If you are valuing a women’s apparel store, consider these important factors:
Apparel retail shop value drivers
- Successful stores keep their rental expenses to within 10% of the gross revenues.
- Labor costs make up a significant factor that contributes to the store profitability and business value. The industry norm is to keep labor expenses under 18% of gross revenues.
- Product costs and gross margins. Successful retailers have their COGS within 50% of sales.
- Product and market differentiation. Many apparel retailers have carved out lucrative niches – with bridal, maternity, men / women product mix, gifts and special occasion offerings.
- Quality of customer service. Often the store’s image and its ability to attract and retain customers depends on the quality of its service staff.
Valuation multiples for women’s clothing stores
Owner-operator managed small apparel retailers are frequent acquisition targets. You can use such private business sale comparables to estimate your own business market value. The standard technique is to develop valuation multiples that relate the business likely selling price to its financial performance.
Here are the valuation multiples that your industry peers use most often when pricing a women’s clothing store for sale:
- Business sale price to annual gross revenues, plus inventory.
- Business sale price to seller’s discretionary cash flow. Inventory is typically extra.
One reason that the apparel stores are mostly priced on business gross revenues is that many buyers make considerable changes to the store after they take over. This is done in order to reduce the operating expenses and improve the business profitability.
Other valuation methods
Valuing an apparel shop as a multiple of its earnings
For small retailers the Multiple of Discretionary Earnings method offers a great way to assess your business value based on its earnings and a set of key financial and operational performance factors.
Business valuation based on cash flow and risk
For larger, multi-location retailers, the Discounted Cash Flow valuation method is preferred. Using this business appraisal technique you can determine your business worth based on its earning capacity and risk.
Business goodwill estimation for established retailers
Be careful to adjust the business assets to their market values. One asset that often calls for such an adjustment is inventory. If you carry inventory in excess of 1 year’s worth – reduce it to good and salable levels.