This week's 4th episode of Britain's Next Big Thing was often "interrupted" in our house due to lively discussion between me and my partner. Sure means it is an interesting program, but some items!!!
Mr retail himself Theo Paphitis used boxes to explain how little profit a retailer ended up with, just a measly 5% if the buyers got it right. Dear of dear me. Poor retailer.
According to Theo the numbers for the poor retailer works as follows:
- 50% of turnover minus VAT goes to purchasing of the products (now that's quite odd, especially with Habitat and their shocking maths, remember the Beeble? - 40% tops, so where's the remaining 10%, hidden profit?)
- 20% to overheads, such as utilities, rent etc
- 15% to staff - on the shop floor
- 10% to storage, logistics, marketing and the wages for buyers and inhouse designers.
- 5% is "all" that's left for profit (I guess it is more like 15%, see note above on costs of sales)
Easily forgetting that the larger the retailer, the higher the total overheads are - the economy of large numbers. Besides, the 5% profit is more often than not for the shareholders, like Dragon's Den man Theo and his colleagues.
So, does this really explain why the big high street retailers squeeze their suppliers that much and hard?
Small, independent retailers work quite differently, lower mark up, lower overheads, higher % of nett profit - if they work smart. And establish a fair relationship with their suppliers at the same time.
(Side-note: the VAT man does not take a part from your profit; every VAT registered business acts as a collector of the Value Added Tax, deducting any VAT they pay themselves from the VAT their clients pay. And why were the buyers and in-house designers of the poor retailer grouped in a different class than the floor staff when it comes to their wages/pay?).
Supplier or royalties?
One of the contributors for Habitat is Catherine Gray with her ceramic vases, made in her own studio. She's selling them for as high as £ 195.00 a piece - giving her a £ 75.00 profit per vase, but Habitat is eager to sell them for £ 30.00 - wow. Problem there you would think, this retail price means the vases are made at a loss if Catherine produces every single one herself (her largest order to date has been 16 pieces) or... licensed by Catherine to habitat to have them mass produced in Italy.
The mass produced vases (for which Catherine will receive £ 0.30 per vase) will differ from the unique, produced in the UK in her own studio for her private clients in order for both parties to do "their own thing" without competing with each other.
Not much profit in there you think? Well, that depends how you look at it. Catherine has no costs, liability or risk to take with licensing her "habitat" vase, but receives £ 0.30 royalty per Habitat vase, plus - as she states herself - being recognised as an official Habitat desginer comes with its own kudos: almost free marketing for her other, more personal, bespoke vases. Which she can produce and sell for as much as her private clients are willing to pay for. Deal.
If you saw Charlotte Sale struggling to get the order out for Liberty you might wonder why she doesn't go the same way and license one - or more - products the same way, stopping the risk of making the unique glass pieces without a profit (due to the number of "faulty" ones). However, Liberty is quite a different beast than Habitat, with only one store (a very prestigious one at that) and giving their suppliers a fair deal.
This was also confirmed by Richard Weston, the professor of architecture and creator of colourful and amazing scarves with blown-up prints of minerals.
He's now - in his own words - at risk making an earning from his business and stands to make £ 1,500.00 profit on supplying the first 100 scarves to Liberty
Both new Liberty suppliers stay producers, in control of production with its own risks, which does come with larger profits.
Then there's Boots
The retailer in BNBT with the most outlets, which prompted Theo to give us some more pointers on the economy of large numbers when getting your product into one of the High street "giants". The other two could sell 100 of your product for £100.00 - netting £ 10.000 turnover (the retailers, not you), where as Boots could sell 250.000 of your £ 1.00 products - netting £ 250.000 turnover (Boots, not you).
It's the low priced items Boots is after, which became very clear when their teenage testing groups were shown the It's All About Me teenage skin care products:
The older teenagers didn't like the packaging, would pay no more than £ 2 - £ 3 for it, not the £ 6.00 Elaine Weston had set. The packaging, according to Boots teenager didn't make it look professional or trustworthy enough to do what it said on the tin.
Boots buyers' comment to Elaine after the test with the teenagers was completed: you'll have to find cheaper ingredients, they are not willing to pay the price for it you want.
Eh? It's the packaging stupid, not the ingredients! Fortunately Elaine refused to change her ingredients to comply with Boots request. Not sure if Boots mentioned the real reason this - none-target - group was not willing to pay more for it, otherwise a completely different discussion would have taken place: are you willing to change the marketing, the labeling to make it more attractive to this group?
Talking about labeling:
Looking forward to the next episode of #BNBT, more and more convinced some of the contributors will make a very good deal (while keeping in control) and others will, I'm afraid, not see beyond the kudos of getting that foot in the door.
As for the E-guide "Selling Online Basics - SO-basic: being a small independent retailer (lower mark-up, lower overheads, higher % of nett profit) with all the tasks that come with it - all joyfully excecuted every day - does limit the "free" time I can spend on it at the moment, but the end is near. So, stay tuned (for BNBT and more news on the E-guide).
UPDATE 19.05.11: "Selling Online Basics" officially launched!