Returning from Harrogate, Barcelona and The White Gallery, Ellie Sanderson wonders how many of us have over spent. Here’s her advice on how to make your budget work and why you should keep an eye on your Return on Investments
I am happy to admit that I almost suffer from analysis paralysis when it comes to buying and I spend a huge amount of time looking at sales by designer, sales by shape, sales by fabric type and finally sales by price point. I also plan stocktaking just before I head off buying as this ensures that I know the details of my stock holding by label. It also enables me to calculate my ROI by designer. This information helps me make solid commercial decisions with confidence, and before you start to think my process is cold, be aware that I also buy from the heart. But, without doubt, it is knowing what’s been achieved in the previous year that gives me a safety net for future decisions. Getting it wrong and missing the best dresses or buying the wrong dresses means loss of revenue.
Every year I review my labels and decide if the ROI is worth the re investment. I don’t simply jump labels if I have had one poor year with sales, but repeated low return means serious action needs to take place. I am also proud to have worked with the same four labels since I opened five years ago. However, along the way I have made some hard decisions to stop working with some others and have added additional ones into the product mix.
A scenario to consider
You have a label which produces sales of £30,000 per annum for you, and each year this label expects you to buy eight dresses. At an average cost price of £900 per dress that equates to £7,200 stock re investment. Take VAT off your £30,000 sales turnover and you are left with £24,000; take off your cost of goods and you are left with £14,000; take off your corporation tax and you have approximately £13,000 left as profit (excluding overheads of course). So, when you go back to buy the following year, out of your £13,000 profit you are expected to hand over £7,200 as re investment in return for exclusivity of the label. This means the label gets £7,200 re invested and you retain £5,800 as gross profit. Whilst these figures are crude I feel they make a good point.
Often a bigger picture review may be needed. For example how many labels are you selling? If your sales are £150,000 per annum and you buy eight labels then each label could trade just under £20,000 per annum. If you have only six labels then the opportunity is higher at £25,000 and if you have only four labels then the opportunity is £37,500-ish. Suddenly your return looks better… and believe me you can offer a great choice to your brides over four labels. The most important business statistic that banks and no doubt your accountant will look at is your stock-to -sales ratio.
Using the same numbers as the example above, £150,000 per annum sales with a stock holding of £40,000 is a ratio of 27%. The same sales with less stock of £30,000 is a ratio of 20%. The most efficient I know is a ratio of 12% and the scariest I have come across is 45%. Meaning that the business value is all tied up on the rails. It’s worth calculating where you sit, it’s also worth calculating your stock holding by label and your Return On Investment – without doubt you may find a few shockers that will prompt decisions.
The morale of the story is that you need to keep a detailed handle on your sales by label, as well as that all-important return on investment by label. Don’t be tempted to allow the vanity of buying a particular label to affect your decision making.