Which New Zealand products have the highest markups?

The most profitable are “vertical retailers,” who sell their own products to consumers. File photo.
photo: RNZ/Rebekah Parsons-King

Some luxury shoppers may be shocked by the recent news that Italian prosecutors investigating LVMH subsidiary Dior’s use of third-party suppliers found that Dior paid $57 (not including some material costs) to produce a $2,870 bag.

But Dior CEO Delphine Arnault’s father is the world’s third-richest man, Bernard Arnault, so perhaps it’s no surprise that they know how to make a profit.

This prompted Radio New Zealand to investigate which New Zealand products might have the highest mark-ups.

It’s hard to get a perfect picture because these data are often commercially sensitive, but you can get an idea from Statistics New Zealand, which regularly compiles gross profit margin data for various industries.

It’s important to note that these figures do not include operating expenses, interest or taxes. While taxes should be consistent across businesses, operating expenses and interest may vary depending on how much online and physical retail occurs and how many employees you have.

But at a macro level, for micro-retailers, boat equipment retail is by far the most profitable industry, but among small, medium and large businesses, antique and second-hand goods dealers have the highest profits.

Chris Wilkinson of First Retail Group said vintage and second-hand retailers can be more profitable because shoppers don’t have prices to compare.

“If you have a one-of-a-kind piece of art… you can’t say I can buy it for this price.”

Across all sizes, gardening businesses tend to have higher profits than clothing businesses, which in turn are slightly higher than furniture and footwear businesses, but across large businesses their profits are very similar.

Wilkinson said the highest margins were earned by “vertical retailers” – those that sell their own products to consumers rather than those of other manufacturers.

“We are seeing more and more high streets and shopping centres filled with retailers actively selling their own products, whereas 10 to 15 years ago the streets were filled with retailers selling products from a wide range of manufacturers. On the other end of the spectrum are retailers selling direct, such as Levi’s stores or Dyson.”

He said this was a way for Kmart to differentiate itself from The Warehouse and give it the same advantage as antique dealers – customers couldn’t compare the prices of products elsewhere.

Wilkinson said unlike Gucci, high-end clothing in New Zealand typically carries lower margins than clothing sold by the likes of Hallenstein Brothers and Glassons.

“There are margins there, but they have to be big because these retailers have big stores and infrastructure — so the costs are high.”

Fuel retailing and motor vehicle retailing are among the least profitable sectors by this measure. MBIE monitors margins for fuel importers and says the margin on petrol is about 35 cents a litre – but fuel retailers have to cover the costs of transporting, distributing and delivering the fuel.

Aimee Wiley, chief executive of the Society of the Automobile Manufacturers, said she was aware of wide and variable margins on new car sales for car dealers. She said margins could be as low as 0.5 per cent, while 1 to 2 per cent was not unusual.

Supermarket profit margins were also at the bottom, according to Statistics New Zealand, but Otago University marketing senior lecturer Rob Hamlin said supermarket profit margins were not uniform.

He said higher-margin merchandise is positioned on the supermarket’s ground floor.

“Supermarkets encourage you to shop in a certain way – the beginning part of the shopping process is a pleasant time because the supermarket is trying to slow you down, turn you around, keep you in that part of the store. Then, when you get to a certain part of the store, all of a sudden the whole layout changes… At this point, they’ve taken you through all the profitable sections and now they just want you to leave the store.

“They make money selling cakes, meat and bananas, but they know that to keep you coming back every week you have to buy beans, bleach and toilet paper.”

He said the “mousetrap cheddar that sells for $20 a block” often gets people’s attention, but can take 14 months to make. “If you go to a specialist cheese shop and look at the soft, stretchy French cheeses that don’t require two steps to make, on a per kilo basis, some of these cheeses can sell for $60, $80 or $100 a kilo. The margins in that supermarket segment are very attractive.”

Woolworths said it would make $0.80 in profit for every dollar spent in the 2023 financial year.

None of those products appear to have markups as high as Gucci’s, and Wilkinson said New Zealand retailers were facing more competitive pressure than ever before.

“It’s really about the multiple channels that are now available. There’s also online sales – there’s all these other aspects of competition from overseas retailers coming into New Zealand.”

Market demands can change quickly, he said.

“I would say it’s more dynamic than ever before… At some point you could never go wrong with a certain flavor of the month, and now it’s completely different.”