Buying a small retail chain?
Discussion
I'm a regular poster on this business sub forum, well over 1000 posts but wanted to keep this question anonymous rather than link to my well known profile and tap the minds of the collective PH Business wisdom.
We've spotted a locally well known retailer for sale. They are in a good niche that still works well on the suburban high street. By that I mean middle class leafy neighbourhoods with a parade of mixed independent and national retailers.
The retailer has 7 shops and £1m turnover in total, but the accounts are a mess and it's poorly run from a business viewpoint, despite this it's the go to shop for this product in each locality and it's a well respected brand. But there is no customer database, no website to sell through, no upselling, no statistics or KPI's, social media presence is close to non-existant etc etc. i.e. a good opportunity to turn a profit and build the chain.
The question I have is around purchasing the stock. The seller has indicated that she would be happy to not include any stock in the sale. Which is possibly a saving grace because for the £1m turnover they started the year with £950k of stock, added £520k of stock purchases and ended the year with £970k of stock. So clearly they have way too much stock and probably much of it very old (I've asked for an Aged Stock report, but give the management accounts are typed in MS Word, not even Excel, I'm not hopeful).
She has also let us know that recently she's been selling off old stock in batches to a "lady that sells it on ebay" last sale was £30k of stock, but no idea if that's RRP, Wholesale price or Discounted heavily, presumably the latter.
The stock is seasonal, but it the business as a whole isn't i.e. different stock on the shelves in different seasons, but if not sold 1 year can be put away and come out the following year but without deterioration or other issues.
So I'm considering making a conditional offer for stock along these lines:
We'll take all stock less than 3 months old at cost (except the highly season specific lines which will cap at 2 months old), anything older we'll take everything but at nil upfront however we'll share with you at X% all gross profit on the old stock, any stock remaining after 1 year will be written off and can be returned to you if you would like or we can renew the agreement to profit share. [GP would obviously need to be defined e.g. Cost of item, card fee, postage cost if sold online when we get website running]
I've never worked in retail (except in Dixons as Saturday staff as a 16year old) and definitely never been involved in buying a retailer, so are there any other ways of purchasing the stock? If the above way works, what percentage share would be reasonable?
We've spotted a locally well known retailer for sale. They are in a good niche that still works well on the suburban high street. By that I mean middle class leafy neighbourhoods with a parade of mixed independent and national retailers.
The retailer has 7 shops and £1m turnover in total, but the accounts are a mess and it's poorly run from a business viewpoint, despite this it's the go to shop for this product in each locality and it's a well respected brand. But there is no customer database, no website to sell through, no upselling, no statistics or KPI's, social media presence is close to non-existant etc etc. i.e. a good opportunity to turn a profit and build the chain.
The question I have is around purchasing the stock. The seller has indicated that she would be happy to not include any stock in the sale. Which is possibly a saving grace because for the £1m turnover they started the year with £950k of stock, added £520k of stock purchases and ended the year with £970k of stock. So clearly they have way too much stock and probably much of it very old (I've asked for an Aged Stock report, but give the management accounts are typed in MS Word, not even Excel, I'm not hopeful).
She has also let us know that recently she's been selling off old stock in batches to a "lady that sells it on ebay" last sale was £30k of stock, but no idea if that's RRP, Wholesale price or Discounted heavily, presumably the latter.
The stock is seasonal, but it the business as a whole isn't i.e. different stock on the shelves in different seasons, but if not sold 1 year can be put away and come out the following year but without deterioration or other issues.
So I'm considering making a conditional offer for stock along these lines:
We'll take all stock less than 3 months old at cost (except the highly season specific lines which will cap at 2 months old), anything older we'll take everything but at nil upfront however we'll share with you at X% all gross profit on the old stock, any stock remaining after 1 year will be written off and can be returned to you if you would like or we can renew the agreement to profit share. [GP would obviously need to be defined e.g. Cost of item, card fee, postage cost if sold online when we get website running]
I've never worked in retail (except in Dixons as Saturday staff as a 16year old) and definitely never been involved in buying a retailer, so are there any other ways of purchasing the stock? If the above way works, what percentage share would be reasonable?
Roman Rhodes said:
Sounds like hassle going into a profit/revenue share on the old stock. If she's happy to leave no stock why not do the first part of your suggestion - take the stock < 3 months old at valuation and let her take the rest away?
This - whatever profit you make will be swallowed up in the legal fees to make up the necessary contract with it's various conditions!What does she plan to do with the old stock if you let her keep it: set up in competition, sell it on eBay, sell it to someone to sell on eBay?
You run the risk of enabling competition to your business. I'd suggest buying all the stock at a (healthy) discount and finding channels to liquidate it yourself (retail, online, her eBay sellers etc.).
You run the risk of enabling competition to your business. I'd suggest buying all the stock at a (healthy) discount and finding channels to liquidate it yourself (retail, online, her eBay sellers etc.).
jeremyc said:
What does she plan to do with the old stock if you let her keep it: set up in competition, sell it on eBay, sell it to someone to sell on eBay?
You run the risk of enabling competition to your business. I'd suggest buying all the stock at a (healthy) discount and finding channels to liquidate it yourself (retail, online, her eBay sellers etc.).
thisYou run the risk of enabling competition to your business. I'd suggest buying all the stock at a (healthy) discount and finding channels to liquidate it yourself (retail, online, her eBay sellers etc.).
you want a clean break with the previous owner - and I assume you will be wanting to have something around her not competing any longer...
akirk said:
jeremyc said:
What does she plan to do with the old stock if you let her keep it: set up in competition, sell it on eBay, sell it to someone to sell on eBay?
You run the risk of enabling competition to your business. I'd suggest buying all the stock at a (healthy) discount and finding channels to liquidate it yourself (retail, online, her eBay sellers etc.).
thisYou run the risk of enabling competition to your business. I'd suggest buying all the stock at a (healthy) discount and finding channels to liquidate it yourself (retail, online, her eBay sellers etc.).
you want a clean break with the previous owner - and I assume you will be wanting to have something around her not competing any longer...
Before you focus on stock I would start with the fundamentals.
So they have a turnover of £1m. What is their net profit, excluding any director's dividend/salary but adding back in the cost of any time the shareholders spend working "in" the business rather than on the business.
Ideally then see if you can figure out an approx profitability of each shop. Is it the case that 1 or 2 shops are making 80% of the profit or is it more evenly spread?
When you say the business is poorly run, running 7 shops is not easy. They are lots and lots of often minor issues which grind people down. Is the director for example managing all of the shops in terms of staffing etc or do they have a manager?
Also, just because they don't have a e-commerce website that isn't necessarily a bad thing. After all, building the website is the easy bit. Driving relevant traffic from people with money to spend is the hard bit. On this point, I would have a look on ebay (assuming that is somewhere the products are also sold) and check the mark-up so you can see if that would fit with your current shop pricing.
And in terms of their stock holding, it is all very well to run some nice reports and assume anything which is old should be disposed of. And if you are talking fashion clothing that is probably right. But many people buy businesses without quite understanding how they work and why the customer's like them. It it easy to assume the previous owners are numpties and the only way is up, but it is also *very* easy to ruin a good business with a small number of poor decisions. Look at Homebase for a recent case study.
So if it were me, and on the basis you are not buying a failing business (where what I have said above wouldn't apply), and assuming they have a level of net profit which generates the cash to afford larger stock holding, I would be very wary changing very much in the short term.
In an ideal world, if you can take it over, keep as much the same as possible, get your feet under the table and start making changes gradually you will greatly improve your chance of success.
So they have a turnover of £1m. What is their net profit, excluding any director's dividend/salary but adding back in the cost of any time the shareholders spend working "in" the business rather than on the business.
Ideally then see if you can figure out an approx profitability of each shop. Is it the case that 1 or 2 shops are making 80% of the profit or is it more evenly spread?
When you say the business is poorly run, running 7 shops is not easy. They are lots and lots of often minor issues which grind people down. Is the director for example managing all of the shops in terms of staffing etc or do they have a manager?
Also, just because they don't have a e-commerce website that isn't necessarily a bad thing. After all, building the website is the easy bit. Driving relevant traffic from people with money to spend is the hard bit. On this point, I would have a look on ebay (assuming that is somewhere the products are also sold) and check the mark-up so you can see if that would fit with your current shop pricing.
And in terms of their stock holding, it is all very well to run some nice reports and assume anything which is old should be disposed of. And if you are talking fashion clothing that is probably right. But many people buy businesses without quite understanding how they work and why the customer's like them. It it easy to assume the previous owners are numpties and the only way is up, but it is also *very* easy to ruin a good business with a small number of poor decisions. Look at Homebase for a recent case study.
So if it were me, and on the basis you are not buying a failing business (where what I have said above wouldn't apply), and assuming they have a level of net profit which generates the cash to afford larger stock holding, I would be very wary changing very much in the short term.
In an ideal world, if you can take it over, keep as much the same as possible, get your feet under the table and start making changes gradually you will greatly improve your chance of success.
Sounds like the only way you are going to have clue of whats going on is to ask to shadow the owner for a couple of weeks before making any decisions on how to move it forward.
With regards to it being resilient to digital does this still stand in 5 years? Is the eBay woman selling at the same margins and volumes?
Retail is a tough game and is going to get a lot harder in the next few years
With regards to it being resilient to digital does this still stand in 5 years? Is the eBay woman selling at the same margins and volumes?
Retail is a tough game and is going to get a lot harder in the next few years
ProjectRetail said:
I'm a regular poster on this business sub forum, well over 1000 posts but wanted to keep this question anonymous rather than link to my well known profile and tap the minds of the collective PH Business wisdom.
We've spotted a locally well known retailer for sale. They are in a good niche that still works well on the suburban high street. By that I mean middle class leafy neighbourhoods with a parade of mixed independent and national retailers.
The retailer has 7 shops and £1m turnover in total, but the accounts are a mess and it's poorly run from a business viewpoint, despite this it's the go to shop for this product in each locality and it's a well respected brand. But there is no customer database, no website to sell through, no upselling, no statistics or KPI's, social media presence is close to non-existant etc etc. i.e. a good opportunity to turn a profit and build the chain.
The question I have is around purchasing the stock. The seller has indicated that she would be happy to not include any stock in the sale. Which is possibly a saving grace because for the £1m turnover they started the year with £950k of stock, added £520k of stock purchases and ended the year with £970k of stock. So clearly they have way too much stock and probably much of it very old (I've asked for an Aged Stock report, but give the management accounts are typed in MS Word, not even Excel, I'm not hopeful).
She has also let us know that recently she's been selling off old stock in batches to a "lady that sells it on ebay" last sale was £30k of stock, but no idea if that's RRP, Wholesale price or Discounted heavily, presumably the latter.
The stock is seasonal, but it the business as a whole isn't i.e. different stock on the shelves in different seasons, but if not sold 1 year can be put away and come out the following year but without deterioration or other issues.
So I'm considering making a conditional offer for stock along these lines:
We'll take all stock less than 3 months old at cost (except the highly season specific lines which will cap at 2 months old), anything older we'll take everything but at nil upfront however we'll share with you at X% all gross profit on the old stock, any stock remaining after 1 year will be written off and can be returned to you if you would like or we can renew the agreement to profit share. [GP would obviously need to be defined e.g. Cost of item, card fee, postage cost if sold online when we get website running]
I've never worked in retail (except in Dixons as Saturday staff as a 16year old) and definitely never been involved in buying a retailer, so are there any other ways of purchasing the stock? If the above way works, what percentage share would be reasonable?
I purchased a retail business a few years ago. When I purchased it I was offered the opportunity to buy some of the stock and then doing a % split with the old owners on the remaining part. I made them a silly offer on the remainder of the stock and after a small amount of haggling they accepted. Neither of us wanted the hassle of the % split. Particularly as its a niche business with some fairly high end items that take months/years to shift. If you can afford to, buy everything outright. It might take a while to shift some stuff, but ultimately more profit for you. We've spotted a locally well known retailer for sale. They are in a good niche that still works well on the suburban high street. By that I mean middle class leafy neighbourhoods with a parade of mixed independent and national retailers.
The retailer has 7 shops and £1m turnover in total, but the accounts are a mess and it's poorly run from a business viewpoint, despite this it's the go to shop for this product in each locality and it's a well respected brand. But there is no customer database, no website to sell through, no upselling, no statistics or KPI's, social media presence is close to non-existant etc etc. i.e. a good opportunity to turn a profit and build the chain.
The question I have is around purchasing the stock. The seller has indicated that she would be happy to not include any stock in the sale. Which is possibly a saving grace because for the £1m turnover they started the year with £950k of stock, added £520k of stock purchases and ended the year with £970k of stock. So clearly they have way too much stock and probably much of it very old (I've asked for an Aged Stock report, but give the management accounts are typed in MS Word, not even Excel, I'm not hopeful).
She has also let us know that recently she's been selling off old stock in batches to a "lady that sells it on ebay" last sale was £30k of stock, but no idea if that's RRP, Wholesale price or Discounted heavily, presumably the latter.
The stock is seasonal, but it the business as a whole isn't i.e. different stock on the shelves in different seasons, but if not sold 1 year can be put away and come out the following year but without deterioration or other issues.
So I'm considering making a conditional offer for stock along these lines:
We'll take all stock less than 3 months old at cost (except the highly season specific lines which will cap at 2 months old), anything older we'll take everything but at nil upfront however we'll share with you at X% all gross profit on the old stock, any stock remaining after 1 year will be written off and can be returned to you if you would like or we can renew the agreement to profit share. [GP would obviously need to be defined e.g. Cost of item, card fee, postage cost if sold online when we get website running]
I've never worked in retail (except in Dixons as Saturday staff as a 16year old) and definitely never been involved in buying a retailer, so are there any other ways of purchasing the stock? If the above way works, what percentage share would be reasonable?
If it is as disorganised as you say, you may be better off making a blanket offer for all the stock instead of doing a stocktake of everything. There may well be a fair bit more in stock than they realise. (stuff they bought years ago that's hidden away in corners that they've forgotten about.
Don't make loads of changes straight away. In fact, I'd only make small, almost behind the scenes, changes to begin with. Sort out the accounts, the pricing, the stock levels. Spend 6 months getting to know the business and your suppliers. Suppliers will be keen to get on good terms with you so may make you some better than usual deals to get you on side. After a while if there's any stock that's old and not shifting, sell it off at cost, even at auction. Then you've got the space to either fill the store with new lines, or just make it tidier and less cramped if that's the case.
Cheers
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