Do you currently retail (either sell online or in a store) or wholesale a product or range? Perhaps you don’t do either yet, but can’t decide which one you should do once your new product is ready to launch. There are different pros and cons of each, but it’s also possible to do both.
Wholesale is the process of selling your product to other retailers. To explain the process very simply, you sell your product to a retailer for $X and they might then on-sell it to the consumer at $Y. Both you and the retailer make a margin on the product. The simplicity of this process is what makes wholesale quite attractive.
Here are some Pros of wholesale:
- You can move large volumes of a single product quickly.
- To expand on the above point, you can have just 1 product! There’s no need for a range if you are just wholesaling. Retailing usually requires a range to be able to have some sort of storefront (physical or online).
- You have less customers to detail with. For example you can sell 1000 products to just 1 customer, instead of 1000 customers. Definitely makes managing customer service much simpler.
- It’s easier to find customers (well usually). You could present your product at a trade show, sell directly to chosen retailers or use an agent to find retailers for you. Either way you have the help of the retailers to bring consumers to their stores (as it’s in their best interests that people buy your products). Your advertising spend may also be lower, as you aren’t having to advertising the products direct to consumer.
- Limited revenue and profit. You need to sell at a low enough price so that the retailer can still add their margin before selling to the end consumer. You need to consider a reasonable Recommended Retail Price (RRP), and work backwards to allow enough margin for both yourself and your retailer. There is more on pricing here.
- Limited control on how your retailers advertise and sell your brand/product. While you can provide some advertising, sales materials and brand guidelines, you won’t be in their store every day to check up on them!
You may set out to sell directly to the end consumer. It’s pretty popular these days to set up an online store, and sites like Shopify have made it super simple. Getting consumers through Ebay and Etsy are also popular start-up options. Some products perform better in bricks and mortar stores where consumers can touch, feel and try the product.
- Total control over your brand and how it’s communicated. This may create more work but everything will be the way that you want it. Control all of your marketing with your own store.
- Get to know your consumers directly. Meet them, chat to them or communicate through social media. Either way you will be communicating directly with your end user and not relying on retailers to pass on the message. Feedback is key, and by communicating directly with your consumers you may actually learn more about what they want.
- Set your own pricing. Whilst you can recommend a retail price, you can not force it on your retailer. This can sometimes create issues for smaller retailers who can’t compete on price with the larger ones.
- Higher $ margin per item. With no ‘middle man’ you obviously keep all of the $ margin.
- Ability to test new products in market. With total control you could launch a limited release product to see how it performs, before pitching the idea to other retailers. Retailing it yourself is much less risky as you can produce a smaller volume and just test it out with your consumers.
- Better cashflow. Instant sales means instant cashflow. Selling to retailers usually means complicated terms and conditions. Some will require things like 30 days payment terms, which is tough when you are paying for stock upfront.
- So much to manage! A website or retail store, consumer enquiries, pricing, product development, promotions, advertising etc. With your own product and shopfront there are a lot of elements to manage!
- Finding customers is more difficult. Building a website or shopfront does not mean you will instantly get sales. You need to work hard to drive customers to your store and then sell your product. Managing consumers is hard work! As mentioned earlier you could be managing thousands more customers than if you were wholesaling!
- Little down time. You can manage your work hours much easier with a wholesale business. However, with an online store it’s 24/7! So you might not be packing orders throughout the night but the sales and enquiries may keep coming through. It’s difficult to just close up for a holiday, unless you can get someone to manage the order processing for you.
Challenges of doing both Retailing and Wholesaling
There are plenty of positives to each wholesale and retail as mentioned above. To get all of the benefits you need to do both, however that comes with it’s own set of challenges.
- Retailers may not be happy about the idea of competing with you. This is usually the biggest hurdle. Unless you wholesale and retail two slightly different product ranges you will be competing with your retailers. This might upset some of them. You need to be mindful that your retail prices aren’t too low or heavily discounted too often, as they may see it difficult to compete with you selling directly to consumers.
- Even more to manage! Above I mentioned how challenging just retailing was. When you are doing both there is even more to manage! Product development, multiple product ranges, marketing, sales, order processing, retailers terms, consumer enquiries, promotions, a website or store front and maybe even staff!
The choice of whether to wholesale or retail (or both) really comes down to your long term business goals. I read one article on a swimwear brand Triangl who decided they were no longer going to be chasing up retailer accounts. The wholesale business model was flawed for what they wanted to achieve. They only sell their swimwear online and don’t discount, and this works for them! For other businesses producing a single product or two and scaling this by selling wholesale works best. Work out a business model that works for your type of product and what you want to achieve long term.