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What are the likely economics (revenue, gross margin, profit) of a online outdoor clothing company in the first 3 years? How much capital is needed to start one?
Hi, thanks for asking about the expected economics of an online outdoor clothing company in the first three years. After a ton of digging, I found that outdoor retail companies, on average, generate an annual revenue of $989,002, gross margin of $428,238, and operating profit of $44,505. A company aiming to reach these results should have an initial investment of roughly $705,500. Some of the major challenges among online outdoor retail companies involves keeping up with larger competitors and attracting millennial consumers. The most relevant sources I’ve found to answer your question are the Outdoor Industry Association and Outside Online. Below, you will find a more extensive account of my findings as well as an in-depth explanation of how I came to these conclusions.
METHODOLOGY
I began this research by looking for articles and studies regarding the likely economics of an online outdoor clothing startup company. Through my research, I found that there is very little economic data specific to this industry. Most sources outline figures for wider industries like online clothing, sports retail, and outdoor gear. Out of all the sources I reviewed, it appears that the Outdoor Industry Association (OIA) has the most relevant and comprehensive data regarding this space. This organization publishes an annual report about the financial performance of companies within the outdoor industry. Regrettably, it appears that most of their data are available only to their members. After some digging, I found a few publicly available OIA executive report summaries but they are only available for the years 2011 and 2013. In order to obtain an up to date estimate, I’ve calculated the present values using the growth rate between 2011 and 2013.
LIKELY ECONOMICS OF AN ONLINE OUTDOOR CLOTHING COMPANY
In 2011, the Outdoor Industry Association has released the financial benchmarks gathered from 59 outdoor retail companies. Their study has shown that in 2011, the median sales per employee was $139,182. The same report published in 2013 reveals that the sales per employee have gone down to $115,259 or a decline of 9.9% per year. Using this rate of decline, we can estimate a financial benchmark for this year:
• Financial Performance Benchmarks (2011):
• Financial Performance Benchmarks (2017):
Revenue: $989,002
Gross Margin: $428,238
Operating Profit: $44,505
According to a sample outdoor gear business plan published by Bplans website, an outdoor gear design studio would need about $18,000 of capital in order to launch their business. It's important to note, however, that this figure is only relevant to design firms who license their products to manufacturing companies. Another relevant source is an outdoor apparel business plan published by Michael Kahn of Crimp N’ Trails Outdoors. In this document, they’ve outlined the likely startup expenses amounting to $260,400. They’ve broken down this capital to the following segments:
Real Estate (4,500 sq. ft. building): $150,000
Inventory: $50,000
Equipment: $12,000
Advertising: $5,000
Contingencies (20%): $43,400
Total: $260,400
This model anticipates a gross margin of $158,000 which suggests that the ideal initial investment should be 40% higher than the expected margin. Applying this to the financial benchmarks that we obtained earlier using OIA reports, we can assume that for a gross margin of $428,238 and operating profit of $44,505, a company should start with an investment of roughly $705,500.
MAJOR PITFALLS
In a 2015 article published by Outside Online, they’ve emphasized the growing challenge among outdoor companies to appeal to the millennial audience. According to them, outdoor retailers have spent years competing with each other in terms of product quality that the products start to become unappealing to the young and casual adventurers. As an example, they’ve noted that “a middle-aged former ski bum might get excited about a $400 sub-nine-ounce waterproof-breathable shell with a single-point-adjustment hood, but the 25-year-old occasional hiker sees an ugly, overpriced jacket.” Despite this difficulty, a couple of newcomers like Poler, Alite Designs, and Big Agnes have been successful in appealing to the general masses by making their brand more relatable to the masses.
According to a 2015 study published by the Outdoor Industry Association, 60% or 118.8 million American adults ages 18 to 65 are considered as outdoor consumers. The people who make up this group are those who:
- devote one hour (or more) of their week outdoors
- take part in outdoor activities at least once a year
- shop for clothing, footwear, and equipment for outdoor activities
Moreover, OIA reports that outdoor consumers spend 30% or an average of $137 per year on outdoor apparel. Out of all the consumer sub-groups, the urban athletes who are avid technology users and style-conscious tend to spend more than others. This sub-group make up only 20% of the consumer population but covers 33% of the entire outdoor spending.
In addition to attracting each consumer sub-segment, SNEWS Outdoor has pointed out that for an online outdoor retailer, some of the biggest challenges would be competing with larger and established companies. Known brands have the advantage of having already established a brand that customers trust. They also noted that having an omnichannel strategy can both be a challenge and an opportunity. Having products available in multiple channels can widen a company’s reach. However, SNEWS suggests that a huge part of an omnichannel company’s success depend on their ability to utilize modern marketing mediums that accurately targets their desired audience.
In summary, my research has found that outdoor retail companies, on average, generate an annual revenue of $989,002, gross margin of $428,238, and operating profit of $44,505. A company aiming to reach these results should have an initial investment of roughly $705,500. Some of the major challenges among online outdoor retail companies involves keeping up with larger competitors and attracting millennial consumers.
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