Fashion retail is a tough game! And retailers put their money where their mouth is, ordering 6 months in advance usually. And we're not magicians! That doesn't mean we magically know what's going to be super popular and what's not. It means we take a huge risk, what sells quickly sells quickly and the rest we have to work really hard to sell by counteracting whatever the issue may be affecting its sales - poor stock imagery, no hanger appeal, hard to imagine how it will look on or mix in with your current wardrobe or how to make a great outfit with it.
And if we fail at that, it gets discounted until it sells.
That's why we need the full price sales! I'll run you through the math in a second but basically whenever we are selling something on sale, depending on the discount, we are either breaking even or losing money.
On some items we have to cut our losses and do that but that’s why the we need the full price sales to
cover those costs.
So at a very small discount, we are breaking even. At larger discounts we’re losing money.
Even at break even, that's no profit (and profit is required to reinvest back into our businesses to grow them - to grow opportunities for our staff, take on more staff, have room for great rewards for our staff to thank them for all their hard work and keep them motivated to give you the BEST possible customer service you will ever experience and to GENUINELY care about you and your experiences with us). Not to mention to pay directors. Who often don't get much in this game!! And by "directors" we mean the amazing women (usually) who run these businesses because they love what they do, they love interacting with you and they love the chance to grow, mould and help guide young women who come to work for them. These roles are so important to society. We reach young women at the most vulnerable point in their lives - when they don't know who they are, are easily influenced by their peers and society and often that influence has the effect of making them doubt themselves, feel inferior or lack confidence. It's our job to build those young women up and help them see their strengths, the things they need to work on and the contribution they can make to society over time. How they can be positive role models for everyone they come into contact with!
So that's why profit is important!
Now, let me break down where profit comes from for you.
This is not the same in all industries but in high end fashion retail where we operate, we roughly make 50% of the RRP.
Guess where that goes immediately?
The second you purchase an item at full retail price here is where the money disappears to...
That's 10% of the purchase price which if you're paying full price is one fifth of our profit margin.
If the retailer offers free postage over a certain amount, the postage cost then comes out of their profit margin. Depending on the purchase price that's usually 5-10% of the purchase price or one tenth to one fifth of that profit margin we were talking about.
5-10% staff time
Casual retail employees earn about $28 an hour on a week day and up to $40+ on weekends. If you assume it takes an experienced staff member 10 minutes to pack and dispatch your order, that can be around 5% of the purchase price. 10% on lower value items, or if the staff member is new and it takes them a little longer. Or it's a weekend when wages are higher!
This proportion is much higher in bricks and mortar stores. Often a staff member will spend a minimum of half an hour with a customer in store who is making a purchase.
Advertising is a necessary evil and needs to be done. If you don't, you will not grow and in some instances not survive at all. A good rule of thumb for fashion businesses is to reinvest 10% of all revenue back into advertising to reach customers who don't know about you yet or to remind your current customers you're still here, ready to help them! Younger businesses will spend more than that, businesses wanting to grow will spend more than that. Businesses in crisis like the current COVID-19 pandemic will spend more than that just to try to keep sales at a reasonable level. But let's assume a good, strong healthy business is spending 10%. That's another one fifth of their profit margin.
So that's one fifth on GST, one fifth on postage and staff time and another fifth on advertising.
We have two fifths, or 20% of the original purchase price left!
What's still left to pay for...
These are quite individual for most businesses but can easily be 10-20% of their weekly revenue. That's the last two fifths of profit gone if we assume 20%, so let's assume 10% for arguments sake (and let's argue that a good, strong business should be trying to contain overhead costs to 10% of weekly revenue - but let's remember a lot of these are fixed costs. They don't ebb and flow with sales! So these can be the really hairy ones for retail businesses!).
Other than postage and staff, business overheads include rent for bricks and mortar stores or storage space for online businesses, utilities such as power, water, gas, telephone and internet, packing materials! We all need post bags, tissue paper, ribbons, lovely little cards to write on in order to give you the best shopping experience and show you how much we care! We need toilet paper, cleaning products, pens, printer paper and ink, the list goes on!
So let's assume another 10% as a contribution towards business overheads for each item sold.
That leaves one last remaining fifth of the profit margin, or 10% of your original purchase price.
Where does that go? Welcome discounts usually! So that's it! That's all our profit gone when we're giving you a welcome discount of 10%. Which is why we can't do it over and over again and offer it as a welcome, to introduce you to our business and hope that you fall in love with us and what we do and how we make you feel - so you come back time and time again and contribute that 10% of your purchase price to helping our businesses stay alive!
And when it doesn't go to welcome discounts it goes towards paying for damaged or stolen stock or the stock we have to discount at more than 10% to sell it at the end of the season.
This is the pattern that keeps fashion businesses running. Which is why selling high demand items at even a 10% discount hurts fashion businesses. We need those items to sell at full price in order to keep our businesses alive.
Whatever is left of that 10% is needed to reinvest into our businesses and help them stay healthy and strong, to weather storms like the current COVID-19 pandemic, to strengthen and create additional job opportunities, and to treat staff to rewards they deserve!
And, if there's anything left, the government then takes 30% of what's left as company tax! Our contribution to the Australian economy, to government expenses that support us all!
It's a very precarious game and basically to survive you need to be moving huge volumes of stock. Lots of items with very small profit margin = staying alive. Not many items at very small profit margins = no longer surviving and ultimately closing your doors at some point. Sometimes walking away with huge debt to show for all those years of hard work, blood, sweat and tears. Pouring everything you have into something you loved so much.
It also means letting your staff and their families down. This is their livelihoods and if you don't manage it properly, their livelihoods are gone. This is the biggest concern for most retailers. We love our staff. And we feel great responsibility for their prosperity in life - both emotionally, physically and financially.
And yes, in good times, they may get another job but what if they loved the one they had? What if the environment and culture you created in your business was home to them? A place where they felt safe, loved and respected? Truly valued as a human being and like they always have someone in their corner - their boss, and their colleagues. And often their beautiful customers who become friends.
It's a lot to lose trust me. We'd be devastated if it happened to us. We love what we do, and each other, and all of you so much, it'd be like losing a soulmate.
So that my friends, is why retailers need full price sales to survive!
So where you can, support your favourite retailers with your full price dollars. Tell all your friends about them because like we've said, profit margins are SLIM and volume MATTERS! Help them grow their volume so they can afford to give you the little gifts in your orders or birthday vouchers or voucher giveaways on instagram just for fun! For VIP nights and fun events that bring the community together. To help grow job opportunities in these businesses so more people get to experience working in a loving, caring supportive environment filled with passion for what they do and the people they get to do it with. All of you! So those already there can have career progression and greater exposure and experience in an industry with constrained opportunity - often your boss in retail has to CREATE these opportunities for you.
These are all of the things your full price dollars support.
So THANK YOU to all of you who shop full price and return time and time again. You are literally keeping us alive and we love you so much! We are so grateful for this gift you give us every day. Every single staff member at Miko + Mollie loves what we do and the environment we do it in and you help us get to do that every single day. We can't thank you enough for the impact that has on our lives.
I hope this has been helpful! I know most of this stuff is not known and where I can I love to share the information we have and help people better understand this fickle industry. Now you probably know why we have seen so many of our favourite brands and stores go out of business over the last 10 years! It's so sad! Let's all aim not to see it happening going forward.
Support local, spread the word and be part of a vibrant, loving and fun community!
And by all means, where we are cutting our losses, buy the items we’ve discounted! They’re our treat to you! We just can’t do it on all products. And now you know why!
With so much love and thanks
Courtney, Lily, Sally, Dani and Ebony xx