Small Business

Following the Threads


By Karen E. Klein Q: I am trying to set up a clothing-outlet business. I have the property, but don't know where to get the latest designer labels in bulk at wholesale. If you could give me any information, it would be most appreciated.

---- S.L., Hull, Britain

A: Large department stores and designer shops typically keep their new merchandise on the racks for no more than four months, apparel experts say, because styles change with the seasons. After designer clothing is marked down a couple of times, the pieces that do not sell must go to make way for new designs. Fairly new merchandise winds up being bid on by intermediaries for pennies on the dollar. This secondary market is where discount-clothing outlets come by most of their product, experts say.

You should first decide what kind of clothing you're going to sell -- men's, women's, or children's. Will you carry plus sizes or sportswear, evening gowns or footwear? Narrow down your market and then identify the designers whose merchandise you would like to carry.

You can contact the labels at their corporate headquarters (most of which are in New York), tell them about your store, and let them know you'd like to buy their closeouts directly -- and guarantee to sell them only in your shop at a specific markup.

"An individual outlet business is probably going to be too small for any of the major designers to deal with," says Bruce Berton, director of international business consulting at Los Angeles-based accounting firm Stonefield Josephson. But you may find small design houses or semi-designer name brands that will do business with you, he says. You'll probably need to present them with a formal letter of credit and agree to buy their off-price items by the containerload, which is how most unsold goods are boxed up in the warehouses.

STEP BY STEP. Name-brand clothing designed in the U.S. sells all over the world. Most of the large labels have licensees authorized to sell in various territories overseas, Berton says. When you contact the manufacturers, ask them to put you in touch with their licensees, and then ask if they will sell you their overruns, after-season leftovers, and irregulars.

Some will not, since they don't necessarily want competition from outlet stores, he says. Others may be looking for a way to recoup their losses on clothing that does not sell off the rack.

If you have trouble sourcing the apparel you need, you have some additional options. You can contract with a clothing "buying office," which you pay a monthly fee to do nothing but shop closeouts at specific designer labels in specific age groups and styles.

When you authorize purchases, you will pay the buyers a commission and they will deliver the clothing to a customs broker for shipment to Britain. Investigate the tariffs you'll have to pay to ensure your expenses won't be so high that you can't make a profit, Berton warns.

HIT THE ROAD. Another idea is to contract directly with a U.S. off-price specialist that does nothing but buy leftover merchandise and resell it, says Robin Rose, a Los Angeles business consultant. "I'd recommend that you start by contacting a company like DLM Off Price (http://www.dlmoffprice.com)," says Rose. "You can buy whole containerloads of merchandise from them and you'll be getting the merchandise for about 10 cents on the dollar, ready to be shipped out," Rose says.

A third possibility, if you can afford it, would be to travel to the off-price apparel shows held four times annually -- twice each in Las Vegas and New York -- in conjunction with large apparel-industry trade shows, Berton says. For more information, check out Magic International (http://www.show.magiconline.com).

"Huge lots of merchandise, from shoes to clothes, are sold as-is -- pre-packaged -- at these shows. You may have to buy six months in advance and hold the merchandise so it will be in season when you display it. And again, you'll want to check on the tariffs. All the U.S. designers manufacture their clothing overseas, so you'll have to find out what the country of origin on the clothing is, and in some cases pay an extra duty on it since the goods are not made in the U.S.," he says.

For more information on the apparel business, do some research online starting with the links page from the Fashion Institute of Technology:

http://www.fitnyc.suny.edu/about/library/1.55.8.html. Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


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