How Does Ross Make Money?
Ross Stores, Inc., commonly known as Ross, is a popular off-price department store chain in the United States. Founded in 1957, Ross operates over 1,500 stores across the country, offering a wide range of products at discounted prices. So, how does Ross make money?
Business Model
Ross operates on a unique business model that allows it to offer products at significantly lower prices than traditional department stores. Here’s a breakdown of how they do it:
- Off-Price Strategy: Ross buys surplus merchandise from manufacturers, wholesalers, and other retailers at discounted prices. This merchandise is often excess inventory that cannot be sold at full price or is discontinued products.
- Overstock Purchases: Ross also buys overstocked products from retailers who need to clear out inventory to make room for new shipments.
- Closeout Sales: When other retailers go out of business or liquidate their inventory, Ross buys the remaining products at deep discounts.
- Direct-to-Ross: Some manufacturers and wholesalers sell products directly to Ross at discounted prices, bypassing traditional retail channels.
Revenue Streams
Ross generates revenue from the following sources:
- Merchandise Sales: Ross sells products at discounted prices, earning a profit on each item sold. In 2020, Ross generated $18.4 billion in merchandise sales.
- Services: Some Ross locations offer services like tailoring, alterations, and repairs, generating additional revenue.
- Credit Card Transactions: Ross accepts credit card payments and earns a small percentage of each transaction as a processing fee.
Key Factors Contributing to Profitability
Several factors contribute to Ross’s profitability:
- Low Overhead Costs: Ross operates on a low-overhead model, with simple store layouts and minimal advertising expenses.
- Efficient Supply Chain: Ross’s supply chain is designed to quickly move products from suppliers to stores, minimizing inventory holding costs and ensuring a steady flow of merchandise.
- Smart Pricing: Ross’s pricing strategy is designed to attract price-conscious customers while maintaining profit margins. Ross’s average markup is around 20-30%, compared to traditional department stores which may have markups of 50-100%.
- Volume Discounts: By buying large quantities of merchandise, Ross negotiates volume discounts with suppliers, further reducing costs.
Financial Performance
Here’s a breakdown of Ross’s financial performance in recent years:
| Fiscal Year | Revenue (in billions) | Net Income (in millions) | Same-Store Sales Growth |
|---|---|---|---|
| 2020 | $18.4 | $1.1 | (5.6%) |
| 2019 | $17.8 | $1.4 | 2.5% |
| 2018 | $16.7 | $1.2 | 3.4% |
| 2017 | $15.6 | $1.1 | 3.1% |
As you can see, Ross has consistently generated significant revenue and net income, with same-store sales growth ranging from -5.6% to 3.4% over the past few years.
Conclusion
Ross’s ability to offer products at discounted prices is rooted in its off-price business model, efficient supply chain, and smart pricing strategy. By leveraging volume discounts and negotiating with suppliers, Ross is able to maintain profit margins while attracting price-conscious customers. As a result, Ross has become one of the largest and most profitable off-price retailers in the United States.
Key Takeaways:
- Ross operates on an off-price business model, buying surplus merchandise at discounted prices.
- Ross generates revenue from merchandise sales, services, and credit card transactions.
- Key factors contributing to Ross’s profitability include low overhead costs, efficient supply chain, smart pricing, and volume discounts.
- Ross’s financial performance has been strong in recent years, with consistent revenue and net income growth.