Our friend and Xero consultant Heather Smith is back with another guest blog post! This week, she brings us insights from our customer Festival Clothing and their key 3 tips on pricing for wholesale apparel companies.
After five years heading up a school science department, Deb Watts decided to join her husband to launch Festival Clothing-a wholesale business, specialising in ethnic, hippy boho clothing, beach wear and accessories.
“My husband had been in the rag trade (a clothing retailer) for a long time. It was a natural progression for him to go from being a retailer to wholesaler.” says Watts.
The business was founded on the premise that they could not find the retail products to sell to their existing niche market. Watts goes on to explain that they realised it required a lot of energy and focus to juggle both retail and wholesale operations. So they made a lifestyle choice and opted to be one hundred percent wholesale.
Wholesalers provide buyers or retailers access to products that they might not have been able to access directly, either because they do not have access to buy the products, or they are not in a position to order the minimum quantity required. Wholesaling is a distribution mechanism, providing suppliers the opportunity to sell their products to more retail outfits. Selling a product to one wholesaler, may result in it being on-sold into hundreds of smaller retail outlets, that a supplier may not have the resources to achieve.
“We’re not high fashion, so we have some fashion items that I have been selling for twenty years, and I am still selling them well. Our niche market is very different to high fashion. We have over 2000 inventory items, and that number is growing.”
When it comes to establishing suitable wholesale product pricing, Watts explains that there is a lot that goes into determining a price. Initially you need to establish your markup and you cannot deviate from your markup otherwise it is not worth it.
When pricing for wholesale, you need to look from both bottom up and top down. From the top down, as a general rule of thumb, the end retailer expects to make around 100% from the wholesaler. So you need to look at comparable products in the market, and see if you’ll be able to price your wholesale products, at an attractive price for retailers.
-Chris Wheatley of Scope Accounting.
Watts outlines all the costs that need to be considered in making up the final cost, from the bottom up. ‘We have made a lifestyle choice that we operate from home. Customers come to our warehouse that we have built on our property,” says Watts. This has significantly minimised overhead costs.
Festival Clothings’ tax accountant Andrew Gibbs, a Chartered Accountant at Brisbane based Gibbs Hurley and Co. Pty Ltd indicates there are three noteworthy costs wholesalers need to be aware of when importing goods.
With respect to consumer tax on imported goods he says: “If you are an importer and registered for GST, you may be able to defer your GST payment by participating in the deferred GST scheme providing you meet certain criteria. This is particularly important when cash flow becomes an issue.” Festival Clothing has two factories in Indonesia and India, so they have a number of costs related to importing they need to account for, including raw material, duties, and import GST.
Importing goods typically exposes the business to exchange rate fluctuations. ‘A falling dollar can increase costs for importers and potentially reduce profitability. An importer should access his/her appetite in exchange risk and adopt an appropriate hedging strategy to mitigate that risk.’ Gibbs says.
Simply doing business overseas leads to additional costs.
There is always risk of unforeseen circumstances damaging the goods. The question always is, 'Can you afford not to insure?' It is important to know who bears the responsibility of insurance. Generally, the importer is responsible to insure the goods when the shipment is on Free on Board (FOB) or Cost and Freight (CFR) basis.
“Based on all of these costs, you then need to add the markup and ask the question ‘can I wholesale in Australia for that amount?", concludes Watts.
Essentially, wholesale inventory planning is about getting the right product to the right place, at the right time, at the right price, and at the right cost, and ultimately satisfying the customer.
-Chris Wheatley of Scope Accounting.
If your wardrobe needs some ethnic, hippy, boho clothing, beach wear and accessories visit Festival Clothing online, or alternatively you can find them in over four hundred retails shops across Australia.
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