Small business: When things get tough - Nature Shop

Natureshop co-founder Conrad Cranfield. Photo / supplied

Conrad Cranfield, co-founder of Natureshop.co.nz talks to Gill South about coming back from the loss of a major supplier.

Nature Shop is a Mount Maunganui based online retail store selling high end nature inspired brands such as Icebreaker, Merrell, Patagonia and Timberland. The company which set up in 2007, has a base in the UK and came second in the Deloitte Fast 50 in 2010.

We had been growing extraordinarily, in 2009/2010, our growth rate was over 1100 per cent, when suddenly, out of the blue, our sheepskin boots supplier, Emu Australia, which provided 90 per cent of our turnover, decided to enter the online retail channel themselves and we lost supply.

We went from $4.5 million of sales of their products to $2.5 million, then to nothing with not a lot of notice. With all our infrastructure, warehousing and staff to consider, we managed to grow our other brands from $500,000 to $2.5 million in 2011 to $4.7 million in 2012.

Icebreaker was one of the brands which helped us. I could not speak more highly of them. We deal with a lot of companies but they set the benchmark. Other companies we worked with were Merrell, Timberland, Teva and Patagonia, then just a lot of smaller brands. We also have our own brand, Snugs.

Mistakes we made

There were two big areas where we went wrong. With Emu Australia we had very strong gross margins and as a result our stock inventory management was weak. We were not on top of poor performing stock. It's taken us up to now to get the right inventory management strategies in place.

For 12 months we put ourselves into a whole lot of strategies but because of lack of cashflow, we couldn't implement a lot of them. We had tried to scale up our business expecting that we could do the same thing that we did with Emu and Icebreaker, with other brands but it has been much harder going. We ramped up on infrastructure before the growth came.

In Europe, where we have had a base in the UK since 2010, trading has been tough. Last September the media there started picking up on the debt problems, (so consumer confidence was low). On top of that, it was one of their mildest autumns which was not great for a winter clothing and footwear retailer. In Europe we started selling baby clothing but it was a really difficult market. In the UK you can to go H & M and get organic cotton babywear for unbeatable prices.

We also had too many staff in too many areas and had no option to make do with less.

Handling the crisis

I took some steps which I thought would help. In 2011 I brought in an external CEO so I could focus more on the revenue making side of the business. But it took me six months to usher him into my other roles so I didn't really get much else done - he was just there for eight months.

I was still working full time on the business but stepped away from the financial management, which was a big mistake. He was a very capable guy but didn't have a background in retail, international or online businesses. I wouldn't ever step back from that role again as long as we hold majority ownership of the business.

I also brought in the director Helen Cross to the advisory board. She is a director of the large trading society, Farmlands and advisor to the board for the clothing business, Huffer. She and her husband are also entrepreneurs with their own business, Powerbyproxi. She was fantastic at helping us to run the business with proper governance rather than glorified management meetings.

We made all the key decisions at board level. It's one thing to recognise what is going on but it's how you come out the other side. We made sacrifices, selling our house and putting money into the business.

We trimmed our overheads by 35 per cent making five redundancies. Our focus was on lowering our breakeven point, protecting our gross margins and to get the whole cashflow cycle into positive.

Lessons learnt

These days we would never have a supplier giving us 90 per cent of the business again. We made a big loss last year, this year we will be comfortable but not to the same heights as we have been. But actually we are a far more stable, safer business than we were three years ago. Our next growth strategies will see us running a far more in-depth risk assessment and, critically, inventory management models.

Now we are looking for blue ocean strategies where we can compete and put ourselves at an advantage against other competitors rather than operating on a level playing field.

At the moment the big focus has been on brands that have a big international price disparity in New Zealand and Australia. There are a lot of well known ones where you pay 30 per cent more for the brands than consumers pay overseas. We are parallel importing through our European contacts and are able to offer far better prices than are usually available locally.

It's that time when businesses are thinking of ways to thank their loyal customers. What should SMEs with limited budgets be trying to say with their gifts, how do they make an impact that doesn't cost the earth? Send me, Gill South, your ideas here.