The commercial and retail industry is one of the biggest in the world, and employs millions of people every single year. But did you ever consider that it could also be a lucrative area for investment?
The first question is how do we invest our money into retail? You won’t be expected to get your uniform on and Imagin Badges, stand in store and work for the company. Investing in retail is like investing in anything else- you will be putting your money into the business and hoping for a return. Look at the stock markets and see which retailers seem to be on the rise at the moment- and buy a share. If they have a successful few months and their value in the market goes up, then you will be able to sell you share and make a hefty profit. But why should we look to invest in retail, what are the benefits?
Growth in All Economic Cycles
If you look at the last ten years, the economy has suffered several blows and at times we have hit rock bottom, going into recession. If you think about the types of investments you could make in the economy- you may find that investing in luxury items such as boats, cars and jewellery is a prospect which will lose a lot of value over these tough times. No one of going to go out and buy a fancy car during a recession because the financial outlay is too large. However, when you look at retail stores such as supermarkets- you will likely see an increase in profit during these times because people will be buying more of their ‘luxury’ items all in one place. This is why retail stores are a great investment because you can avoid the harsh falls of the economy.
Low Capital Intensity
If you look at many large retailers and big brands, you will notice that although they sell a huge range of items in store- they will often outsource the manufacturing process to somewhere else entirely. While this is a large cost in itself, it is negligible compared to the costs that would ensue if they bought in the parts, equipment and manufactured product themselves. This is why you will find that these companies make large profit margins compared to other industries, as they don’t need to fork out for production costs. Because of this, cash flow is much better and you will feel safer investing your money into this trade.
If you think about how often you go a re-purchase a sofa compared to how often you go to purchase a loaf of bread; there is a huge difference. Food stores benefit from the fact that their customers will keep coming back every week in order to restock on food for the family. This means that food stores have that sense of stability in revenue and it makes them less of a risk to invest in than other sectors. It will also mean that if you compare stores on the customers they get each week, you will be able to identify which is the best one to invest in.
The great thing about retail is that the premise of the business is simple. You wouldn’t want to be investing a huge chunk of cash into a new start-up dealing with some crazy coding and web development that looks like hieroglyphics to you. It is important to never invest in something that you don’t fully understand- because if you don’t understand the business and the way it runs- you can’t be guaranteed to understand when it is successful or failing. Not knowing can put you in deep risk of not being able to get out before the company goes under and you harbour a heavy loss in your profits.
Adverse selection is the process where the seller has information on the quality of the product they are selling which the buyer does not. This can apply to insurance such as health insurance for those who have a terminal illness, life insurance for people who are in high-risk occupations, and for products which are at risk of breaking after a certain time. These products will often be ones which go on the clearance rack first because the retailer knows they aren’t worth as much as any others. This is a technique which many companies use in order to sell off their subpar product before it is too late. It means that they can make a profit on the product and not have to scrap it.