16 Very Important Pieces of Information for Anyone Looking to Establish or Open a Business in the Clothing and Accessories Sector.

The size of the clothing market in Saudi Arabia is estimated to be around 40 billion SAR. For example, Zara is considering increasing its number of stores to 45 by 2020. Have you thought about entering this market? With the current developments and the entry of women into the workforce, we expect a slight increase in demand. However, due to the rise of online shopping, shopping patterns and market share distribution for the major players in the market will change.

There are statistics used for comparison in this industry for those interested in entering the field. Let’s begin.

Inventory usually accounts for about 22% of sales capacity, and attention should be paid if the project relies on imports. The potential time for goods to arrive should be studied to avoid sales drops due to stock shortages.

The cost of goods sold (COGS) is typically about 40% of the selling price and may be lower for accessories, sometimes as low as 10%. Employee costs in this project are generally low due to the lack of need for costly professions, usually around 5% of sales. Commissions and incentives are around 2%. Rent costs play a significant role in such projects, accounting for about 11% of overall expenses. Marketing and advertising costs are around 3% of sales. The total expense ratio in this type of project is about 46%.

The average net profit in such projects is 5%, which applies to high-competition markets and is considered excellent, as these projects typically have high sales figures. This is not a complete study, but rather financial indicators used as guidance when considering entering the field. For example, if you find an opportunity to take over a store with a million SAR in sales, using these indicators, you would achieve a net profit of about 50,000 SAR. You can then compare whether the takeover fee is justified.

Another example: You find a deal selling clothes where the product costs 100 SAR and is expected to be sold for 120 SAR. Is it reasonable to buy the product and achieve a 20% profit, although market indicators suggest that the product cost should be 40% or lower for this type of business?

Another example: When forecasting sales, you expect to reach around a million SAR in sales. What is the highest limit for salaries in this case? You’ll find that two salespeople would cost about 7,000 SAR, which represents 8.4%, a reasonable figure.

If you find a business opportunity and notice that salaries make up 20% of sales, you will realize that either salaries are too high or there are too many employees. Some simple solutions could move the business into profitability.

Other factors for the success of any project include good management, marketing, location, and quality of goods. However, these financial indicators can give a clear indication of the type and cause of the problem. These indicators are based on studies conducted by the Innovator Value Consulting office, as well as their analysis and connection to mature markets like the U.S. market.