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Cost control: Belt-tightening is all the rage

With shoppers reluctant to spend, small businesses must keep a close eye on costs.

Running an independent retailer or a brand is never going to be easy, even under favourable economic conditions, but with consumer spend on fashion goods constrained it is essential for businesses to keep a tight rein on costs in order to lay the foundations for future growth.

This pressure was highlighted by market research firm Kantar Worldpanel Fashion’s sales data for the 24 weeks to July 7, which reveals expenditure on clothing, footwear and accessories is broadly flat with 0.8% growth to £14.4bn, largely due to price increases, while the number of units sold declined 0.3% to £1.4bn.

It’s not always easy for brands and retailers to keep their houses in order and an eye on every cost line when they’re caught up in the day-to-day running of their business, but with funds often tied up in stock, there are immediate cost-saving measures they could implement to improve their cash position.

Bobby Lane, partner at law firm Shelley Stock Hutter, says they need to focus on the three Cs; cash, costs and control. From a retailer’s perspective, he advises tackling direct costs, such as the amount they are spending on stock with suppliers. He says this is important because retailers are getting attacked from all sides at the moment.

Their customers want to pay cheaper prices but suppliers want to charge more because their own costs have gone up.

So they have to look at whether there is any way of reducing the cost of what they are buying, which would increase their gross profit.

Vicki Fernyhough, owner of contemporary womenswear boutique Yard in Dorchester, agrees: “One of the things we’re really tight on securing is prompt payment discounts, by as much as 10%. Pretty much every brand we work with we’ve negotiated a payment discount.

“So although that means your money is going out quicker, it actually adds up to quite a big saving. With one of our brands, if we pay [after] 30 days we just pay the invoice amount, whereas if we pay them in seven days we can have a 10% discount. It gives us a 4% saving a year on all of our stock, so that’s quite significant really.”

Fernyhough refuses to buy to a required minimum order, only selecting what is right for the store, and says a brand must achieve a full-price sell-through of at least 60% for her to buy into it again: “We budget really tightly. Every season we look at the sell-through by each supplier and there’s no guarantee we’ll go back to them. They have to live and die by that season.”

For brands, Anthony Donges, senior associate at financial advisory firm Zolfo Cooper, advises taking out costs further up the supply chain by improving efficiencies in sourcing and design. “For smaller fashion brands and independents it isn’t possible to have a quality control team at manufacturers’ sites. However, it is possible to use manufacturers closer to home to provide more flexibility. This will improve lead times and reduce wastage as any amendments can be made before products need to hit the shelves.”

Brands and retailers also need to look at rent and staffing overheads. Donges says staffing needs to be flexible: “The more common methods for doing this are to use part-time staff that can be flexed depending on the company’s requirements, and seasonal design teams where the cost is removed from the business once the requirement for the
staff is complete.”

Flexible staffing is one of the cost-saving strategies that Clare Serjeant, owner of womenswear retailer Fox + Feather in Bristol, is implementing. “Our biggest controllable expenditure is always staff and wages. I make sure I keep a close eye on hourly sales reports to ensure we have the correct staff levels at the correct times and that we don’t waste money by over-staffing in quiet trading periods,” she says. “We also try to keep a very flexible team, with many of our girls on zero-hour contracts. This way we can react to trading patterns and are not tied into giving out the same hours week by week.”

Card payment processing is another area for potential savings. Jayadeep Nair, vice president of small business and new markets at card payments provider Streamline, says card payments make up between 60% and 100%
of transactions among the payment processor’s fashion customers, and that brands and retailers must push their payment providers for better deals. “My philosophy is that if you don’t ask you don’t get,” he says. “It seems
so simple but it is a very easy one to forget.”

He recommends getting a deal on a portable payment terminal and asking for the option to accept foreign currencies to encourage ease of shopping, and advises buying till rolls in bulk to save around 15% to 20% on cost. “It’s
a small cost in isolation but when it adds up with card payments that can turn out to be quite a substantial amount.”

Buying around 4,000 carrier bags at a time in bulk means Yard pays around 30p for its smaller bags, compared with £1.50 elsewhere, and Fernyhough makes sure her staff pack goods in appropriate-sized packaging. “There are massive savings to be made, it’s quite amazing when you tally it all up,” she says.

Keeping costs under control then leaves brands and independents in a better position to seek finance for growth.

“Despite the challenging trading conditions, now is an ideal time for fashion brands and independents to take stock and consider what steps they should take to maximise their growth potential, manage their costs and look at accessing finance,” says Carol Bagnald, London regional commercial director at HSBC.

She advises speaking to banks about financial options and that rather than just relying on an overdraft, a more structured financial package could be more beneficial in the longer term.

To secure bank lending Shelley Stock Hutter’s Bobby Lane recommends retailers keep their business accounts in order and devise a three-year business plan that shows how the company is performing, what it plans to do and the funds needed to do it, and then how it will repay the loan. “If you don’t have that information then you’re setting yourself one step back because the bank will think you’re not a well-run business,” he says.

However, Lane stresses that there are other avenues to finance, such as crowd funding, whereby any number of investors can bid for shares in a business. Sportswear brand Front Up Rugby launched in 2008 and after an initial £175,000 round of investment via self-financing and through an angel investor, then sought a £125,000 second round of investment through crowd-funding platform Crowdcube. It is currently pitching for more investors.

“We launched online with Debenhams in November 2012 and with House of Fraser in June, which means there is a bigger commitment to stock. Our biggest problem is the cash cycle. We’ve got to pay the deposit up front, get it made, wait for it to be sold and then wait for them to pay us,” says managing director Jon Allen.

Crowdcube has eased that cash flow burden, but Allen advises using professional network LinkedIn and social media channels such as Facebook and Twitter to drive potential investors to the pitch.

Donges warns that crowd-funding could be damaging if an offering is not taken up by investors, but adds: “Despite the risks, I expect crowd-funding to grow significantly in the short to medium term, given the difficulty many entrepreneurs are having securing loans from established high street banks.”

For Bagnald though, the message is clear: investment is key. “The important thing to remember is that this should be about future-proofing the business, not just about reducing costs. If companies tighten their grasp on the purse strings at the expense of investment, they could unintentionally hamper opportunities to grow and prosper.”

Saving costs checklist

 

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