Wholesaling 101 - The reality of selling to stores. Are you ready?
When you start a brand, the dream of getting into stores is often at the top of the list of goals and jumping into wholesale too early can cause more problems than it’s worth. Below are some tips and questions to ask yourself to determine if you are ready. There’s a big difference between a random wholesale account and making a push with your brand into retail.
Are you selling enough online consistently where you can afford taking a reduced price on inventory?
Wholesale pricing most often is 50% off of your retail price. If you are selling a pin for $10 online, a store may only want to pay $5. You can move more product, quickly, which in turn can help fuel larger runs that reduce your cost and increase your margins. But, can you afford to do it and still make enough money doing so? Building direct sales through your online store or at events is key to establish first because if your store is supporting healthy margins through direct sales to customers, it's much easier to take a smaller amount in trade for a higher volume.
Are you capable of re-printing a design easily when you need to?
As you’ve probably learned, regardless of how much you try to attempt guessing the perfect inventory levels for product, it doesn't always work out perfectly. You should be at a point financially with the brand to be able to easily send a reprint order over to be made without it breaking the bank. You need to be able to handle ordering quickly if a design gets low or sold out to fulfill the orders.
Do you have a solid group of proven designs to offer wholesale that have shown that they continue to sell well over time?
The best approach to wholesale when you start is to have a selected group of best sellers to offer. These should be the designs that tend to outsell all of the others. Whatever designs you choose, you are committing to keeping those in stock for a while. In the clothing industry, it often goes by season, but if apparel accessories are what you sell, a store won't be happy to not be able to restock an item that is selling well for them. When I was selling shirts, I'd have around 30 designs I committed to keeping in stock for the season, but allowed any store to buy from my current inventory of new products or items not listed in my catalog.
Are you in a position to be able to handle net 30?
Net 30 means they have 30 days to make payment from when they receive the order. Any new accounts, I require they give a credit card, but once a customer gets into the re-order status, they will be wanting net 30. If that creates a huge strain on your business cash flow, you may not be ready, because trust me, they will ask for it. I’d say that 90% of my stores are on net 30. Plus side of net 30 is that they usually send a check and you don’t lose 3+% on the transaction. If you do wholesale on a random one here, one there basis, you can probably get away with credit cards for payment. You shouldn’t be charging their card until their order ships. This isn’t your way to get funding to produce the order. They will not be happy if you charge their card and the order ships 3 weeks later. Not a good move.
Do you have the time to handle each account?
Stores can take a good amount of time to maintain. As the number of stores goes up, so does your time devoted to them. If you sell to small boutiques, get ready for fun times getting paid. When I used to sell to a bunch of boutiques, some paid quickly and others were like getting blood from a stone for $250. I would heavily suggest having a credit card on file for them. And, don’t expect that card to always run successfully. I’ve had declined cards more than I can keep count of because of cards running out of state often and you need to make the call and get it sorted out. In my experience, small shops are not the greatest about on time payments and need to be reminded.
The dirty C word - Consignment
If you really want an account and are small, there’s a chance they will offer you consignment. Usually you can negotiate a higher draw since they aren’t putting any money out and you may be able to get 60% of retail instead of 50%. In my experience, consignment rarely works in a way that is worth it. You are not only putting stock that could be used better into a store that may sit unsold, but you are relying on their bookkeeping skills. You need to babysit a consignment account monthly. The very few times I have done consignment when I was a new brand, the only way it worked was by establishing terms and a trial period. For example, you can give the store 30-60 days to have the product on consignment and after that set time, you meet and evaluate if the store will purchase the products instead of consignment. If after 30 days, the store can’t decide, you need to pull your product if it isn’t selling through. If it was selling through, they’d want to buy it to make better margins. My feeling on shops that offer consignment or request it is that their stores will have a more scattered look as they will allow just about anything in to fill the space. This also means they most likely are not making a ton of money if they have to get free product and equates to headaches when it comes time to getting paid. 99% of the time, I would avoid consignment and 100% of the time I would avoid it if it’s not a local shop you can drive to to keep on top of.
What's the upside?
Wholesaling can be a great way to grow your business, but you need to be ready to do it in a way that doesn’t hinder your growth by spreading you too thin. I went from 3 to 100+ stores in 9 months and the growth was amazing, but also pushed me pretty far and pushed my credit card bills initially because I was pre-funding the production runs, knowing I'd get paid in 30-45 days. Growth and expansion cost money and the more coming in, the more that goes out in larger numbers with production, so you should evaluate where you are at financially and if you can handle the timeline of purchasing goods to produce and possible net 30 payment. For a few years, our total sales were split about 50/50 between online direct sales and wholesale. Having our products in stores also led to bumps directly to people in those areas. They'd pick up a shirt and check us out on our site. There is also the general marketing side of having more exposure for the brand. More people will see your name and it can help that organic growth as a brand for recognition.