What are the margins of an apparel distributor?

Judging from increasing questions on the web from start up clothing lines about the margins a clothing distributor expects, it has become apparent that people think they can streamline sales by contracting with one. So let’s start with that.

In the apparel industry, a distributor is a middleman between a manufacturer and its wholesale customers. There are three instances in which one might need the services of a distributor:

  1. The manufacturer is a very large brand -on the order of Ed Hardy.
  2. The manufacturer seeks market presence in a foreign nation.
  3. The manufacturer produces unbranded commodity items such as tees, tube socks etc.

Of these, only the second item applies to small firms. You’d contract with a distributor in a given country to represent you to their wholesale customers. The reverse is also true; it is common for showrooms to act as distributors for offshore brands here in North America.

This is where the confusion comes in. People think hiring a distributor is a streamlined way to get products into stores. It is not that. Or rather, it can be true in limited circumstances but it isn’t an option for smaller companies. When the term “distribution” is used, it most commonly refers to distribution channel and distribution logistics.

Distribution channel refers to the process of getting your wholesale goods into the hands of consumers. For most companies, this involves sales representation, showrooms, trade shows, brick and mortar stores, internet stores, direct sales etc. Most companies (except 1 & 3 above) do not use distributors to do this. Most companies roll this into the sales department.

Distribution logistics is the most common use of the term and refers to fulfillment, warehousing and shipping. Distribution logistics is the process by which orders are received, the items removed from inventory, packed and shipped to customers on a pre-defined schedule. Many small companies do their own order fulfillment but you don’t have to; it is relatively easy to contract with a fulfillment center to do this job for you. Once you start selling to more established stores, sophistication in order fulfillment becomes an imperative.

Confusion and frustration arises if you’re looking to contract with a service that will get you into stores when most services you find are in the business of providing fulfillment. It certainly doesn’t help considering misnamed distribution agreements contracts on the web that are really sales agreements. I guess they use “distributor” because it sounds more official and business like but it will only create frustration.

Margins: The traditional sales distributor gets about 30% off wholesale which explains why they only take very large brands or commodities because most small companies don’t have the resources to give that much up. The distributor’s selling price becomes the wholesale price which is doubled once in the hands of retailers. Perhaps you can see why running one’s own sales force and paying commissions of 8% to 15% is preferred -plus sales people will take much smaller product lines.

For most small companies, the only kind of distribution they can get is offshore. This can be a good strategy to sell abroad so it’s definitely worth consideration. It may be possible to do it because your costs to service accounts are lower and centralized considering the cost and hassle of shipping and importation. Plus, goods overseas are often marked up over and above domestic MSRP.

Related:
Fulfillment Centers pt.1
Fulfillment Centers pt.2

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One comment

  1. Bente says:

    For European brands (children’s clothing) imported to US there are a few distribution companies mostly out of NY, some Rap. while others pass the collections to other Sales Representatives around US.
    For the children’s market I know the distributor takes more than 30%, but this also depends if they take care of the importation/costs. I would think this would be the same if a US brand exports to Europe. My question is what do the 30% include?

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