How do discount clothing stores work?

[Rami]

Hello all,

I have been looking into how discount clothing stores work for a while, though I was unable to find anything that could help answer a few questions that I have. I'm guessing this topic falls under the category of "unwritten knowledge", just like any simple successful business idea out there

I would appreciate any help or guidance some of you professionals can give me on this topic.

I basically need to know the following:

1. How are discount clothing online/retail stores able to have a wide variety of excessively cheap brand names in their stock, and how can they sell such brands at extremely low prices?
2. Do they simply have "stock" products that might have minor errors like a wrong stitch, wrong color etc. that factories sell for cheap or are they basically selling clothing that is out of season?
3. How can you start a similar business and acquire connects that will provide you with cheap prices for brand name products?
4. Are discount stores infringing on any of the brand name rights?

Any help or any answers would be highly appreciated.



Regards,


Rami

 

[savvyshopper]

Hi Rami

You are referring to stores like TKmaxx

Basically they buy up liquidated stock from companies who have gone pop and they then source stock from brands direct and agree to buy x percentage of their left over stock thats in the warehouse. They buy this stock often at what they bought it in for or at a loss to the company they are buying it from. They then apply a mark up to the product.

This business model is hard to copy unless you are doing it on a huge scale.

Hope this helps

 

[liongroup]

This business model is hard to copy unless you are doing it on a huge scale.

Exactly, discounting = volume. This kind of business is fairly high in risk in my opinion i.e capital intensive to start as more than likely you won't make any profit selling at lower volumes. Examples of businesses that do this well at a large scale are Walmart, Costco, Amazon, Tesco. These are all mass merchandisers i.e they sell everything. There are examples of businesses that aren't any of the above i.e speciality discounters; namely fast fashion brands such as Zara or H&M, even Sports Direct in the UK.

For me, this type of business requires fast execution and an approach that is actually the opposite of the current economic situation. We're seeing weak demand in Europe, but I'd expect some large discounters to develop in the East where demand is greater.

 

[Rami]

Hi Rami

You are referring to stores like TKmaxx

Basically they buy up liquidated stock from companies who have gone pop and they then source stock from brands direct and agree to buy x percentage of their left over stock thats in the warehouse. They buy this stock often at what they bought it in for or at a loss to the company they are buying it from. They then apply a mark up to the product.

This business model is hard to copy unless you are doing it on a huge scale.

Hope this helps

Thank you for the replies guys.

I have a question for you Savvyshopper.

Where I'm from, the part of the world I'm from in particular have recently witnessed an Internet boom that the west have witnessed about 10 to 15 years ago. This of course had caused a major rise in online businesses strictly dedicated to this region. Recently, the first online discount clothing store have been launched and was able to attract more than 200 thousand Facebook fans in ONE MONTH! Now that is a major achievement for a start up. My question to you is this : If a start up company like that is basically purchasing assets and properties of companies that have been brought to an end somehow, through some sort of distribution process, will they be able to keep up with the high demands? What guarantees them a constant supply? How do you find such companies?

I'm sure their fan and user base are in the millions right now and their popularity is on the rise. This does not sound like a proper way to make ends meet. Plus, will a newly start up company invest such a great amount of money to be able to acquire such low prices?

Do you know of any other way how they could have done this? Maybe a connection directly with the factories? Or do their products have minor mistakes in the stitching or the color or whatever? For brand names, little mistakes like that could have products go as low as a quarter of the original price.

Regards,

 

[Talay]

Not quite what you are looking for but an interesting point nevertheless I think.

Poundland was selling Toblerone. I'm sure when they started out, they were buying up near dated and bankrupt stock etc. but they became large enough buyers so that whatever Toblerone originally thought of Poundland devaluing their brand by selling it for £1, they could not lose that volume of business.

Move forward some time and as chocolate prices increased, Poundland were able to dictate to Toblerone that if they wanted Poundland to keep selling Toblerone, they could not increase their price as their business model retails everything at £1. The answer was that Toblerone took out a piece of chocolate and made the bar smaller, allowing Poundland to achieve their margin and retail the new, smaller Toblerone bar at £1.

I suspect there are large enough wholesalers who can dictate, perhaps not to receive new stock at a fraction of the high street retail price but certainly to take all they want of a certain brand and the brand simply needs them to either survive or retain profitability. It is market price differentiation.

Decades ago, a publication called Worlds Fair used to incorporate Market Trader or similar and they used to sell boxes of say £5000 retail for £500. It all seemed a bit hit and miss whether you got something good or bad. With improved logistics and technology, I suspect a similar situation today sees you getting exactly what you want and in many cases, it will have been provided through that distribution channel by the original retailer / manufacturer.