It’s a bit like payday loans; they are a bad financial deal, but the alternative is no credit at all because the people who get them are high-risk borrowers and the costs associated with making and servicing a loan aren’t radically different for $500 or $50k.

Being poor is tough. But the low margins are a pretty good indicator that the alternative to shady businesses is simply not having businesses at all.

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skippyboxedhero a day ago | parent [-]

There is a difference.

ROI on payday loans for lenders is typically very high and their main issue is usually regulation that limits the volume they can transact. ROI on dollar stores is very low because the margin is low, costs are high, and inventory turns is relatively low. For example, Dollar General's inventory turns are half Walmart, that means that to continue operating they need to charge higher prices (the margin).

Low margins aren't an indicator of anything. They are a component of financial return in addition to capital. One does not make sense without the other. In high frequency trading, they are making 1/100000th of a percent on a trade, that is a very high return business if you can do this millions of times a day. Similarly, if I run a housebuilder then I need a 20% margin because I am going to be turning over my inventory across multiple years. If you take out industries with intellectual IP and the secular shift in margin due to taxation changes, ROI across industries is relatively stable...because margins don't matter. What is a good indicator of customers exploitation is if ROI is high. For dollar stores, shareholders are getting exploited, not customers (look at DG/DLTR share price, this is with a secular upturn in multiples, if you take out unit growth which is inherently limited the financial performance is non-existent).

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seizethecheese 21 hours ago | parent [-]

> Low margins aren't an indicator of anything. They are a component of financial return in addition to capital. One does not make sense without the other. In high frequency trading, they are making 1/100000th of a percent on a trade, that is a very high return business if you can do this millions of times a day. Similarly, if I run a housebuilder then I need a 20% margin because I am going to be turning over my inventory across multiple years.

This is wrong because quarterly reporting normalizes for expenses in same period

	▲	skippyboxedhero 6 hours ago \| parent [-]
		The part you have quoted is a written explanation of the DuPont formula. It is nothing to do with reporting periods, it is just a calculation of the return from a business. A high-margin business is not, necessarily, a high-return business (and in the context of the discussion above, high returns is a sign of exploitation...dollar stores are low returns, the shareholders are being exploited not customers).