When I read of a not-yet-profitable business still existing many years on, often attracting further rounds of funding, I’m particularly curious. I’m curious too when I come across a listed company that has had several wildly loss-making years. While a couple of years slightly in the red setting up a business is deemed acceptable, possibly expected, for most small business owners, a business needs to be profitable relatively quickly.
We are building a consumer brand that trades on the quality and appeal of its leather accessories. We make this successful by communicating our brand values and USPs – exquisite quality, expert design and craftsmanship – and building long-lasting relationships with our customers. How did we manage to achieve sales (and margin) while maintaining quality, thereby pushing ourselves up the price curve? What if the long anticipated stock arrived and it didn’t meet expectations?
As a small business, we didn’t have credit facilities with our principal suppliers, stock typically takes three months to arrive (from South America), and we didn’t sit on a pile of cash.
So here’s what we did:
- We rigidly stuck to our core value of quality, and it set a clear parameter for decision making.
- We went into wholesale with certain core lines, significantly improving our cashflow. We sought quality retailers where our product would work well for them, and this improved our brand reach as well as our income stream. Our stockists are required to pay before receipt of goods. Unfortunately I think we lose sales as a result, but we don’t have to invest in a credit control team, we have the working capital 30 – 60 days earlier, and we don’t have stockists that can’t pay.
- From the outset we established a price structure that worked more for our stockists than for us. We made just enough to buy more stock than the time before, meanwhile getting our brand out in the market. Now consumers ask for our product, our brand and our quality, and the price structure works for everyone.
- We fought our suppliers, and we still fight them – daily. Anything of inferior quality we send back (at their cost) and most often the supplier will see the long-term benefit and replace the goods.
- Occasionally they won’t, and this is a real problem for a small business. Early on, we received our third delivery of one highly successful product line (now discontinued) which accounted for approximately one fifth of the value of our entire inventory (an error in itself). The third batch arrived and upon close examination we agreed internally that the RRP was approximately cost; a disaster for a wholesale business.
Our only solution, both to get the capital working again quickly and to avoid making a substantial loss, was to sell the goods directly to the consumer at cost. We found sales channels where our target consumer wouldn’t shop. We removed the product from online channels so as not to devalue our brand, and we didn’t wholesale the product even though this would have brought the cash back sooner (we did not want to hand over the problem to our hard-won stockists and we needed to control where they were sold).
Instead we sold directly to the consumer via a pop-up shop away from our target market, and at bargain-hunter consumer events where the sale price reflected the quality. It took a lot of time, but we didn’t make a loss and I don’t believe that we adversely affected our brand. - Notwithstanding this stock crisis, we have generally maintained a good inventory turn. Rather than buy high volume at the outset, we paid slightly more and bought less, so that stock moved quickly once we received it. As our stockist base has grown, so has our need for holding more stock. Nonetheless, our inventory turn continues to improve.
- We have worked hard to make our label desirable, investing (initially very modestly) in PR and marketing. As the ROI is not immediate, we have been extremely prudent, selecting highly competent freelancers to work with us.
- The fast-growing pampeano team is fully on board with our commitment to quality. Inevitably we occasionally make minor mistakes, such as shipping the wrong item. We go overboard to rectify these mistakes, sending a complimentary item as well as refunding all shipping costs. Our consumer surveys indicate remarkably high customer satisfaction levels, both with the products and the service received.
I believe we have broken through the tough first few years, offsetting quality against profitability. We have built a niche, respected brand and our dedication to a core principle is finally evident in the bottom line. We are now in a position where we can move forward more rapidly in terms of new product development and brand growth.
Jennifer Brown is the managing director of pampeano
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