Need advice on starting a retail watch business

Khanh · 15-01-08

Hi,

Firstly, thank you in advance for any pointers and advices.

Like to ask anybody out there who have any experiences on starting a shop front retail of medium to high (still very affordable compare to most Swiss watches) end watch business? I am thinking of staring one myself as i have suppliers in Europe that like to contribute. At the moment the market for the products is non existence, and i think there is a market for it, because it is targeted to the mass market and not just to the rich.

I have some ideas on where to start, but still need alot more advice and tips, if anybody care to share them, will be very greatly appreciated.

Thank again,

Khanh

David.Pagotto · 16-01-08

Hello Khanh and welcome to the forums.
Sorry I needed to move your thread to this section, it was in the wrong place.

I need to ask a few questions first to give you some proper advice.
1. Do you currently have a full time job, and are wishing to quit once you set this business up, if so what do you do as an employee?
2. Do you have a family to support?
3. What is your start up capital?
4. Where are you located?
Please get back to me and I will help you out.

Elven · 16-01-08

Quote:

Originally Posted by David.Pagotto

Hello Khanh and welcome to the forums.
Sorry I needed to move your thread to this section, it was in the wrong place.

I need to ask a few questions first to give you some proper advice.
1. Do you currently have a full time job, and are wishing to quit once you set this business up, if so what do you do as an employee?
2. Do you have a family to support?
3. What is your start up capital?
4. Where are you located?
Please get back to me and I will help you out.

David is obviously a right-brained thinker. So am I really, but I love this sort of problem.

Let's try a few more specific questions:

What is the price range of the watches?
From those prices, what is the average Cost of Goods Sold (COGS)? - COGS is the wholesale price for the most part. It is the cost of the goods without taking into account any variable costs such as storage or shipping.
I noticed you said the watches were affordable. What is the income range(s) of your target market? The more specific you can be, the better.
Do you intend to sell the watches internationally? -or only in Australia and New Zealand?
Do you have access to the income breakdown from sales in region with a similar median income as your geographic target market? The income of the median Australian adult is just $26000 per year, for example. (according to data from the Household, Income and Labour Dynamics in Australia in 2006)
What other costs will this storefront incur? -rent? utilities?
Have you considered the cost of shipping, insurance, and taxes? These are variable costs which can eat up your markup.
Assume an additional 40% for marketing in the first year; 35% the second year; and 30% the third year.
With deference to David's questions above: What are your income goals for the first year? -second year? -third year?
Take your answer for the first year above. How many watches do you need to sell to make that income based solely on the COGS? In the full analysis, you'll want to do a few tables varying the value of different price ranges and income ranges. For now, just estimate it.
Are these figures realistic?

There are a lot of ways to work out a plan to grow based on the questions above.
You could do a pure dropshipping operation, holding no inventory or only a few samples, - then putting 40% of the profit from each sale into advertising. That concept changes the "obvious" numbers above dramatically. To achieve your income goals, you have to assume sales will grow quickly because of marketing and advertising.

If you have a sum, say $2000, for startup capital, how much would be better spent in advertising as opposed to inventory?
Do you have an independent source for your market analysis (meaning other than your suppliers)? What is the age breakdown for sales? -Compare that with the age breakdown of your geographic or national target market.
What is the income range breakdown of your target market?
Does it compare favorably with the income range breakdown of sales in other markets?
Are more of your sales expected to be to men or women?

Somewhere in here you begin to ask yourself how you can reach your target markets based on age and income ranges. If you can reach them, how many will buy your watches?
To help estimate how many will buy, find how many people are in the age and/or income ranges you expect to sell.
You can become more fine-grained by incorporating other factors such as the sex of the buyer.

For example, there are more men than women in Australia, but only by a small margin: 50.8% to 49.1%. The most active consumers in Australia are in the 15-34 year age brackets. Nearly every innovative television program that expects to compete for ratings caters to this age bracket. Big Brother, for instance. Within that age range, there are more women than men: 53% to 47%.
However, this age bracket does not have the most disposable income. It is the over 35's and retired who have the money!
Confused yet?

These questions are intended to be answered by numbers to be manageable. "If you can count it, you can manage it." is the old adage.
The questions will lead you to a range of calculations which are all largely conservative. They cannot account for luck, fads, design, or even an internet buzz. They don't account for increasing interest rates if you have to borrow money to make sales - especially if you're financing the business off credit cards.
There are a lot of other factors, of course.

Hope this helps.

BTW, if you need help developing spreadsheets for these calculations, let me know via email or on the forum. I'd be willing to work through the whole project with you here as an illustration.

Elven

Khanh · 21-01-08

Quote:

Originally Posted by David.Pagotto

Hello Khanh and welcome to the forums.
Sorry I needed to move your thread to this section, it was in the wrong place.

I need to ask a few questions first to give you some proper advice.
1. Do you currently have a full time job, and are wishing to quit once you set this business up, if so what do you do as an employee?
2. Do you have a family to support?
3. What is your start up capital?
4. Where are you located?
Please get back to me and I will help you out.

Thank David for your response.

In answers to your questions:

1. Yes. Will be just me to start in looking after the shop. Wife will help out a few days. She has a full time job as well. Also thinking looking for a business partner to relieve the burdens...manning, capital etc...

2. Yes, with 2 young kids.

3. I am estimating initially at about $60K to $80K from shop fittings, rent to stocks etc.. I could be underestimating...not sure.We have a mortgage of about $155K and some $75K for withdrawal (Excess from mortgage repayment). A loan will be most likely.

4. Location is likely to be in Westfield Shopping Centre Doncaster. We only need a small area, about 30 m to 40 m sq. I was told rent in shopping center is about $1500 per 100 m sq. The GM of Westfield is one of my regular customer at work, and is interested in talking to me about a spot in the newly refurbished centre (complete by October 08) after i told him about the business. We need the high exposure and foot traffic and the convenience a shopping center can offer, as you know. The drawback is the high rent amongst other things, i am sure. Will find out soon. Could you give me a head start David on this before i go to talk with Westfield.

The price range of watches will be $600 to $3000.

I hope these helps David. Thank you very much.
I know there are hundreds of things i need to do and find out as well, as Elven's response has suggested.

Khanh · 21-01-08

Quote:

Originally Posted by Elven

David is obviously a right-brained thinker. So am I really, but I love this sort of problem.

Let's try a few more specific questions:

What is the price range of the watches? $600 - $3000
From those prices, what is the average Cost of Goods Sold (COGS)? - COGS is the wholesale price for the most part. It is the cost of the goods without taking into account any variable costs such as storage or shipping.

I have a list of wholesale price from suppliers. Average $200 to $1000. Tax and shipping/insurance will be added on
I noticed you said the watches were affordable. What is the income range(s) of your target market? The more specific you can be, the better.
Any groups from $40k and up.
Do you intend to sell the watches internationally? -or only in Australia and New Zealand?
Most suppliers will not allow it. To protect their retailers i guess. I also want to set up a website and customers can buy online as well.
Do you have access to the income breakdown from sales in region with a similar median income as your geographic target market? The income of the median Australian adult is just $26000 per year, for example. (according to data from the Household, Income and Labour Dynamics in Australia in 2006)
No. How? Where to get them?
What other costs will this storefront incur? -rent? utilities?
Working on it with a sample business plan from Small Business Australia. Shop front will likely to be in Westfield Shopping Center Doncaster, Melbourne. Will find more from Westfield soon.
Have you considered the cost of shipping, insurance, and taxes? These are variable costs which can eat up your markup.
Yes. will factor in sale price.
Assume an additional 40% for marketing in the first year; 35% the second year; and 30% the third year.
With deference to David's questions above: What are your income goals for the first year? -second year? -third year?
Aiming at 50% profit bottom line and after tax after first year and 30% on top the following. Am i too realistic or pessimistic or have no ideas?. I am still yet to work it out.
Take your answer for the first year above. How many watches do you need to sell to make that income based solely on the COGS? In the full analysis, you'll want to do a few tables varying the value of different price ranges and income ranges. For now, just estimate it.
Working on it.
Are these figures realistic?
Will have to be would i, otherwise just kidding myself.

There are a lot of ways to work out a plan to grow based on the questions above.
You could do a pure dropshipping operation, holding no inventory or only a few samples, - then putting 40% of the profit from each sale into advertising. That concept changes the "obvious" numbers above dramatically. To achieve your income goals, you have to assume sales will grow quickly because of marketing and advertising.

If you have a sum, say $2000, for startup capital, how much would be better spent in advertising as opposed to inventory?
Do you have an independent source for your market analysis (meaning other than your suppliers)? What is the age breakdown for sales? -Compare that with the age breakdown of your geographic or national target market.
What is the income range breakdown of your target market?
Does it compare favorably with the income range breakdown of sales in other markets?
Are more of your sales expected to be to men or women?

Somewhere in here you begin to ask yourself how you can reach your target markets based on age and income ranges. If you can reach them, how many will buy your watches?
To help estimate how many will buy, find how many people are in the age and/or income ranges you expect to sell.
You can become more fine-grained by incorporating other factors such as the sex of the buyer.

For example, there are more men than women in Australia, but only by a small margin: 50.8% to 49.1%. The most active consumers in Australia are in the 15-34 year age brackets. Nearly every innovative television program that expects to compete for ratings caters to this age bracket. Big Brother, for instance. Within that age range, there are more women than men: 53% to 47%.
However, this age bracket does not have the most disposable income. It is the over 35's and retired who have the money!
Confused yet?

These questions are intended to be answered by numbers to be manageable. "If you can count it, you can manage it." is the old adage.
The questions will lead you to a range of calculations which are all largely conservative. They cannot account for luck, fads, design, or even an internet buzz. They don't account for increasing interest rates if you have to borrow money to make sales - especially if you're financing the business off credit cards.
There are a lot of other factors, of course.

Hope this helps.

BTW, if you need help developing spreadsheets for these calculations, let me know via email or on the forum. I'd be willing to work through the whole project with you here as an illustration.

Will sure let you know...hope you won't charging me an arm and leg for it.

.

Elven

Thank you very much for your advices and tips Elven. I have tried to answer as i can next to your Q's. Sure a hell of a lot of things....the right things i might add to consider...feel so daunting at time...don't know where to start. I am sure i will have more to ask you and David.

Thanks.

Khanh.

nolimits2wealth · 21-01-08

If your selling $600-1000 dollar watches are the shoppers in that shopping centre going to be in the market at that price?
Forgive me but I don't know the area.

Elven · 25-01-08

Quote:

Will sure let you know...hope you won't charging me an arm and leg for it

Nah, just one leg will be fine

Khanh, I can see from your answers you have two key personality traits that cannot be more important: confidence and determination. There is always a way to achieve a goal if you work at it long enough. - The key is to find the quickest way.

Let's take your income goals.
A good way to start this sort of estimate is to assume all your sales will come from the least profitable or least expensive item(s). For example, let's say you had to make $60K from selling $600 watches.
I'm going to guess those cost you about $200. Ignoring the variable costs and overhead for a moment, that means you make $400 per sale. To make $60K, you'll have to sell 150 watches in the year; or 12-13 per month.

Now, still just thumbnailing, calculate your variable costs and overheads based on the $400 gross profit. For example, you're renting 40 squares. Based on $1500/100 squares, your rent will be about $600 per month; or 1-1/2 watches.
You now intend to sell 14-15 per month.

Quote:

Aiming at 50% profit bottom line and after tax after first year and 30% on top the following. Am i too realistic or pessimistic or have no ideas?. I am still yet to work it out.

Can you make your goals from only walk-in traffic? Or will you have to advertise?
If you're going to have to advertise, those costs may surprise you in the first few years of operation.
An old maxim in business is to set aside 40% of your gross profit for advertising the first year (and 35% the second year; 30% the third year.)

Quote:

Do you have access to the income breakdown from sales in region with a similar median income as your geographic target market? The income of the median Australian adult is just $26000 per year, for example. (according to data from the Household, Income and Labour Dynamics in Australia in 2006)
No. How? Where to get them?

The Australian Bureau of Statistics is one good source. I named one key report above. Some of the reports attract a small fee.
You might want to get an account with IBIS. I've only had student access to IBIS, but reports available are great.

You might also want to contact your suppliers. Ask if they have income and age range breakdowns of customers who have bought their products. In addition, ask for country breakdowns.
They have to project production goals on the same information that you need to assess who will buy the watches.

I see you're doing a business plan. That's great. Too many businesses start without one.

A key part of any business plan is the marketing plan. It's a real money burner for the first couple of years. The guy who invented the Mustang and saved Chrysler Motors from bankruptcy, Lee Iacocca, said: "I know I can do without half my advertising budget. -- I just don't know which half."
Even with the most in-depth research, advertising is a gamble. It's fair to say that you can make it an odds-on gamble if you do your homework.
The work that goes into a business plan on marketing and advertising is invaluable, even if you end up using an agency. It never hurts to know enough to keep someone from telling you it's raining - even if the rain is warm and smells unpleasant.

Elven

Elven

nolimits2wealth · 26-01-08

Your local council may be able to help you with the demographic/income stats also.

Elven · 26-01-08

Hi David,

Do the PMs work? I've gotten a couple and responded, but no responses so far.

Elven

David.Pagotto · 26-01-08

Elven Pm's work I just sent you one.
Cheers Dave