Internet retailing is a double edged sword, it lets you get your foot in the door but also, it lets others less scrupulous in the door too. Now, this isn’t a problem if you’re the only one selling your goods but if other people start selling your stuff, well, it can destroy everything you’ve worked to hard to create. If you have no retail buyers then there’s no one to complain that you’re selling under MSRP but once you start selling to others, you have to make sure they’re not selling at deep discounts on sites like ebay. I’ll start with a story from someone I know.
Cathy had been in business selling her products for six years when one of her regular customers placed an unusually large order. The order was ten times larger than any she’d ever gotten. Happily, filling the order was no problem because she was reordering to fill in her own stock at the time so it only amounted to an upfront short term belt tightening until the buyer paid. Collecting on the invoice wasn’t (much of) a problem so Cathy was pleased with the unexpected windfall. That is until the buyer started competing with her online, selling in her exact venue at a 40% discount. There was nothing she could do, she nearly went under. Worse, since the buyer had such a large inventory, it severely impacted her sales for nearly two years. Still worse, her biggest customer stopped ordering because the buyer effectively locked up all the sales on that item.
Beyond despondent and depressed, she learned two lessons. One, as tempting as they may be, big orders can kill you. Two, verify where your buyers intend to sell their products –even if they’re an existing customer! Cathy’s customer had his store; he used her to expand into online sales. Specifically, if you expect to retain your own margins or those of your other buyers (and why else would they buy from you), you must make sure you’re not selling to ebay sellers, off price web sites or other discount venues. That is not to say your customers can’t be competitive but there is no way that a brick and mortar store can compete with the overhead of someone selling on ebay -and as it happens, someone who’s not paying their invoices. More on that in a minute.
Today’s second story comes from Susan:
I manufacture children’s apparel and have recently discovered that two of my retailers are selling my CURRENT season’s clothing on eBay. The sellers in both situations do not have store fronts. I struggle with my feelings about how this has happened. I would like to think that between meeting the requirements to buy at market as well as by meeting with my sales reps and explaining to some degree their situation, this could/would be avoided. I have spoken to both representatives who wrote papers for these buyers.
I am not entirely sure how to handle this. I don’t think that it is good business practice to buy goods at market, and sell them for a deep discount on eBay. The retail stores that pay so much overhead and run reputable businesses are who we want selling our goods.
What Susan did not say in this email is that she has two customers selling her goods on ebay with starting prices of $7.99 on goods that retail for $52 -and worse, they haven’t paid their invoices yet. The one buyer is communicating and says she intends to pay. The other buyer is AWOL. Also, please note this is her current line, these are not off price, remaindered or brokered goods. She also did not mention that her spouse is an attorney. Apparently, remedies are limited.
Unfortunately, these stories are becoming too frequent these days. Buyers are going to market, placing orders and selling your goods at ridiculously low prices with no intention of paying their invoices. This kills you in two ways. In the case of Susan’s second buyer, this person has committed fraud and has no intention of paying. Second, this depresses the market for your goods. If your other stores find out your products are available online at much lower prices, they’re not going to buy from you any longer. As Dan from BoBo bags said, there are lots of buyers out there who are alligators. They are thrilled with new lines because you haven’t been around long enough to know how they can burn you. It’s one thing for someone to take your goods without paying for them. It is quite another thing to ruin your chances with other stores who won’t want to buy from you anymore if you can’t control who’s getting the goods.
Susan also mentions that the problems transcend ebay, now it’s trunk shows. She says these are getting huge. People are buying goods and showing them in their homes, again at deep discounts. She mentions that she doesn’t know where the controls lie, how these buyers are getting in when many trade shows (like Dallas) in order to get buyer’s credentials, you have to have a photo of your storefront, an electric bill,or proving a buying history. A word to the wise would make online sales in these venues verbotten. Similarly, trunk shows. Somehow, you’ll have to stipulate in your sales contract that your buyers must either have a brick and mortar store or if online, that they agree not to sell below a stipulated price point. In any event, collect before you ship. I realize that big orders are flattering and a validation of all you are trying to do but don’t get taken.
So please, feel free to post your suggestions to hopefully prevent these things from happening to others.