 yen stores, are very profitable, and they can deal with the issues in question more easily.
Cost reduction through mass stocking
Thirdly, these stores can reduce its cost ratio by purchasing large quantities of products. Basically, it is cheaper to purchase products in large quantities.
It is the same with supermarkets, where you can get a discount if you buy many of the same items in bulk. Thereby, from the seller’s point of view, it is more profitable to buy a large number of items than to buy just one, making it is also beneficial for the supplier.
The products sold in these stores are products that can be purchased in large quantities. Customers buy a lot of them, and such products do not deteriorate like food, so you can stock plenty of them. This is exactly how we succeed in lowering the cost ratio.
No advertising costs
Fourthly, one of the secrets to the profitability of 100 yen stores is that they do not need to spend money on advertising.
Normally, in order to attract customers to a store, it is necessary to advertise. Other retailers advertise through TV commercials and inserts in newspapers and other media platforms.
They provide information on specials, new products, etc., in order to get people to come to the store.
Increase the profit margin by manufacturing under your own brand
However, there is no need to advertise to these kinds of stores. The fact that they sell various products for 100 yen is the biggest advertisement of all.
They don’t cut prices like supermarkets do, so they don’t have special sales information and don’t need to advertise their products at all. It also costs a lot of money to run TV commercials and hand out flyers. The fact that you don’t have to spend money on advertising is a factor that makes it easy to increase your profit margin, which in turn makes it easy to make money.
Certainly, a prerequisite to avoid all of this is that customers choose to come to your 100 yen store in the first place.
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