Since I’ve mostly been writing about the negative aspects of being a DE and a retailer (here’s my latest post), I need to put emphasis on the other side -the advantages of selling retail.
First, you can show your entire product line. This is particularly helpful because most retailers only carry a portion of your line. If you have a large or expensive line, that goes double. A good example of this is when a company makes an item and offers maybe a dozen or more fabric combinations. A retailer might only carry a few and (hopefully should) sell out. The consumer may want to see a larger offering of your product than any retailer can service and thus it is a benefit to you to sell retail.
Another benefit is when you are trying to get publicity for your line. Since most print publications work months in advance, you may have little control over the retail store. Magazines often want to let their readers know where to buy a product and they want it to be in stock. In that situation, it is usually beneficial to be a retailer because you know you can offer the product versus having to coordinate the logistics of that with one of your stores.
A great benefit is that you will also gain more accounts as buyers often shop online or they search online for new brands. This is particularly useful for buyers in remote areas or other countries who cannot attend industry trade shows regularly and may only make a trip once or twice a year, if at all.
The most obvious benefit is a higher profit margin. When you’re selling at full retail, you definitely have a higher profit margin than if you’re selling at wholesale -and I could go on and on about the benefits of the profit margin. I have known quite a few bridge/designer priced brands (retail prices of $300 and more) to go into retail specifically because of the profit margin. When you sell a product that wholesales for $150, chances are that you don’t have a high minimum order because you’d be too expensive for some stores to stock a lot of your merchandise. Thus, I have seen companies like this require a 2-4 piece or $500-$1000 minimum opening order. Well, if you’re at the lower end, you can sell two items for $150 wholesale each or one item for $300 retail and you’re in the same place financially.
Another advantage of retailing yourself is that you can test market new products. In fact, this may be one of the best reasons to retail. American Apparel does a lot of test marketing in their retail stores. It’s really easy to have a sample maker or contractor make up 6 or 12 pieces of something and see how it goes -how well it sells- before you commit to adding it to your line. You will also find what areas need improvement before committing to production.
Another advantage is getting feedback directly from the customer. Many DEs get customer feedback but that is filtered through sales reps or buyers. If you can get feedback directly from your end user, it is always a good thing. Here’s a great example. Many times black fabric is the roughest fabric because it requires the most dye to get a deep shade. One company made an item with a lace trim but in the color black, the lace trim was rough. Customers told them that the lace trim was rough and they silicone washed the lace (a dyeing process that softens garments and fabrics) and made a significant improvement to the product.
Another advantage is you can sell excess inventory or end of season merchandise. Now one thing I always believed is that a company could offer their retail accounts first dibs at excess inventory or end of season merchandise. I understand why many don’t want to do that (because they need to keep their product fresh) but I also know many retailers who would like the chance to get end of season merchandise at a discount and promote it creatively.
Let me give you an example: Say you have a product that retails at $100 and wholesales at $50. At the end of the season you can clear it out at $30. You probably have a retailer who could only move your product slowly at $100 but they could sell it well for a lower price. So if the retailer had the chance to buy your excess inventory or end of season merchandise at $30 and sell it for $60 or even $75, they have not sacrificed their profit margin and they have moved your item out of the door. It could be your line sells very well and the retailer could quickly sell the merchandise at $100 and enjoy the higher profit margin (read my earlier post about retail and inventory turn and profit margins). Retailers love opportunities like this. Now a company can decide they would rather preserve the integrity of their brand and not train their retailers to bargain hunt, and instead hold a sample sale that everybody in the area knows about where you sell your goods at half of wholesale anyway, or you can do a good thing for your better accounts.
In the end, there are pros and cons to being a DE/Retailer. If you choose to pursue a retail strategy, you need to really be sure whether you’re going to just have a retail strategy and what importance it will have to your product line, because becoming a serious retailer early on may limit your ability to develop a large retail store distribution network.
We’re a DE that sells direct via our website. Its our primary means of sales, though we also have a few wholesale customers that love the line and stock it.
While the margins are higher than selling wholesale, they aren’t necessarily as high as you might expect. Some of the costs you have to take on:
1. Website. While one could put up a static website and forget about it, most sites find that they need to keep their site fresh and updated.
2. Photography. Retail customers need more than linesheets to make their purchases. They need to see what the product really looks like on a person. While you can just photograph anyone in any setting, it works better if you use “real” models. Photographers and models are expensive. (We do our own photography and only hire models willing to work outside of agency constraints to keep costs manageable here. It works because we are in a large city – if we were in a more rural setting, it would be far harder.)
3. Fulfillment. Filling wholesale orders is much simpler than filling retail if for no other reason than the sheer number of them. You can end up with a lot of packages in flight and making sure you get them all correct takes time, energy and money.
4. Customer service. Customer service for wholesale accounts is simpler than for retail. There are accepted norms for wholesaler/manufacturer relationships and there isn’t a lot of hand holding requirements. When dealing with end customers, you need to make sure you have allocated enough employee time to answer questions, help people with their orders, give advice on styles, colors, sizing and deal with any other issues that come up.
5. Advertising. This is a biggy. Selling direct, you cannot rely on your retailers to have their own foot traffic to look at your goods. You have to find a way to bring customers to your site. Generally, that involves advertising – which is expensive (and actually getting a bit more so).
Direct to consumer is still a very viable approach, but its important to realize that there are a lot of things pulling down some of those higher margins.
3. Fulfillment. Filling wholesale orders is much simpler than filling retail if for no other reason than the sheer number of them. You can end up with a lot of packages in flight and making sure you get them all correct takes time, energy and money.
I have actually been planning to write a full series of posts about fulfillment (mostly about third party fulfillment), but some other issues need to be ironed out first.
Reassuring article as my main business is on-line retail.