TSH 15: The Pros and Cons of WholesaleOct 23, 2023
Reading time: 2 Mins
I remember when I started my first business, wholesaling men's shoes to hundreds of stores around the world. I took out a loan, filled a suitcase with men's leather shoes I had sourced from China, and hit the pavement, walking into just about every store I could find. I had quite a bit of success in taking orders, however I had made a huge mistake before I had even sold my first pair.
I was holding stock.
I quickly learnt that the secret to success in wholesale boiled out to two things:
1) Don't hold stock.
2) Only work with good payers.
Fast forward to now - do I think it's a good idea for online retailers to go into wholesale? Let's break down the pros and cons.
Diversifying your revenue stream:
Revenue diversification can be a risk mitigation strategy, and by the same token this can be looked on favourably if you ever went to sell your business. Becoming an omni channel retailer (someone who sells across multiple sales channels) has proven to be successful for some huge brands around the world.
Eyeballs on your brand:
Wholesale can be a great way to get new eyeballs on your brand, particularly if you're just starting out, or entering a new market. Some brands refer to their wholesale divisions as a form of marketing (I don't).
Reaching Supplier's MOQs:
MOQs (minimum order quantities) can be challenging, especially when you're starting out. Getting bulk wholesale orders can be a way to get past those MOQ barriers.
Customer Payment Terms:
Most wholesale stockists want payment terms anywhere from 30 - 90 days after receipt of your products, meaning that you won't get paid until long after you've sent the goods, and much longer still from when you actually paid for the goods yourself. This is called being in a cash negative cycle - where you're constantly playing catch up by paying first, collecting second, and often paying for the next order before you've collected payment for the first order.
If you're in wholesale, you're guaranteed to have bad debts, meaning some customers will never pay you - it's usually the smaller ones, but retail can be tough, and when the going get's tough, the wholesalers get shafted.
If I had my time again, would I be a pure wholesaler only? Absolutely not. I got sick of being a line of credit for crappy retailers.
Would I be an omni channel retailer? Yes*, with a big * next to that 'yes'.
Here are my terms:
*I would only wholesale on cash up front payment terms, even at the expense of large wholesale orders. It's just too stressful being someone else's bank. If a retailer wants payment terms, let them get the 55 days interest free on their Amex card.
*I would only wholesale in markets where my DTC (direct to consumer) business was emerging, or in an early stage of its lifecycle, as a way of gaining attention on the brand.
*I would never do a wholesale deal and treat it as a 'marketing effort'. I can think of less stressful ways to market your brand.
*I would never wholesale to my competitors. If you're selling on a marketplace, ask yourself - am I actually selling to my biggest competitor?
*If a wholesale store is running constant Google ads advertising a discount on my brand - they're gone.
*I would do 90% of my sales on indent orders, and only 10% on stock service. Indent ordering means I would take orders in advance, and then make the order in bulk accordingly for the customers. I would only hold a maximum of 10% extra stock to hold for orders that 'pop up' throughout the season. Running a stock service can kill your business. I don't want to be anyone else's stock room.
A reminder for all those wholesalers out there, it's not a sale till it hits the bank.
Until next week,
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