How to Manage Cash in a Downturn – BoF
Wed 12 Apr
In an uncertain economy, brands must be as efficient as possible, protecting margins by eliminating non-essential costs, reducing SKUs and negotiating with suppliers.
Between inflation and sluggish consumer spending, the nuts and bolts of running a fashion business are more important than ever for small fashion brands. These companies have fewer options to fall back on when they hit a rough patch: High interest rates make borrowing less attractive, and investors aren’t as willing to back emerging labels.
That means it’s time to get pragmatic and look inward at each aspect of their business to figure out how to stretch their capital just a little further.
It’s a fraught process that often plays out in full view of consumers. To save cash, brands are switching to cheaper materials and to countries where labour costs are lower. Labels are stocking fewer styles and pushing cheap-to-produce trends like matching sets and “essentials” collections. They’re pickier about which retailers to work with, and opening fewer of their own stores.
Even then, success is not guaranteed; the failure rate for emerging fashion brands is high in the best of times. But methodically eliminating non-critical outgoings is a must in order to safeguard profitability.
“There is no secret sauce — it’s simply the somewhat unsexy, but obvious focus on preserving cash to see the business through this lean period,” said Stefano Martinetto, co-founder of London-based brand accelerator, Tomorrow. “The mentality shift required is to focus on what is essential versus what is nice-to-have.”
“It’s about keeping your organisation lean,” Martinetto added. “Question who — and what — is essential to carry the brand through this phase.”
Ultimately, to make the most out of cash, brands need to do whatever they can to protect the bottom line.
“Entrepreneurialism is as much about business fundamentals as it is creativity,” Martinetto said. “The brands that will come through this period strongest will be those that focus on keeping the balance between these two sides.”