In 2011, Forbes took a close look at net profit margins in various retail industries to find out just how well businesses were doing. Despite gains, pretax net profit margins were hovering at just around 5% for clothing retail stores and luxury goods were at just under 6%. If you’re looking into a business, these might seem like completely dismal numbers. One franchise system, Clothes Mentor, is looking to change the profit margins game to make their franchises more profitable.
Most clothing retailers have gross profit margins of 30-40% on individual items of clothing which involve complex processes of appropriate price predictions and markdowns until all the stock is sold. Clothes Mentor, however, wants to help franchisees gain gross profit margins in the 60% range—that’s 20% more than the highest profit margins for ordinary clothing retailers. Clothes Mentor is a resale shop, so they have a completely different situation from your average local clothing store. Clothing stores are earning net profits of around 5%, but Clothes Mentor franchisees can earn 25% net profits through the Clothes Mentor franchise system. The only other industry that comes close to that amount of profitability is oil and gas at 24.1%.
The system is based on like-new and gently used clothing that can be sold at lower than retail price to customers. Clothes Mentor specializes in women’s fashions for all sizes, from 0 on up, and has a wide appeal to women looking to save money on the latest hot fashions. While it might seem farfetched that franchisees can make such high profit margins, Clothes Mentor franchisees have already achieved this goal.
Clothes Mentor is not a consignment shop. Consignment shops typically have much lower margins. While they represent less risk for owners, they also have lower profit and more headaches.
Customers can sell name-brand clothing to Clothes Mentor locations on the spot for cash anytime when the store is open. Selling customers can even then turn around and take that money to buy clothing in franchisee’s stores. Because Clothing Mentor’s stock changes rapidly between visits, there’s always something new and that keeps customers coming back, especially those who want to score a good bargain on lower than retail priced brand clothing.
The unique POS system helps franchisees manage their business to find the best profits and to price clothing correctly to sell immediately, instead of having to go through a series of markdowns. The buyback system also has integrated technology to keep Clothes Mentor’s locations stocked at the right price with the latest fashions in women’s clothing to capture sales in the moment. Instead of having to predict trends months in advance like other clothing retailers, Clothes Mentor can respond to trends immediately.
On top of a business model made for profitability, Clothes Mentor franchisees receive support and training from the corporate team that makes Clothes Mentor a full-service and support franchise. After signing contracts, Clothes Mentor franchisees go through extensive retail training with the goal of running a profitable franchise.