thin margins

[smack]

Hi all,
I'm looking to open a small shop selling a single brand of male clothing. They have given me wholesale prices and also a RRP, as they also sell direct via website - effectively I would need to agree to sell at that price. However the margin would only be 1.75.(this includes VAT within RRP) Now given the demographic, I need to be positioned in a mall, so pricey rents,rates and service charge. I expect a break even point of circa 100 items per week.
does that sound unreasonable to achieve?

 

[fisicx]

How are you going to cover the start up costs? Last thread I read on here estimated £100K to get a shop fitted out and operational.

And what about staff wages?

 

[businessfunding]

No one can answer your question without a lot more specific information.

However in dealing with retailers, I have never, ever seem margins this tight (or anywhere near it). Are there high margin lines you can sell along-side?

 

[smack]

No one can answer your question without a lot more specific information.

However in dealing with retailers, I have never, ever seem margins this tight (or anywhere near it). Are there high margin lines you can sell along-side?

no- no other high mark up lines.

 

[businessfunding]

On the information given this looks incredibly high risk.

In assessing B/E point, have you accounted for rent deposits, fit-out, returns/damaged goods, utilities, etc?

 

[ecoleman]

To sell something at 1.75% margin is simply crazy. You would be working your arse off day in and day out just to break even. Why bother?

Your wholesalers don't sound like proper wholesalers to me. Probably a middle man that pays wholesale themselves and give you a bit of a discount for buying in bulk.

 

[smack]

thanks, this seems to confirm my suspicion - the margin just looks too thin. even with a high sales ratio I just cant shift enough stock in my projections to make a decent profit at the end of the day.

 

[smack]

I'll challenge hard on margins. think the wholesaler is trying it on a tad

 

[JamieM]

To sell something at 1.75% margin is simply crazy. You would be working your arse off day in and day out just to break even. Why bother?

Your wholesalers don't sound like proper wholesalers to me. Probably a middle man that pays wholesale themselves and give you a bit of a discount for buying in bulk.

Whilst the margins are pretty low they aren't necessarily crazy. It works out at 31% which depending on the product and the marketing spend by the brand can be acceptable if the product is desirable.

However, it probably isn't going to work for a single brand store. Why do you want to go single brand @smack ? It seems a high risk strategy.

Edit: just noticed you said 1.75% margin ecoleman. I took him to mean 1.75 x cost.

 

[swankypants69]

I would say that if you think you can operate on anything like 1.75% gross profit you are as mad as a hatter

If a customer pays on credit card there's nearly all of your 1.75% gone

I would imagine even for a really strong brand you should be getting 30% POR and in general for clothing you would be wanting at least 50% POR

 

[businessfunding]

Edit: just noticed you said 1.75% margin ecoleman. I took him to mean 1.75 x cost.

That would certainly make more sense, though B/E still seems high

 

[ecoleman]

That would certainly make more sense, though B/E still seems high

Good point, he doesn't actually really say, but 1.75 x cost is not a bad margin.
I just figured he meant % by the title of the thread.

 

[smack]

hi again,
it is 1.75 x cost. ie about 30%.
Re single brand. it's a jump ship in terms of careers and I dont have the contacts in wholesalers world. this brand is strong, but i understand the relative risk involved on review it would be better not put all eggs in one basket.

 

[fisicx]

Just spoken to my wife on this (she is a financial risk manager) and she thinks 30% is way too low for a niche store.

You still haven't said how you are going to cover your start up costs. Where are you going to find the £100K to get the shop fitted out along with everything else. Does the 100 sales per day cover the wages of your shop staff? Don't think you can do this on your own - you can't.

 

[kelvin1950]

hi again,
it is 1.75 x cost. ie about 30%.
Re single brand. it's a jump ship in terms of careers and I dont have the contacts in wholesalers world. this brand is strong, but i understand the relative risk involved on review it would be better not put all eggs in one basket.

Are you sure you actually understand this?

 

[kulture]

Another point to note. It is illegal for a supplier to insist on a minimum retail price, and it is illegal for you to agree to it.

 

[Ineyes]

With the information you provided, I would suggest that it might be best to look at possible other alternatives. Remember that especially during opening, there is no guarantee for at least 100 customers weekly. If you were open five days a week, that’s 20 purchases a day – in a new location – retail location….

 

[Louisa24]

Hi could you shop share? Or maybe window share - to at least generate the interest in the products before taking the next step

 

[Aloha Telecom]

In theory 100 customers/transactions per week is not impossible. In a retail environment in a prime shopping mall. I would imagine this is more than possible. If your sticking with one brand, that could be a risk for you (should that brand do anything which could give a negative image). Are you limited to specific brand? If your only going to be selling there clothing, have you looked into franchising with them?

 

[MOIC]

It really depends on the brand.

If the brand is high profile and you can get brand exposure from the brand's website and you are the only stockist in the mall, then it may be workable.

However, as previous posters have mentioned, I'm not sure you have factored in all the start up costs as well as running costs.

The last thing you want to do is to restrict your business to just one brand, in case it does not work and you are stuck with a lease.

If you have no experience in retail, then it is not advisable to take on high mall rents. (that's assuming a landlord would grant you a lease)

Best of luck.

 

[smack]

thanks for advice thus far, much appreciated.
I haven't discussed start up cost here because right now, I'm trying to establish margins and sales volumes. I do have my own saving to invest but I dont plan to spend £100k - I'm not Tesco

 

[Trisha&ChrisPlant]

I have to say, I find this £100k start up cost a bit mind boggling. We have a cookshop and when we started we went out and bought about 10 of those chrome wire stands, a couple of dressers, four pine tables, a counter and a few other bits and pieces - I can't remember the cost, but no more than £3k - and we've gradually added from there. Yes, £100k if you're Tescos, maybe!

 

[mrsdoc]

Are their other retailers with this brand? Could you call in to one for a chat? They might be willing to give you the low down.