(Sydney Morning Herald)
Custom-design shirt e-tailer Tailors Mark has discovered a legal way around the nation’s most hated small-business levy: payroll tax.
Seven out of 10 of the start-up’s employees are based offshore, scattered between London, the United States, South Africa and India.
The structure evolved more out of necessity than design.
“We wouldn’t be around [today] if we had to run the business in the traditional sense,” said co-founder Rob Fisher, referring to Australia’s high labour costs and the ability to engage staff as required through the cash-restrained start-up phase.
The company’s longest employee, and right-hand woman to co-founders Mr Fisher and David McLaughlin, lives in Tasmania. She has never met her employers face-to-face in three years of working for Tailors Mark, yet she is crucial to operations.
Her name frequently pops up in customer testimonials. “We do our best to look after Sue,” Mr Fisher said.
The Tailors Mark story paints an extraordinary picture of the workplace of the future, how semi-retired professionals will engage in the workforce, and the challenge for the government’s dependence on tax revenue.
Melbourne accountant Adrian Clerici says the model of outsourcing absolutely every function of a business is becoming more common and acceptable. He has several “new economy” clients with no permanent physical presence, some of which are substantial entities turning over $30 million a year after two years in existence.
Despite being domiciled in low-tax jurisdictions such as Hong Kong and Singapore, tax minimisation is not the chief motivation to base there, he said.
Rather, it’s more likely to be about controlling their supply chain and eliminating the need to hold stock so they can engage in what’s referred to in the rag trade as “fast fashion”.
In Mr Clerici’s experience these virtual companies are still engaging Australian services providers, which will limit the impact on the nation’s tax take.
EXPANSION IN THE PIPELINE
All this aside, the structure of Tailors Mark could allow it to sidestep the drag of payroll tax as it launches a $1 million capital raising, in a bid to match the scale of German rival YouTailor. This expansion will see Tailors Mark add suits and trench coats to its range in the next 12 months, in partnership with its Bangkok-based joint venture partner.
Tailors Mark opted to give its Bangkok supplier an ownership stake in the business for quality assurance and to shore up its supply chain.
The company, which is on track to generate sales revenue of $1.3 million in 2014-15 (without the capital raising), will be looking for “colour money” through the capital raising process that can bring experience in direct selling and form part of an advisory board.
“We know the model works; now we need to build the brand,” Mr Fisher said.
Recognising that Australian consumers are reluctant to measure themselves and design their own apparel, Tailors Mark started using a consultant sales force late last year. After “falling on our faces a few times” they have now bedded down the model. Customers buying through consultants spend more per item, and buy twice as much.
Tailors Mark have 50 people applying to be consultants each week, of which it accepts about three. It uses consultants as a sales force in much the same way that Tupperware or Nutrimetics do. However, the challenge now is to build the brand and engage in traditional marketing to boost sales.
“Operationally we’re about five years ahead of where we are as a brand,” Mr McLaughlin said.
THE AUSTRALIAN FINANCIAL REVIEW