Question

Which of the following statements is correct?

1) Operating costs per sales dollar are usually lower for larger retailers than they are for small retailers.
2) Larger retail firms generally have higher operating costs per sales dollar.
3) Retailers cannot be classified by number of stores.
4) Retailers are rarely classified by sales volume.
5) The operating performance of retailers has no relationship to retailers' size.

Answer 1

Larger retailers generally have lower operating costs per sales dollar due to economies of scale, which allows them to spread costs over a larger output and sales volume. Retailers can also be classified by number of stores and sales volume, which relates to their operating performance. Therefore, the most appropriate option is 1.

Step-by-step explanation:

The operating costs per sales dollar are an important aspect of a retailer's financial performance. For larger retailers like Amazon, Costco, or Walmart, economies of scale play a crucial role. Economies of scale refer to the decrease in cost per unit when output increases. This concept is well exemplified by these large players' ability to undercut competitors' prices even when including shipping in the costs. This benefit arises because larger retailers can spread certain costs over a larger number of sales, leading to lower operating costs per sales dollar as compared to smaller retailers. It is, therefore, correct to say that operating costs per sales dollar are usually lower for larger retailers than they are for small retailers.

Retailers can and are often classified by several factors including number of stores and sales volume. The operating performance of retailers can also be related to the retailer's size, as the size can influence the cost structure and production model.