Why it's so Hard to Run a Successful Wholesale Clothing Business | SME Business Advice

This weekend just gone I was at the MODA event which is a fashion trade show where clothing brands (menswear, womenswear, footwear, accessories) showcase their new AW18 collections to prospective buyers from independent stores and large department stores. I've been visiting MODA for a couple of years as representative/founder of the brand Hawkins & Shepherd, this visit I was doing a panel discussion on the Dandy Dapper Trend (but thats for another post). Last year I decided to concentrate on building a successful online business rather than a wholesale business model which wasn't as successful as I first thought it might have been for a number of reasons.

Wholesaling is basically where brands such as Hawkins & Shepherd design a collection and sell 'bulk' to retailers at a wholesale price. This wholesale price is negotiable between the brand, agent and buyer but a general rule of thumb would be, for example you sell a shirt for £90 direct to customers, you will have to wholesale it at approx £30-35 (a 2.7 or 3.0 ratio). Therefore to make enough margin to run a profitable wholesale business you'll need to design, build, brand and land the shirt for £15. 

For me the buyers were driving down the price that they offered for your goods, for many reasons but mainly due to rent increases on bricks & mortar stores, risk management and also greed. When a clothing brand offers a wholesale price to retailers it is based on a large order promise. So therefore the brand can take these accumulated large orders and pass it on to their factories to get a preferential rate per piece. Furthermore the brands use the leverage of large orders to get bulk discount on textiles which is the justification to be able to offer the high discounts that a brand gives retailers. However on top of the retailers driving down prices they are also taking less volume of stock, which is a double hit for the brands wholesale margins making it really tough to operate as a small business owner in this wholesale space.

Trade shows such as MODA give an opportunity for brands to get in front of powerful buyers who have the ability to potentially make a brand mainstream and to build a brands value, appearance and popularity. Although these trade shows can be expensive, especially for a start-up SME business. For a smallish 12-15 metre squared pitch you are looking at around £3,000 although I've heard brands being charged up to £6,000. Then there are a number of added extras such as extra lighting, power sockets, decorating your stand, transportation, printed marketing material, cost of sample stock, staff etc. So you can see how to show at a trade show for SME's is difficult financially. 

My first two trade shows with Hawkins & Shepherd were great, the orders came in and on-paper it seemed successful. Although that's where my problems started. The retailers that I dealt with refused to pay for stock up-front or even 50% now 50% on delivery. They would ask for small adjustments on the designs, yet in tiny quantities making it impossible to make any money as a brand. They would demand 'replenishment' of stock where they would order 1, 2 or 5 shirts per week/month depending on sales, yet still demanding the same bulk wholesale rate. They always paid late and on 3 occasions not paid at all leaving me around £4,000 being owed for goods that I have already delivered (and that was 2 years ago!) It is ridiculous and quite soul destroying. Yes you could say, well why did you deliver the goods without payment? But at some stage you need to have faith and trust people. The investment has already been made in terms of making the goods, so you just want to get the product into store as quickly as possible. All of my time was taken up managing these accounts, chasing payments, asking for sales reports and trying to manage a system of replenishment. I think it is clear that for a small business owner, wholesaling is difficult. Everyone will have a different experience, positive or negative, but my goal here is to offer my personal experience so that any new fashion brand thinking about wholesaling can streamline their processes or think about the alternatives before commitment.

There is another option which is selling online e-commerce and digital marketing. This is where I've driven Hawkins & Shepherd towards, focusing on building a digital audience through social media and using trackable digital advertisements such as google ads. Focusing on a pure online model means that your brand can take all of the profit without having the large operating costs of owning a store. It opens up a global marketplace that you can target. At Hawkins & Shepherd we have grown our American sales from 3% in 2015 to 29% in 2017 whilst also growing in Europe and other continents. Operating online you can really lean down your outgoings to a point where you are just spending money of Direct Expenses, Payment Gateway Costs, Accounting and Marketing.

Talking about marketing, traditionally the fashion industry has been led by print press publications being the highlight of how a brand is doing. It was always the goal to be in a major editorial for a large targeted magazine. Well now we have a digital footprint, we have bloggers, influencers and many other ways that can offer a greater return on investment for SME businesses and everything is tracked. Its the same with the wholesale model in fashion. Is this something that potentially will be phased out over time? I think not, but I certainly think more brands will try the lean costs for greater profit and therefore consider whether wholesaling is the way to go. So as marketing moves towards a more digital model of accountability and traceability will we see the wholesale model of brands move towards an singular online presence or online drop-ship model - but thats another discussion!

 

SHOP THE STYLED LOOK IN THIS POST