Question

What are some reasons why some product categories in stores have low gross margins compared to industry averages?

Answer 1

Gross profit margin= total revenue -COGS/ total revenue

A low gross profit margin means your Gross profit margin is below industry norms and potentially down from your company's prior periods. In simple words, the company does not generate strong sales prices relative to your cost of goods sold, which is the costs to procure raw materials, make products, and sell the finished goods.

reasons why some product categories in stores have low gross margins compared to industry averages:

1. higher costs of goods sold because  your suppliers naturally want to increase their own revenue and margins.If higher COGS negatively affects your gross profit margin, you may have to negotiate harder or look for alternative providers.
2. Lowering your prices to generate sales by routinely offering discounts and promotions to attract buyers.
3. Lowering your prices to create a strong customer base which can ultimately lead to profit maximization in the long run.
4. New competitors or increased rivalry from competitors may lead to reduction in selling price which can lead to reduction in gross margin.