Are you ready to set up your own retail outlet?

….or is it a better idea to grow sales through other retailers?

Let’s set the scene, you’ve been growing your creative product-based business for a few years. You’ve sorted out the production processes in your studio or atelier and there’s been a steady demand for your work from retailers both in your home country and abroad. However you’re studio isn’t really working at capacity which means that your staff costs are a high percentage of your company’s expenditure and you’re not really reaping enough benefit from this.

If you’re in fashion the equivalent is that you have minimum production volumes with factories that are exceeding your sales levels so you have stock left over. Either way there’s too much supply and not enough demand as things stand at the moment.

You see a couple of options for your growth, both are demanding so you really need to focus on one not do both badly.

Option 1 – grow sales by extending your network of retailers

Option 2 – set up your own retail and sell direct to the customer

What to do? Unsurprisingly there’s no clear cut answer to this question, either could work, it rather depends on the skills and resources available to you and the dynamics of the market. However there are pros and cons to each approach and factors that will affect the success of each that we can look at so that you can work out what’s right for your business.

Option 1 – Growing sales by extending your network of retailers

This strategy requires you to take your brand out into the B2B market, find and pitch your offer to the retailers. You’ll need to spend time researching the retailers to look for the ones whose customer base is the best fit to the products you’re offering. This in turn means that you need to understand the end customer to a reasonable degree so that you can chat knowledgeably to the retailers about market segments, buying behaviour etc. You need to come to understand how buyers work, when they buy, and what criteria they base their buying decisions on. With small retailers the buyer will often be the owner, will spend quite a lot of time on the shop floor and will know their customers by name along with their buying habits. With larger retailers the buying team will be armed with detailed information on the sales successes and failures of different lines and more detailed demographic research about their customers.

It is worth spending time getting to know the buyers individually and if you can then also spend time in their shops and come to know the layout of the store and the mix of products they stock. This also means you’ll become more familiar with how your product works when surrounded by other stock.

How do you win these retailers as clients? Well clearly you can approach them individually but frankly you’ll do better to find a way to meet lots of them in a short space of time. This is of course the reason that trade fairs and fashion weeks are important to the sector as they offer buyers and sellers alike the chance to do a lot of business all in one place. Your challenge is knowing which trade fairs are right for your brand. One way to answer this is to visit any trade fair you’re thinking of taking a stand at at least once before you take space with them. Once you reach the stage of attending several trade fairs a year you should be considering taking on a specialist sales person to manage these relationships with your B2B clients. A proactive sales person will not only do the front of house and deal closing work on a stand but they’ll also spend time suggesting ways for clients to try out your new products, re-order sooner and you will move from being a company that reacts to orders coming through the door to one that goes and seeks new business on a daily basis. The perspective on the range that a sales person brings will also be invaluable as their focus will be satisfying clients rather than the creative pleasure of the design. A great counter balance!

So, what does this route require you to invest beyond your own commitment?

-       research into national and international trade fairs

-       designing and taking a stand several times a year

-       the salary for one or more specialist sales staff

The advantage however is that if you are not quite sure what the demographic is for your products nor how to market to them then working with other retailers is a great way to better understand your customer base.

Option 2 – Setting up your own retail unit and selling direct to the customer

So the challenge here is that you’re putting a lot of eggs in one basket and making quite a long term commitment. You can test things out in the short term of course with pop-up shops which last only a few weeks or a couple of months. This is a great way to get a customer base used to the idea of your own retail concept rather than finding you only online or in other retailers stores. Plus of course you start to get your head around staffing a retail space, epos systems, stock management, store management and store layout.

Let’s look at the long term retail concept in a bit more detail and unpack some of the costs and risks to see if you are ready to take them … after all we can all imagine a rose-tinted upside where there is a queue around the block!

The first challenge is finding a space you can afford. Do you go for somewhere that is already in a key shopping area or do you go for something that will require you to become a destination that people travel to. In reality few young designers can afford prime retail space for their first store. To get around this challenge of high costs per square foot you will find that some will have a combined office/production and retail space such as the work/retail units in the OXO tower or they will head a bit out of the centre either to areas where creatives are already congregating or to a surburban high street. This is a more viable option now that online retail has grown so much. Look at the success of Beyond the Valley, they have one fairly small retail space one street east of Carnaby Street and a flourishing online store. The combination of these two has helped them weather the recession.

It’s worth looking out for areas where other creatives have been congregating because it is often an indicator of cheaper and shorter term rents. The Mar Michael and Port areas in Beirut host a wide variety of independent retailers for exactly this reason … much more fun than the brand names of the Beirut Souks.

So, you’ve found a space, the next trick is negotiating a lease that suits .. the key thing here is a ‘break clause’ … this is your get out of jail free card that allows you to get out of a lease before it has expired … the longer the lease the more important the break-clause becomes.

With these technicalities out of the way you move on to thinking about not just store layout and staff but crucially the mix of stock. How do you work out what mixture of price points? What the likely sales mix between high and low ticket items will be at different times of year? If you can bring in a shop manager at this point i.e. well before you open then so much the better as they can work with you bringing their experience to the cash flow forecasts that you will need to plan your first three years and convince banks and investors that you know what you’re doing. If you’re looking at a blank sheet of paper with no retail expert to help then start by reviewing the patterns in your wholesale orders and use this as the basis for building your sales forecast.

Having built your sales forecast you need to return to the cost base to look at staffing, utilities and all the other costs of running the space. You will find that one of the greatest challenges is that you’ll see yourself spending significant sums before you open and in general there will be quite a delay between spending funds and seeing income. You will probably need a good relationship with your bank! Look at whether you can get an overdraft and plan for the lowest point in your funds/debt.

By now you may be thinking ‘is it worth it?’. Well the up-side is that you will come to know your customer base in much much more detail than by selling wholesale and of course you’re seeing the full retail value not just the wholesale price. So it can definitely be worth it but it’s a question of whether your business is ready for it. If you’re struggling to predict the mix of price points and items that go to make up either a single sale or a monthly turnover then you may not be ready yet and you might be better off pursuing the wholesale route for a few more seasons. If you can put the forecast of income and costs together then the responses of a bank or investor are another acid test. If they don’t think your plans are feasible they’ll tell you.

If you can talk to other creatives who’ve opened their own retail you should definitely do this so you can learn from their successes, failures and take on board their top tips for controlling costs at the early stages.

Some years ago Wendy Malem who at the time ran the Centre for Fashion Enterprise said that you could take a business to a million pounds in sales without your own retail unit but the big challenge is going from one to ten million. Brands such as Chloe and McQueen have benefited from substantial investment from specialist investors such as the LVMH  group who understand the risks of going global. Several such brands have lost money for several years until the retail sales grew into a profit making business.

At the end of the day both routes require considerable commitment and involve the ability to balance risk against return. Your challenge therefore is to develop a strategy appropriate to your business and not just follow the crowd!

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