Profit Margins

This time of year, as all the new stock is pouring in and hopefully you have placed all your Autumn/ Winter orders, is the time that you start thinking about profit margins, which at the end of the day, is the main reason why we are all in business.

Very often it’s a time of year when the accountant has prepared your accounts for the previous year and you look at the bottom line and think “is that all we made last year from all that effort?” It’s very easy to look at the margin when you are buying, but it’s what figure you finish up with at the end of the season after mark downs etc., that really matters.

I have found over the years that the initial margin offered by suppliers varies so much. You have some suppliers offering just over 2 times margin with others using the fact that they offer nearer 3 times margin as the main reason to buy from them. Then as a salesman you visit shops and every retailer says I need at least 2.5 margin and in Ireland they want 2.7 plus. So why are these retailers buying brands which offer a much lower margin?

I quite accept that the lower margin brands generally offer a good in-stock service or invest heavily on advertising. I personally feel you need a mix of both, as indeed you need a mix of price points as well. It’s all very well getting a big margin on lower priced stock but how much actual cash does it generate? Then we come to that time of year when trade is poor and we need to do a promotion and maybe offer 10% discount to encourage trade. Now look at the margin, especially on those offering 2.2 margin. When it comes to the Sale and you need to offer 25% to clear stock, the margin goes into freefall. As an example if you have 9 pairs from a brand offering a 2.3 margin and 5 are sold at full price and 3 at sale price your overall margin for that style drops below a margin of 2. Take into account all your overheads and you have made very little from that line.

This then brings me onto the subject of the Internet and discounting. Are these retailers losing the plot or are they desperate for turnover? The Internet is a great way to sell your product, but not at any price. Everyone seems to feel “it’s OK I can discount because my overheads are lower” and for some unknown reason the suppliers allow it to happen. How can you sell shoes with 15% discount, pay Amazon a similar amount of commission, add into the calculation the postage and very often returns postage, plus the fact you are paying someone to load the data onto the site and if you decide to use ‘Pay per Click’ to promote your product, there cannot be anything left?

“There are a lot of quality retailers selling on their own websites or via Amazon type sites who do keep to the correct retail prices and are doing very well from it, but when you see some retailers undercutting, solely to be top of the tree it,  is crazy and it needs to be …Stopped.”  Misfit.

I feel very strongly about this and have aired my views in this column previously, but unless the whole trade unites and stops this discounting, there are going to be a lot of casualties in years to come and will leave the whole trade in a complete mess.

There are a lot of quality retailers selling on their own websites or via Amazon type sites who do keep to the correct retail prices and are doing very well from it, but when you see some retailers undercutting, solely to be top of the tree it, is crazy and it needs to be … Stopped.

Please email and give me your thoughts or subjects you would like me to natter on about in future editions to Misfitfootwear@hotmail.com.

Posted in: Misfit