For some people at least, FCUK got it right with their sarcastic slogan, “Apparently there are more important things in life than fashion. Yeah, right.”
This attitude might be alien to those of us who think clothes are functional – something to keep us warm or dry, to keep us comfortable or to get us looking smart for a formal occasion – but it reflects the passion which some people invest in their attire.
Owners of clothes shops should generally share that passion for fashion. Dean Edwards, director of business transfer agents Adams & Co, explains: “There are businesses, such as fish and chip shops, that anyone could buy and anyone could run successfully.
“But there are others in which you need a real affinity and understanding of the product.” For example, if you’re selling shoes, you need to have some understanding of the qualities of a well-made shoe, so that you can know which products to source, and what you should pay for them.
Customers should also be able to choose their own outfits without necessarily needing your help, and this means laying out your shop in a coherent way
Sales role
It’s important to remember that running a retail outlet selling clothes is a sales as well as a managerial role. As clothes are important to people, you’ll need to be credible and trustworthy, making people feel better about themselves and how they look (which of course should be enhanced by visits to your store).
Bulk purchases can often make up a large percentage of the turnover of a successful business. So your eye for the product, as well as their ability to combine clothes and accessories to fit the customer, is the key to selling a hat or handbag to go with a particular dress.
But customers should also be able to choose their own outfits without necessarily needing your help, and this means laying out your shop in a coherent way, as the recent BBC programme Mary Queen of Shops suggested. Following in the footsteps of Gordon Ramsay in his role as restaurant saviour in Ramsay’s Kitchen Nightmares, Mary Portas advises owners of ailing shops on how to turn them around.
She told one retailer that they should arrange clothes in such a way that customers can see not just one top to combine with a particular skirt, but several.
Portas also emphasised the importance of knowing your customer and what they want. One store was reproached for having clothes that were too ‘young’ for its middle-aged customers.
You also need to consider which end of the market you are pitching for, as this will affect how you source your stock.
“If you go for the top end of the market you will be buying direct,” says Dean Edwards. “It’s a very different level to the majority who will be dealing with wholesalers in London.”
Eye for product
Whether you’re dealing with a British supplier or visiting the Collezioni Uomo in Milan, an eye for a product that caters for the market is vital – whether your shop is based in a trendy urban area or a rural retreat. If you’re operating at the mid or top end the market then procuring distinctive goods will help you differentiate yourself from the big names on the high street.
Good contacts, an encyclopedic knowledge of fashion trends, and a knack of knowing what will sell will help to this end.
Regardless of the label attached to your clothes, stock is going to form a huge chunk of the start-up costs – far more than if you’re buying a newsagent for example. To Edwards, the first mistake buyers often make is not realising this.
“A lot of people look at a clothes shop and think ‘I could afford £35k’. But they forget how much stock is needed – it’s a considerable amount of money.” Potentially this could be as much as £50k to get you going – a substantial amount of capital.
Even worse, it is an ongoing cost. Changing the stock is an expensive necessity in the world of fashion (a word which after all is characterised by transience), due to changing tastes and changing seasons.
Edwards thinks it is important to keep on refreshing your offering, even though there is a trend towards restocking less frequently. “More and more shops are turning stock twice a year – and you can just get away with it if you change midseason. But I’d like to see it changed around six times.”
Smaller shops hold less stock than larger ones, to state the obvious. In some businesses this could be a disadvantage, but with clothing retail it means that – within reason – you can change it more rapidly, without locking up as much capital.
It might make more sense to fill a small shop with £20k worth of clothes and swap collections five times a year, rather than spending £50k twice annually kitting out a bigger shop. It’s also going to attract repeat visits on a more regular basis if the stock remains fresh and keeps pace with the seasons.
If you’re passionate about clothes, are knowledgeable – or at least have knowledgeable contacts – have a coherent layout in accordance with your customers’ tastes and keep abreast of trends, then you can make a very healthy turnover running a clothing retail store. But what are the profit margins?
“In a successful business, buyers can expect a profit of between 30% and 40% of turnover,” says Edwards. So to achieve a net profit of between £30k and £40k, you’ll need a turnover of around £100k a year.
The value of a clothing outlet will – like any other – depend on the adjusted net profit, which can be a very different figure to that which appears in the accounts. And, as usual, it’s important to engage some reputable advice.
“The bulk of businesses sell at between one and two times adjusted net profit. The higher the degree of knowledge and skill, the lower that multiple, as the potential market is smaller,” says Edwards.
As a significant value can be attached to the knowledge and skill of staff in a clothes shop, they usually sell for around one and a quarter times net profit. So a business making around £30k a year will sell for around £37.5k, although of course you will have to add the cost of stock to this.
To be a successful entrepreneur in clothing retail you need a head for figures, sales and managerial skills, and of course a passion for clothes. It also helps enormously to have considerable experience in the industry, whether on the shop floor as a manager or meeting and negotiating with wholesalers.
Even better would be to have experience of both – after all, running a clothes shop you’re likely to be doing all of these things.
Which lines are going to be popular in the upcoming season? How long should you give a struggling line before you slash the price?
Perhaps it would sell if you simply put it in a more conspicuous position, or next to another line which complements it? These are just a few of the questions you might ask yourself in the dynamic role of running a clothes shop.