Low Margins, Breaking Even and Volume... It's not what you think

Question:
Love your frank honesty.

We have a used children's clothing site for the past two years. We are breaking even with low volume and average markup of only five dollars. We do ebay some to drive people to our site.

We want to take it to the next level which would be above our competition. We have about 1,300 items. Our best competition has about 3,000. To get to 5,000 I think we need your guide. We also would like to get more high end designer clothing.

But our brands are (blah blah blah). Does your guide give insight into locating the other children's brands?

Thanks for your insights! Have a great day.

Answer:

As you know, I am candid, so if you don't like what I have to say, just shrug it off. If you have 1300 items and cannot be profitable with that, then the problem is not your volume, it is your business model. What I am about to tell you is very important.

When a business model is "broken" the solution is not to throw more volume or money at it, the solution is to fix the business model FIRST.

And yours is lacking for so many reasons. You have done a good job with the layout of your site, but you could work on the look and feel and layout to make it LOOK more high end. And by having a more high end LOOK, you could raise your prices a bit (because your biggest problem IS your markup-- not the # of items you have). Right now, your site looks like an eBay seller's site and you are going to attract people who pay eBay prices. The rest of the world is not as price sensitive as eBay and in fact, most eBay buyers are not as price sensitive OFF eBay as they are ON eBay. But your website is very eBay-ish. Throwing higher end merchandise on that site won't do much, because the site does not have the image yet to carry it off.

Trust me on that I know of other eBay sellers who have made the transition to a website and they do it well when they do it right.

Secondly, your problem is the PayPal shopping cart. It is costing you sales because your general run of the mill internet shopper does not use PayPal. When you are only targeting the eBay crowd, you can get away with that. When you are going for the general internet buyer, you cannot. YOU MUST have your own merchant account. You can get great rates from Costco, Sam's Club (both offer merchant services to members), ECHO Inc, or emerchantsgroup.com. Those are the only places I will ever recommend because I know people will get good rates and be treated properly, no hidden strings or such.

I have read anecdotal evidence from people who went form PayPal only to a real merchant account and had a doubling, tripling or more with their sales.

Now, are you so sure that you need more volume to make more money?

Last, your site is not very search engine friendly and as such, because if this, you are probably not getting nearly as much search engine traffic as you could. When I see your site I see potential but there are the glaring problems of:

The look and feel is not going to work for you if you are going to try and go high end
The pay pal only thing is killing you
The site is not search engine friendly and you are not getting as much traffic as you can
A price point of X.99 is very much a discount/bargain shopping price point mentality. If you want to go higher end, you are going to need better price points. Like, for instance, you carry clothing from (insert store name here). Notice that their regular prices are $X.00 and they only mark it to $X.99 when it is **ON SALE**. But DON'T change your prices before changing your site. I mean, the price fits the site, I'm just saying if you want to go higher end, this is how to go about it.

Anyhow, these are my beginning thoughts. I would say FIX THAT before you think about getting more stock because you need to work some things out. You don't throw more money at a problem, you fix the problem first. And with 1300 items, I don't see that you need more merchandise to be more profitable.

Question & Answer-- Opening a Store

Question:
Hope all is well. I purchased your guide earlier this year and it has helped me a lot. I really admire your knowledge about fashion and the retail industry itself and would like your opinions on a few things. I have been selling on e-bay for a while, but I have decided to venture in to bigger and better things so now I want to open a store. I do have a lot of reservations and as you've mentioned people get carried away and think they will be very successful when they open a store. I just want to ask you about how we can purchase overstocks or last season stocks from Barneys and Saks. Thank you in advance.

Answer:
I would just encourage you to think twice about the store. Just based on my observation of past buyers of the guide that have gone that route. It's a money pit for a very long time before it begins to pay off.

As far as the closeouts, you should just call the stores' corporate headquarters, try and work your way to the distribution centers and find the person who is the sell off agent or in charge of liquidating their merchandise.

The merchandise does go up for bid, often bid on by jobbers. But when you buy you have to buy it all and that might be too much for you. I mean, in the beginning a full load might be just enough to completely stock your store, but what will you do when you only need filler? You can't bid on a full load, it might be 3000 pieces or $200,000 worth of merchandise (at your price). That's why you may still need jobbers.

Even when Bloomingdales has their high end job-outs a few times a year, those trailers are $50,000-90,000 sometimes. Remember you're talking merchandise with such a high original retail price that you aren't getting a lot of pieces. And sometimes they don't have "price caps". Paying 10% of retail on a $1,000 suit is nothing, but paying 10% of retail on a $5,000 suit is hard to swallow.

I would suggest that you start by having some trunk shows, some sample sales, build up a following. Go to some of the jobbers that carry high end sore stock and start working with those loads from Saks. Go to their warehouses and look and see what a FULL LOAD looks like. It doesn't look like what you think. You might not like the idea once you see all the "bad stuff" they have to take as part of a load. Trust me, some of it is crap but a JOBBER can move it because they always have a few clients that will take anything at cost.

Anyhow, try the trunk shows and sample sales and build a serious following to the point where you have a couple hundred people you've either sold to or had inquiries from. Then think about opening a store. Otherwise you may open a store and be literally waiting weeks or even months to get decent streams of customers.