When Is The Right Time To Open Your Next Fashion Retail Store? Part 2

I know, I know – you’re itching to open your next fashion retail store.

If your next store is store number 3 (or more) – I reckon you must have created a very good store opening process, so I would say go for it.

However, if it’s your second store – BEWARE – there are pitfalls.

Fashion retail store fit out

Many single store owners are tempted to open a second store because the first fashion retail store may not be performing that well and an opportunity arises to have another store in perhaps a better location.

Watch out – not only could this be a money trap, it can be a time trap as well.

I’ve personally met ‘stressed-out’ fashion retailers who try very hard to keep two stores profitable, by cutting staff time and working unrealistic hours, running back and forth between the two retail outlets. What often happens (and I’ve heard this first hand on the telephone from these poor retailers) is that they will finally close one store and be stuck with a big financial loss, excess stock, and excess store fittings. This extra burden puts more pressure on the cash-flow of the remaining store and often the retailer will close that store too, and be out-of-business!

It’s a heart-breaking situation, but unfortunately all too common in the fashion business world.

Here’s how to avoid that situation…

Guidelines for opening your second fashion retail store

Your single store MUST be able to stand on it’s own. That is, the store needs be profitable by being staffed without you being there. That is, your full-time staff member(s) and casuals cover 100% of the store hours. Another way to look at it – could you take three months off and still have an open store when you got back?

If not, please don’t open that second store – you’re not ready yet!

When you open your second store, you’ll need to give it your full attention for perhaps several months – to get everything right so it’s a profitable store too – you can’t be worrying about your original shop.

To have a fashion retail store that is profitable without you requires good marketing systems, good sales systems and good procedures for the staff to follow. Not only will this information make your first store very profitable, it will essentially form the basis of a ‘cookie-cutter’ system which will allow you not only to open a second store, but many others too.

For more information on good fashion marketing take a look at our FREE mini-course (click here).

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

When Is The Right Time To Open Your Next Fashion Retail Store? Part 1

Oh boy, this is literally the million-dollar question.

When it comes down to it, there is only so much sales revenue and profit you can generate from one fashion retail store. You are usually limited by floor space and how much stock you can display.

However, you can generate a lot more revenue from one store than you might think. I love this real-life business story…

Beechworth retail store

“Tom O’Toole turned a failing little bakery in an isolated and dying Australian country town (Beechworth, VIC) with a population of 3,000 into a company with an annual turnover in excess of $12 million, serving over one million customers per year.”

“A bakery that has become one of the highest earning single bakery retailers in Australian history.”

So how do you grow your revenue in your existing fashion store. Again, in a nutshell, it comes down to good branding and fashion marketing, good products and great customer service.

You may have read or heard of my comments about branding – essentially I subscribe to the Dan Kennedy marketing rule… “Branding should be a by-product of good marketing”.

In other words, advertising or marketing that generates customers at a profit and pays itself – should always be your primary goal. We’ll discuss this further at another time.

So, to summarise – you don’t always need to open that next store, right now. You can squeeze out a lot more profit out of the store(s) you own already. But, if you’re still thinking about that new fashion store – I’ll go through on my next post some very important things you’ll need to consider before you put down a deposit on that new lease. Watch this space.

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

5 Main Ways To Make More Money In Your Fashion Business!

So many fashion store owners get caught up in a lot of staff and stock management "activities" and forget this one simple principle. There are only five ways to grow your fashion business:

Fashion retail store success

  1. Get more store traffic (get more).
  2. Have more browsers become paying customers (convert more).
  3. Get customers to buy more items or purchase higher priced ticket items on each visit (spend more).
  4. Get your regular or existing customers come back more often (visit more).
  5. Make more money out of each product line, improve your margins and minimise unnecessary expenses. (make more)

We call these the 5 Profit Centres in a retail store!

Yes, absolutely ‘Stock Management’ is very important to fashion retail store success, but it cannot be the only focus. Here’s how you can MAKE MORE MONEY using the 5 Profit Centres…

Profit Centre #1) Get more people into your store (thats store browsers) – preferably at a lower cost. Even if your conversion to a paying customer remained exactly the same, more store traffic equals more sales. The ‘challenge’ is to find low cost methods to increase store traffic.

Good strategies include advertising, mailbox flyers, fashion shows, referral programs, special events, signage and so on. Look in the ‘new customer marketing’ section in this member’s area for more information and examples.

Profit Centre #2) Get more people to buy. Again, if you improved nothing else but had more store browsers convert to paying customers, you’ll increase the total sales. Good strategies include improvements to store layout, staff training, product placement, signage, pricing and so on.

Profit Centre #3) Get customers to spend more on each visit (this is called the average sale or average cheque). There are literally dozens of strategies to get customers to spend more… up-sells, cross-sells, point-of-sale displays and so on.

Profit Centre #4) Get customers back more often. Utilise our customer marketing services at Kinetic Media & Marketing – we use post, SMS and email to communicate to your customers.

Profit Centre #5) Improve your margins. What’s your gross margin? Your mark-up? Your cost of goods? What’s the relationship between your turnover to staff wages? What are you best selling items? What items have the largest profit margin? How can you sell more of them? What’s the break-down of expenses? Is there a blow-out in one area? How much old stock are you carrying? How well does your store perform again the Australian statistics for retailing?

These are some of the many sub-areas you can look at to improve your margins.

By taking time to improve those 5 Profit Centres, you’ll see an almost INSTANT improvement to your bottom-line store profit!

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Retail Shopping Centre Fashion Advertising

Shopping Centre fashion retail advertising

Do you have a retail store located in a shopping centre? If so, I’m sure you’re familiar with the extremely high rent and outgoings bill you receive every month.

Besides the building and services component – a portion of your monthly fee to the shopping centre company also covers centre promotion and advertising. It’s the shopping centre’s role to bring in people so they can charge the retailer a fee for the space. Nothing new with that.

However, it’s actually a good idea to know how much of your annual rent is attributed to receiving store traffic (browsers and customers).

Let say you have a 30m2 store. Figure 1 : Your current shopping centre rent (let’s use $50,000 per annum for simpicity). Figure 2 : The cost of renting a 30m2 office in a street in the back lots of an industrial area (let’s say it costs $15,000 per annum). The difference $35,000, is the annual cost paid for the ‘better’ location (shopping centre v.s. back lots).

Some retailers choose to have a store located in a quieter street location and not in a shopping centre, but in order to create the same revenue, much more money needs to be spent on fashion advertising.

i.e. Shopping Centre = high rent, lower individual store fashion advertising expenses.

Quiet location = lower rent, higher individual store fashion advertising expenses (in order to produce a similar annual revenue).

There is aways that trade-off. Whether one option is better or not for your store really comes down to your level of experience in fashion retailing, your brand and sales system.

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Improving Retail Store Traffic : How Many Browsers & Customers?

When it comes to finding out how effective your fashion advertising is (and even the advertising of the shopping centre management – if this applies to you) in bringing people into your store, you’ll need to have a system to measure STORE TRAFFIC.

Even if you don’t advertise – you’ll need to understand which days of the week and which months are your quiet times and which are your busy times.

Simply looking at your retail store sales figures only tells you half the story – how many people made purchases, not how many people came in.

The best way to find out how many people came in is to install a store traffic counter across the entry (or entries to your store). Armed with this information, you can create a more effective marketing calendar and fashion business strategy.

Here’s a small list of some of the benefits of having an automated store traffic counter…

  • Be able to monitor how effective your advertising and marketing promotions are.
  • To be able determine your sales conversion.
  • Know whether you are generating enough store traffic to ensure target sales revenue.
  • Ensure you have enough staff during peak times and be able to reduce staff at quiet times.

Fashion retail traffic counter example

Closely monitoring your store traffic will allow you to refine your marketing and even reduce money wasted on ineffective marketing campaigns!

IMPLEMENTATION : You can get electronic store counters from ‘Total Count’ in Melbourne. This is their web site address :
www.totalcount.com.au

They have inexpensive counters and all the way up to advanced models. And before you ask. No, I don’t get a commission by recommending them. Our clients have been using the counters from Total Count and they have been reliable.

THE KEY POINT : You can’t improve what you don’t measure. Automated systems work best because they don’t rely on humans – if you don’t have a store traffic counter – now is a great time to get one!

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Fashion Advertising : How To Get People To Visit Your Fashion Store Website

People visiting your website (or traffic as it’s called in the internet world) can be a source of new customers for your fashion retail store.

Fashion retail store online advertising

In my last post, I talked about the advantages of having a website for your retail store. The next step is to discuss ‘traffic’.

Just like in your physical brick’n’morter store, the more people that visit your website, the more new customers and sales you will generate. Before we can look at ways to increase traffic to your retail store website using advertising, let’s examine the ways people usually search for, or come across a website…

Method 1 – SEARCH) They search for an existing brand using a search engine. e.g. They search for "Nike".

Method 2 – SEARCH) They search for an existing product using a search engine. e.g. They search for "Nike SB".

Method 3 – NEWS / PUBLICITY) They skim the news topics in online, or in traditional media, find an interesting fashion article, read it, and then visit your web site.

Method 4 – ONLINE ADVERTISING) They see a product they like advertised on a portal / directory / web site they visit frequently.

Method 5 – OFFLINE ADVERTISING) They see a product they like advertised in traditional media like newspapers, magazines, radio, TV, etc. Then they type the URL of your web site into their web browser, or search online for your store name.

Method 6 – ONLINE LIST ADVERTISING) The product / brand / label is promoted via email to a list of people who have subscribed to receive an e-newsletter. The link in the e-newsletter takes them to your website.

Method 7 – DIRECT) The prospect / customer visits the retail store and at some point visits your fashion web site by typing the URL into their web browser.

These are the main methods of bringing traffic to your retail web site. Most retailers will need to look at utilising several of these marketing methods, not just one. My recommendation is to take some time to sit down to think about and create an online marketing plan and how that plan ties in with your current website design and sales strategy.

For example, are you using your fashion store website to get people to visit your store, or to make a purchase online, or to subscribe to your online newsletter?

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Hmmm, a Very Untidy Clearance Shoe Store

Shoe Advertising clearance store sign

Yes, I understand the need to move last seasons shoe stock, but an unattended (and very untidy) clearance store didn’t leave a very good impression with me. See the photos…

Selling shoes for $10 a pair doesn’t leave much in the kitty for staff. I didn’t even see the cash register!

Shoe Advertising clearance store

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Will A Web Site Make You More Money For Your Fashion Business?

I’m sure every fashion retailer would be in favour of having a web site for their business – but not every retailer actually has one. Why is that?

Fashion Advertising on the internet

As always, I believe the question comes down to cost and return-on-investment (ROI). Websites aren’t cheap. There is a cost to designing an unique site and the hours of graphic and web programming involved.

In order to figure out the return-on-investment for a fashion retailer, let’s look at the some of the benefits of having a good website :

  • 24 / 7 convenience : A customer or a potential new customer can browse your website to look at the latest styles and fashions you have available.
  • Customer assistance : A customer or a potential new customer can look up your contact or location details. They could view the outside of your store, it’s location on a Google map, or find what your opening hours are.
  • Mailing list : A customer or a potential new customer can sign up for your fashion eNewsletter which is a great strategy for increasing sales.
  • Web search : A potential new customer who has never heard about your retail store before comes across your website after a search for a particular brand.
  • Recommendation :A friend of a potential new customer recommends your store and that person visits your web site to find out more.
  • Branding : If you are seeking to build your brand, a good web site will assist in the brand-awareness process.
  • Publicity : Someone browsing the internet, comes across some news or information about your store on another site and then visits your website.
  • Credibility : A good retail web site lends credibility to the business.
  • Online Advertising option : A web site is a requirement for online fashion advertising. Online advertising is an effective way to bring more customers to your business.
  • Online sales : Generate sales 24 hours a day, 7 days a week. People visit your site and make a purchase. Generally speaking, online sales are better suited to fashion items like jewellery, footwear and accessories. But, clothing can be sold too.

I’m sure you’re now impressed with some of the major benefits of having a fashion store web site, but in order to maximise those benefits the web site needs to be designed in a certain way. Keep an eye out for my next post…

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Should You Let Your Accountant Run Your Fashion Store?

I usually have several conversations a day with fashion retailers… existing clients and people enquiring about our marketing services. One such conversation with a prospect business (not a client) last week (early March 2010) was with an owner of a small fashion store who also managed an accounting firm with his wife. One of first things he said (I won’t mention his real name – but let’s call him Peter) … was "The store isn’t doing well". Peter’s comments weren’t anything new… I’ve been hearing about slow retail sales from mid-January this year (2010).

Fashion Store Accountant

 

When Peter said "The store isn’t doing well", to be honest, I was a little annoyed. Peter and his wife had contacted me in January I had given them one particular strategy to increase sales. Guess what? That’s right, Peter didn’t implement it at all. Two months later he calls to tell me how lousy sales are.

Now this particular strategy had zero cost – yep … zero cost!

Peter’s reason for not implementing the strategy was…. drum roll … "…we were too busy...". Yes, too busy losing money.

Don’t get me wrong, I have good friends who are accountants, but an accountant’s mindset about running a business … is 1) Financial management, and 2) Cost cutting.

Accountants don’t know much about marketing and sales – they foolishly see it as an expense rather than an investment. That’s why big businesses have an accounting department separate to the marketing and sales department. You and I, as entrepreneurs, value accountants for 1) Minimising tax, 2) Preparing accounting statements and keeping the ATO happy, 3) Giving advice about gearing and balance sheets – that’s it – don’t ask an accountant if you should spend more money on marketing!

If you, or anyone else in fashion retailing, is hurting (financially) make fashion marketing and sales your top priority.

About the author. I’m Mark Fregnan, founder of Kinetic Media & Marketing, an Australian consulting business that focuses entirely making our clients MORE PROFIT WITH LESS EFFORT. We understand the financial and time pressures felt by small business owners especially in a competitive marketplace. We rely on our proven marketing and business strategies along with smart systems to produce and maintain a healthy increase in sales and profit for our business clients.

Fashion Merchandising Tips To Increase Sales

Fashion merchandising

Visual merchandising is the activity of promoting the sale of goods by their presentation. Here are some of benefits:

  • Improve your store brand
  • Increase store traffic
  • Increase sales

Where and how fashion clothing, accessories, jewellery and footwear are displayed can make a big impact in a number of ways, including:

  • Style. Establishing visual elements that are consistent with the store brand. For example, signage colour and sizes, lighting, and even the shelf racks say something about the store.
  • Entrance displays. Effective displays will increase store traffic as people walking by will be ‘drawn’ in.
  • Presentation. Sales will increase if the fashion merchandise presentation is appealing to customers.
  • Location. The front of the store, middle, back, side, etc; can make a massive difference to sales of particular items. That’s why most fashion stores change their layout frequently.

But, don’t forget to monitor the effects on sales after changes to the visual presentation. Otherwise the process becomes subjective, rather than scientific. The visual merchandising main aim is to increase store traffic and sales, not to create extra work for your staff in your fashion retail store.

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Closures In Retail Expected

A friend of mine sent me a link to a recent 2010 article by the Dominion Post about the typical trend of retail closures just after the Christmas period. i.e. January and February every year. Here is an excerpt from the article…

CLAIRE MCENTEE – The Dominion Post. Original article

"More retail closures could be in store following the rash of holiday receiverships. Several retailers were declared insolvent in January, including 10 Stax fashion stores, electronics store Eastern Hi Fi and Christchurch cycle shop Bike HQ. Three Wellington Mitre 10 stores were put into receivership shortly before Christmas."

"PricewaterhouseCoopers partner John Fisk said businesses that had struggled all year often capitulated in the face of holiday wage costs and a slowdown in turnover. Some retailers were thriving but many had been forced to swallow large rent increases, and there were likely to be some smaller ones hanging on and waiting for their leases to expire so they could close."

"Each insolvency was different – in the case of the Mitre 10 stores poor property investments by the owner were blamed – but a common cause was purchasing the wrong stock and being forced to discount it. ‘That puts pressure on the margins and it can be a slippery slope.’  KPMG head of restructuring and insolvency Shaun Adams said the holiday season was traditionally crunch time for struggling retailers."

So let’s review the main causes from this article and others that I’ve picked up in my business experience over the years:

  • Increases in rent in the New Year.
  • Staff wages costs over the holiday period : Overtime, annual leave pay, etc
  • Purchasing stock that didn’t sell well over the holiday period. Or overstock.
  • Having to discount heavily to compete with other retailers.
  • The sales slump that occurs from mid-January onwards after the Christmas and post-Christmas sales (The exception may be shoe stores that do well with Back-to-School promotions until the first or second week of February).
  • Having to commit to purchase $50k, $100k, $200k or more in stock for the upcoming winter season which puts a strain on balance sheets and bank accounts.

Sound familiar? In my next post I’ll show you some ways to counter these challenges for a typical fashion business. Stay tuned.

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our fashion business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Low Cost Fashion Advertising – The Trusty Old Mailbox Flyer

Fashion marketing to mailboxes

You know… a mailbox flyer – an A4 or A5 sized one page pamphlet stuffed into residential mailboxes (letter boxes). Many fashion retailers overlook the humble mailbox flyer as a marketing strategy for producing more retail store traffic.

I like mailbox flyers for apparel, clothing, footwear, and jewellery stores – they are quick and simple to produce, low cost and very effective in targeting people that live around the store.

For the cost of around $470 you can typically reach around 5,000 homes. The ‘trick’ is to produce a flyer that gets results. Many retailers who may have tried flyers in the past, stopped because they didn’t get a result and came to the incorrect conclusion that flyers don’t work. They do!

Effective flyer design comes down to simplicity with a marketing message that entices the reader to visit the store. Often retailers will focus too much on a ‘branding’ message rather than a design focusing on new styles and looks. As we have created many mailbox flyers for our clients we have a good understanding of what works and what doesn’t. If you like – send us a copy of your mailbox flyer and we’ll be happy to critique it for you.

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Media Ideas for Fashion Advertising

Fashion magazine stand

The first source of people visiting your retail store is the obvious one – walk or drive by traffic. Besides that, getting your store, brands and/or labels noticed by the public requires some form of advertising. Again, there is a multitude of media and places to advertise. Here are just a few…

  • Your city newspaper
  • Local community newspaper
  • Special interest newspaper
  • Inserts (newspapers)
  • Magazines
  • Industry newsletter
  • Trade journals
  • Yellow Pages
  • Taxi backs and bus sidings
  • Coupon / voucher books
  • Shop-a-dockets
  • Radio
  • Television
  • Internet
  • Mailbox flyers (to residential addresses)
  • Special event signage
  • Sponsorship / Charity
  • Shopping Centre promotions
  • Cinema (which I don’t recommend as an effective media)

Fashion advertising in newspapers

Fashion magazine stand

The choice of media depends on several factors including:

  • Location; whether you have one local store or a chain of stores,
  • General or Specific; whether you sell something specific like baby wear – so speciality media is a better option, and,
  • Cost.

 

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

Fashion Advertising Basics For Retailers

Most fashion retailers at some time will invest money into fashion advertising. As with all fashion marketing there must be a purpose or objective. Generally this purpose is to lift the awareness of the ‘label’ or ‘store’ through image advertising, or, to drive more potential customers into a particular store or chain of stores.

Fashion advertisements typically contain the product being promoted (i.e. footwear, jewellery, clothing or fashion accessories) on their own or with models wearing the fashion product. Often, fashion advertising is heavily linked with sexuality, glamour, beauty and youth.

Fashion advertising usually falls into one of four main categories :

  1. Branding. Model or models wearing the item with just the name of the label or store (with logo)
  2. Benefit. A fashion advertisement containing words describing the benefits of the product.
  3. Sale / Offer. Using an offer such as % (percentage) OFF or $ (dollar) OFF to bring in customers during a sale or as an enticement for a certain period of time.
  4. Event. To promote an event such as a store opening, fashion parade, celebrity visit, etc.

Here are some examples :

Fashion advertising brand awareness example

Fashion advertising brand example

 

Fashion advertising benefit example

Fashion advertising benefit example

 

Fashion advertising sale / offer example

Fashion advertising offer example

 

Fashion advertising event example – Summer Fashion Parade

Fashion advertising parade example

 

About the author. I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our retail business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!

We Can Now Respond Quickly To Slow Months!

Shoe store marketing

Gill & Kim
Directors, Retail business, Midland, WA.

(Full names withheld due to privacy reasons)

"We began working with Mark Fregnan from Kinetic Media and Marketing in December 2008."

"At Mark’s recommendation we installed a traffic counter from Total Count in Melbourne in our store from the 1st January 2009. This will enable us to know exactly how much traffic our store produces each month."

"There are two benefits of using this system – one, we can monitor all of our marketing to make sure that our store traffic volume doesn’t fall below our specific targets, and two, so we can better plan promotions to avoid the slow periods."

11 February 2009

27 Questions You Should Ask Before Buying A Fashion Retail Business

I met the husband and wife owners of a small retail shop recently. The business was running at a $65,000 (approx) annual loss. They had purchased the business over 12 months ago and had been steadily losing money. I looked briefly at their books and realised they had paid too much for the business. On top of that, both of them had no retail business experience and they had decided to cut out all of the advertising that the previous business owner had been running – due to cost reasons only.

I asked them how much research and due diligence had they conducted before buying the business. I was shocked by their response…

Don't sign to purchase a fashion retail store without doing your homework

"We asked the solicitor who was performing the business settlement service if the business was a good buy."

In otherwords, they asked after the sale… Talk about throwing money away. Needless to say, they no longer have any available capital to invest in marketing or anything else. The outcome will be to close up shop and accept the loss, and the lesson.

 

This is real important…

I’ve spoken to and met with many business owners who have paid too much for their business (and not just fashion retailers – all types of businesses). It’s like paying $100,000 extra for a house. The problem is that usually the extra capital has been borrowed which puts a strain on the business cashflow. Often it’s very difficult to recover from this situation.

To gain $100,000 in net profit in a fashion retail store may require at least an additional $800,000 in sales revenue (i.e. on a 12.5% net profit margin).

$800k in ‘additional’ (over and above existing) sales revenue which isn’t a very easy thing to achieve in a short-time frame, i.e. 12 months.

So how do you actually avoid this type of business disaster?

Do your homework – Ask yourself these questions…

1. What do I want from being in business?

  • Freedom to do ‘my’ thing?
  • Be an entrepreneur?
  • To make more money than being an employee?
  • Work fewer than 30 hours a week?

2. Why am I going into a fashion retail business?

  • For lifestyle (to work fewer than 40 hours per week, with the freedom to go on holidays whenever you choose)
  • To make a profit by building the business up (increasing sales) and then selling it.
  • To generate more cash-flow than than a 9-to-5 job.

If your reasons are not listed above (lifestyle or profit) – don’t buy the business. If you want to be involved in retailing out of interest and passion for fashion – honestly it’s much safer to be an employee.

3. What will be my exit strategy to get out of the business?

  • Sell the business for a profit
  • Sell the business to a major shareholder(s) and become a silent partner
  • Pass the business down to a family member
  • Franchise

4. What skills do I have that will make me successful in this business?

Please don’t think that all that is required to ‘improve’ the business is cosmetic – by changing fashion labels or re-designing the store interior. Unless the store has poor stock and an ugly showroom – these ‘improvements’ won’t double sales.

Only very good marketing, a good sales team and good systems will increase sales significantly. Sorry, I’ve seen many business owners take over an existing fashion retail store – changing labels and interior perhaps at best has increased sales by 30% initially and then nothing after that.

5. What skills will I have to “hire in”?

  • Sales staff/assistants
  • Bookkeeper
  • Fashion buyer/consultant
  • Sales trainer
  • Outsource marketing?

6. What monthly cash-flow do I need?

  • To pay myself a decent wage
  • To cover all the retail business expenses
  • To cover the repayments if I borrow to purchase the business
  • Additional business profit

7. How much working capital do I have access to?

Can I get an overdraft to cover seasonal buying?

8. Will this business suit me i.e. hours, type of operation?

To ask the vendor who is selling the business…

9. How long has the business been operating?

10. How long has the current owner had the business?

11. Why is the current owner selling?

  • Worn out from working long hours for little money?
  • Couldn’t make the business work (perhaps in it’s current location)?
  • Actual legitimate reasons such as retiring, moving to another state or country, or looking for another challenge in another business?

If it’s retiring – also be aware that may business owners in their 50/60s hang on to a unprofitable business (maybe paying themselves a very basic wage) because it was too difficult for them to have sold earlier and got a job.

12. What is the Cash flow and Profit (Gross and Net) for the business?

13. What is the business owner paying him/herself?

14. What do the last 3 years of financial accounts show?

15. How has the business been valued?

16. Who are the key customers, suppliers, staff?

17. What are the terms and length of any leases?

18. Will the current owner stay on and assist for a period of time?

Ask them to put this period in WRITING!

19. What areas of the fashion retail business are systemised?

For example:

  • Point-of-sale (POS)
  • Bookkeeping
  • Marketing / customer marketing systems
  • Website / social media (e.g. Facebook)
  • E-commerce website

20. Is there a business plan?

21. How many hours a week does the current owner work in the business?

22. When was the last time the current owner took a holiday?

23. What is the marketing systems like? Do they make money for the business?

Review all advertising material, the customer database, the POS systems, any loyalty programs, special promotional material, etc.

24. What facts support the "story" of the business?

25. How secure is future income i.e. contracts with customers and suppliers?

26. How dependent is the business on the current owner?

27. What will it take to grow the business so I can sell it for a profit?

Fashion stock

Often this is the BIG ONE – many fashion retailers overcapitalise in stock in relation to the store sales annual turnover. Ask your accountant is there is too much capital tied up in stock on the balance sheet. If there is – don’t buy the business!!! Tell the vendor. You can either wait until they sell down the surplus stock at regular prices, or they can offload it at cost. Don’t let their past buying decisions become your problem!

Before you make an offer

1. Get your accountant to check the financial accounts

Obtain actual lodged tax returns with the government, not the business owner’s printout or handwritten bookkeeping summary.

Your accountant will ensure that the business has cashflow and is not over-capalised.

2. Hire a solicitor who is experienced in buying fashion retail businesses like the one you are looking at.

Your solicitor will ensure that the contracts with suppliers, the landlord, etc don’t have any surprises.

3. If you are spending over $250,000 on the business, or even if you want to be extra careful, pay for a business valuation.

Pay a licenced valuer to come in and audit the business. Even if you have to spend $7,000 for the valuation, it’s still much better than paying $50,000, $100,000 or more than you should have to buy the business.

You may even be able to ‘use’ the valuation to negotiate a better price.

The lesson

Homework always pays off in business. Sure, there is a lot of questions (above) – but, like with real-estate, the profit often is made when you buy the business, not when you sell. Taking shortcuts and buying a business on emotion often lead to regrets. Don’t let this happen to you.

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