2008
Making Retailers Money- Key to Building a Sustainable Clothing Business Model
Posted by: Fashion06 in Business, Starting your own line |
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Having the right fashion items at the right time is a good concept for making retailers money. There are 12,000 apparel companies trying to do this every week of the year and more than 10,000 of those companies have sales between $300,000 and $3,000,000 a year with little to no brand identity and little to no brand following. 3,000 of those companies go out of business every year and 3,000 new companies come into business hoping they can do it each year. This would indicate that it takes something more than “strong fashion” to build a business and make the retailer profits on a consistent basis.
Making retailers money on a consistent basis is about TURNING INVENTORY with some significant speed and continuity.
This means the retailer can get it in quickly, sell it out quickly, get more in quickly, sell more out quickly and through this process, make a lot of money using very few $$$$ dollars out of their pocket.
Let’s look at how this works. Costco works at a 12-14% profit margin. How can they make money working at such a low margin. Macy’s works on a 52% profit. Macy’s turns their inventory 3.4 times a year. (This means at Macy’s the average item is on the floor 100 days approximately or 3 months). Costco turns their inventory 24 times a year. This means their inventory is on hand 15 days.
Think about that. Costco has sold their inventory, converted it to cash 15 days to 45 days prior to the bill needing to be paid. Macy’s has fully paid for their inventory before they sell it. Costco needs no cash to open a new store, they just need to build the store and have two weeks payroll and the store will generate everything else they need in cash to do business. Macy needs big dollars to fund each store. This is the power of inventory turn. It is critical in your business and it is critical in your customer’s business.
So how do you generate a lot of turn for your customer?
Let’s look at what the process is for retailers.
No retailer KNOWS what is going to sell for sure. They have instincts, they have taste and they have historical experience on which to base their judgment. But in most cases the retailer is “fishing” or “experimenting” when they place an order. This is why they buy 8 pcs, or 12 pcs. or 15 pcs. of an item and not 60 pcs. of an item. They are not SURE what will sell well and so they are “testing” the item looking for those items that move off the shelf with speed. If they sell 2 out of 15 the first week, that is marginally okay. If they sell 3 the first week (20%) that is good. If they sell five or more the first week, they are thinking about reordering it. If they sell ten or more that first week, they are calling on Monday trying to get more in as fast as possible. So this is the process for most retailers. How do they find those items that sell 80% the first week and how fast can they get more? A few good items like this can make their season.
If you, the supplier, can’t get them any more in a reasonable amount of time, then this is just lost sales and lost profits for you and the retailer. If you can get more to them in days or weeks, then they can profit on the test and begin to make real money with your company filling in every week as they sell through on the item.
So one of the important factors in making retailer money is being able to get them back into fast selling items, having the ability for them to re-order and receive merchandise in a timely manner. The goal, to allow them to go through three deliveries of the hot selling item in four months time, or three deliveries in the season. Having a production cycle that allows you to respond to such needs can be an important component to building a strong business and making your customers a lot of money.
Let’s talk about top selling products.
I tell clients, in the 2000 years that ice cream has been on the planet (ice cream was invented by the Persians and its origins go back to Alexander the Great) it is amazing that the number one flavor is still vanilla, number two is chocolate and number three is strawberry. Hagen das, Ben and Jerry’s, 31 Flavors and hundreds of others have come to market with “fashion” flavors and yet, no matter what “brand” it is, the core basics are still the best sellers.
This is the same in the jean business too. Take away the 5 pocket jean……….is there a jean business. In the knit top business……..take away the t-shirt for men or the tank top for women……….how much of the business is gone without those two items?
So the point is………………to make retailers money, you have to have some core bodies, some known volume bodies to build your sales on and to appeal to a broad base of consumer and then the “flavor” or design has to be somewhat basic to generate real volume, even in the fashion business.
ONE STRONG CORE ITEM CAN DRIVE A BUSINESS. Juicy did it with a sweat pant, core basic sweat pant and what they did was lower the rise, make it more sexy and put it with a cropped jacket, a core basic jacket, a little shorter and more sexy. But these were core products, using basic fabrics something like Vanilla with a richer flavor. Beside the garment, a good part of their success was that they garment dyed this item so they could have a short production cycle and meet reorders and fuel the fire building a large business quickly on one item and becoming important to a lot of retailers as a MONEY MAKING RESOURCE.
So, the second thing you can do to help your customers make more money is to create a core product that the consumer will want to own in two or three colors, something that would augment her or his wardrobe and work with a lot of items they already own but something that says “new”, “fresh”, “fashion” but is somewhat basic and has longevity and isn’t so novelty.
The third thing you can do to help your customers make more money and help your company to make more money is KNOW THE MARKETPLACE. You are in the consumer products business. Just like Crest tooth paste is in the consumer product business. You have to know what the consumer’s options are, what is available to them. You have to know what the consumer’s reactions are, what is appealing to them. You have to know what they are rejecting and what they are accepting and where you and your products fit for the consumer with this taste. It isn’t about guessing. It isn’t about creativity in a vacuum. It is about market savvy and being a creative marketing entity that blends its core values, with the market places values and brings product to the market that speaks to the targeted consumer and inspires them to buy with excitement and enthusiasm. You can hope to be lucky, some have achieved success that way, or you can know the market and fit your product into that market with your unique interpretations.
Well, I hope there has been some food for thought here.
I hope you have found this interesting and stimulating and it has given you something to think about.
I hope it helps you to improve your business and improve your products
What steps have you taken to make sure your retailers are profiting from your clothing line and having a high turnover (selling out and reordering more) for your goods one season to the next?
“This is a Guest Post by Billy Kapler of Kapler & Associates”
1223 Wilshire Blvd. #810
Santa Monica, CA 90403
310.394.0504
william@kand.com
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February 27th, 2008 at 3:53 pm
Absolutely terrific!
One of the best articles I’ve read in a while.
Thanks for posting…
February 27th, 2008 at 10:21 pm
hey Mr. Kaplan. i was thinkin about going exclusive like BE BE. THEY HAVE THERE OWN STORES.. WHAT DO U THINK ABOUT THAT?
February 29th, 2008 at 1:00 pm
Laron-
It definitely is a more profitable business model cutting out the middle men, but there is much more involved with the process of locating and building a chain of retail stores, as opposed to managing your wholesale/retail accounts.
It is definitely a possibility though I would suggest building your brand awareness with one location and privately sale online to reach a wider audience before expanding out with many stores.
February 29th, 2008 at 2:34 pm
thats what i planned on doin i have the design im sellin online but each shirt has different color schemes. i was gone save the money and try to get some to invest a little money in my company. its so hard finding people to beleive in what your doin. i been at the this for 1 year so far. i want to be exclusive though.
February 29th, 2008 at 2:44 pm
Yeah it’s near impossible to find someone who is willing to invest without already having a profitable business and your pass the investment stage..other than when it’s time to expand and growth.
Make sure you have the essentials in order before approaching an investor…good luck
March 1st, 2008 at 6:02 pm
A good article with some interesting ideas - thanks.
So the choice needs to be made whether to keep profit margins down and increase turnaround times on inventory or vice versa.
I’d be interested to know how many people have managed to successfully achieve…
High profit margins PLUS high turnaround times on inventory?
March 2nd, 2008 at 12:06 am
I’m starting a t-shirt/clothing company and I need information on talking to buyers about profit margins and pricing.
March 2nd, 2008 at 3:45 pm
i was wanting to start a clothing line can someone give me a call i would like to speak to someone on the phone could talk much more that way and ask ? thank u for everyones time
March 2nd, 2008 at 3:46 pm
i guess u have to leave the number for a call back lol 507 440 4397 thanks
AJ
March 3rd, 2008 at 4:28 am
laron:
YOUR OWN STORES
This is a very different business than the wholesale business. When you go into retail you need a lot of selection to keep the customers interested. You need to be able to bring in new products every 3 weeks to keep customers coming into the store and shopping, so you have to have a way of moving inventory out to bring in new inventory. This is hard to do when you are involved in the wholesale, design, manufacturing and business sides of a garment business.
Retail is a very different hat. Go into a small store and count the number of styles available. If you had to make that number of styles and then do the minimum quantities how many units would you have to own? Where would you get rid of the minimum quantities.
If you really want a store, the best starting place is to carry other people’s products as well as yours and as your wholesale business develops you can take over more of the store with your own product. With a well run store, you will learn alot about what the consumer likes and doesn’t like and why. It will help your line get better. But it is its own investment, has lots of risks, needs a good location, buz and hands on management.
Billy
March 3rd, 2008 at 4:32 am
Eric
HIGH MARGINS — HIGH TURN
It is done every day by Diesel Jeans, True Religion Jeans, Louis Vuitton, Channel, and many other contemporary and designer companies. When the product is right (fit, design, quality) and the marketing is right (image, branding, attitude) and the story is good about the company, its principals, core values and point of view one can achieve excellent margins and excellent turns. That is when real money is made in the apparle business.
Billy
March 3rd, 2008 at 4:35 am
E Billions
TALKING TO RETAILERS
One of the services our consulting firm offers is RETAIL MATH — RETAIL LANGUAGE to help wholesalers understand how retailers see their business. This is essential to know when dealing with major stores like Macy’s or Saks. They are numbers driven 110% and the supplier needs to understand how they evaluate those numbers or it can become very costly to the supplier.
Billy
March 3rd, 2008 at 4:38 am
AJ
FREE INFORMATION FOR A START-UP
Our firm spends an hour with a start-up business answering any questions they have or directing them to resources they are looking for. This is just our giving back to the industry and our way of helping those with the energy and enthusiasm to move into the fashion business.
My cell number is 310.877.1699. Call me and we can set an appointment to talk. I will do my best to answer your questions.
Billy
March 6th, 2008 at 10:45 am
Nice tip. Recommended to those who wanted to enter retailing.
March 8th, 2008 at 4:05 pm
Thanks a lot…!!!!!!!!!!!!!!
March 19th, 2008 at 2:52 pm
I have been thinking of going into the retail business, I love fashion, finding out what people want is my main focus, they would be my business. I love to travel and see the variaty of what people like in that location, or region they live in, and being able to bring it to them. I would like to work in the retail business with a company, to learn more about the business itself.
March 26th, 2008 at 5:45 pm
This article is very, very good. Quick inventory turnover to us in fashion is equated to compound interest to the Invester. I’m printing this article out and put it on my desk somewhere I can see it daily. Sell low making a smaller profit margin and get rid of it quicker; sell high sit on the product longer.
March 26th, 2008 at 10:05 pm
Rebellman:
Thank you. You should turn your inventory and you should make sure your customer turns your styles quickly too. This is win win and will ensure your growth and success. Happy to be helpful. May you prosper.
Billy
March 26th, 2008 at 10:17 pm
Karina:
Most people who go into retailing do so because they love the hunt, they love clothes, they love shopping the wholesale market, they love being involved in predicting the trends and they love putting together the merchandise they offer each season.
Then they open their doors and reality hits them. How do I drive in customers? How do I find good help? How do I stay in the right colors and sizes? How do I get rid of the things I bought that the customers don’t want to buy? How do I keep expenses in line? How do I keep my store looking interesting and fresh so the customer keeps coming back every two or three weeks? What do I do about suppliers that don’t ship me what I bought? How do I get more of the styles that are selling well and minimize the styles that don’t sell well?
Very quickly it becomes a business with many challenges and many complexities. You have the right idea. You should find a store whose fashions you like and see if you can work for them. Working in the store will give you an idea of what it means to sit around and wait for customers to come in. You will see how demanding some customers can be and you will learn some of the challenges that face a retailer.
You might want to consider a partner to help with the business issues while you handle the product issues. This often makes for a successful team.
Life has taught me that nothing turns out to be what it looks like, it seems it is always more complicated. So I suggest you do what you can to get close to it, taste it, touch it, experiment with it and then see if you still have the excitement and enthusiasm you are feeling today about retailing.
I am not trying to discourage you, I am just trying to make you aware, there is a lot to being a retailer. I believe very strongly that one’s passion and commitment matter the most, so if you are motivated and excited after you explore what’s involved, go for it!!
GOOD FORTUNES,
Billy
March 27th, 2008 at 1:02 am
Thanks, great article. What would you say is the best way to market? Press releases, word of mouth or sending free merchandise ? How do you make your cloths stand out with 12k competitors?