What is Wholesale?
The Cambridge Dictionary defines wholesale as “the activity of selling goods, usually in large amounts, to businesses, which then sell them to the public…”
The idea of wholesaling is almost as old as the idea of trade, itself. When a company or an individual purchases a product in bulk with the intention of selling it to the end user for a profit, they are engaging in a wholesale purchase. This includes all everything from Wal-Mart or Amazon buying multiple shipping containers of a single product for their warehouses, to the college student who buys a a couple bags of Mardi Gras beads to take to spring break and sell to his/her friends for a couple bucks of profit. All industries, most companies, and almost all products have some sort of wholesale stage in the purchasing cycle. The topics covered in the following sections will get you started if you’re new to the world of wholesale purchasing.
Getting Started
Do you have space to store inventory?
This is a major factor to consider. When you are working with a company who sells wholesale, they are trying to sell you the largest bundle of products possible. They often offer incentives to purchase larger quantities, such as discounts, free merchandise or other perks to convince you to take more products at a time. Each transaction costs money, so if a manufacturer or distributor is offering wholesale prices, they’ll be expecting you to take some sort of bulk delivery. The idea here is to reduce their cost per piece sold by increasing the size of transactions. The more they save, the more likely they are to pass along deeper discounts. When purchasing wholesale home decor it’s essential to consider space requirements. You don’t want to end up with more product than you can store in your warehouse (It doesn’t matter if you’ve got a 100,000 Sq ft showroom & warehouse or if you’re using the corner of your friend’s garage to store inventory for online sales… You must consider space availability BEFORE you place any orders!
Can you afford bulk buys?
Once you know how much space you have available to store your wholesale lots of home decor, you’ll need to consider your budget. Ideally, your budget will be closely tied to your available space.
Are you backed by financing of some kind? This might include your own personal financing, such as savings, credit cards, or even loans from your retirement accounts. Maybe you’ve got big plans for your business and you’ve taken steps to secure private investors for your idea. For many start-up businesses, the only financing available is the extra few dollars from the owners’ paychecks each week or two. Do not over extend yourself in the beginning! In the beginning, you’ll find it much easier to run out of product and take back orders from your customers than to get stuck with product you can’t move.
If you have the financial ability to make bulk-buys, you may be able to negotiate lower rates with your wholesale partners. Many companies offer case-quantity discounts. Most companies offer truckload or LTL (Less than Truckload) discounts if you’ve got the resources to do that. You might have to ask for the discounts, but they’re usually out there! When talking to wholesalers, simply ask them, “how much of this do I have to get to qualify for deeper discounts?”
In a world where the giants like Amazon & Wal-Mart are cutting costs at every corner, its important to do the same, but only if you can do so without risking your financial stability. Always take a moment to ask yourself, “What if I don’t even sell one of these things? What will this do to my business financially? Can I liquidate extra inventory?”
Do you have a liquidation plan?
It’s inevitable that you’ll get stuck with a bad product some day. How will you handle this situation to recover as many resources as possible for reinvestment? All new businesses should have a plan for dealing with this. There are many approaches to take for inventory liquidation. The most common is to offer deep-discounts. In some cases, this even includes selling product for less than what you paid to recover as much cash as possible for reinvestment. This is never an ideal situation, but you’ll be better off losing half what you paid, as opposed to throwing away overstock and losing 100% of what you paid.
Some businesses use their poor performing inventory as “free gifts” for their best customers. You might find yourself amazed how many people will appreciate a free gift of a poorly performing product, even if they would never have made the purchase themselves. If you purchased a case of $6 clocks, and you just can’t sell it, consider wowing your customer by giving them away free with every purchase over $49. You’re reinvesting in your clientele while liquidating under performing inventory. This is a great way to turn a bad situation into a genius marketing opportunity.
There’s no shortage of creative inventory liquidation techniques, so go ahead and list out a few ideas and have them handy when you need them. Someday you’ll be glad you prepared.
What is your reinvestment strategy?
Once your sales start, whether online or via brick & mortar, you’ll have some cash in your hands. But, what will you do with that money? How much will you use for purchasing more inventory? How much will you keep for yourself? How much do you need to set aside to keep sales going forward? You must answer these questions before you start your wholesale to retail journey. A great rule-of-thumb is to always keep and reinvest your original inventory cost, plus 25% of profits. This guarantees that at the end of each year you’ll have more business value than the year before (assuming your overall sales and profit margin aren’t declining).
Some start-ups, especially if the business owner has a full time job/career to live off of, will reinvest 100% of all sales into inventory expansion activities. Other companies operate on an extremely low margin that allows them to remain at a stagnant size while providing a small take-home profit for the owners. You’ll need to create your own inventory reinvestment strategy that fits your business model best. But, don’t try to just wing-it – you’ll want to plan this out so you have guidance as you move forward.
What is Drop-Shipping?
Drop-shipping is a viable alternative for wholesale buyers who may not have the space or budget available for large bulk purchases in the beginning. A lot of large companies actually use drop-shippers behind the scenes to minimize their inventory investments. Companies such as Wayfair, Amazon, Jet, Sears, and many others never touch the products that are being shipped to your home. Those products are often being drop-shipped blind (using the retailer’s brand on labels and packaging, rather than the wholesaler’s) from the wholesaler’s warehouse. Many , but not all, distributors and manufacturers offer this service.
Why drop-ship?
As the business world changes, retailers are often looking for ways to maximize their return on a minimal investment in wholesale products. Drop-shipping is a great way to do this. You may find, as you curate your offerings, that you only want to stock a few core items, but you’d like to offer dozens, hundreds, or even thousands of related products. This is where drop-shipping as a component of your business can be extremely helpful. You can offer a wide selection without investing much space or money into a massive warehouse full of inventory that may or may not sell.
Earlier, we discussed warehousing and financial restrictions on new businesses. Drop-shipping is a great way to minimize the effect of these factors. If you’re working on a start-up, web-based store, for example, you might curate a core selection of products that you know you can move easily. As you look to expand you offerings and grow the size of your transactions you’ll need a plethora of complimentary products. One of the least expensive ways to do this is through drop-shipping.
How do I start?
If you already have an existing business, drop-shipping is very easy to get into. In most cases, an existing business can sign on with drop-ship vendors very easily with their existing business information. If you’re searching for companies who drop-ship, the following sampling of resources can help you locate and contact those companies:
Don’t try to do it all
Leave that to the retail giants! Chances are, you’ll never be as big as Amazon, Target or Wal-Mart, so it’s important to find your niche, rather than trying to offer everything to everyone. Even looking at “Home Decor” as a selling category can get deeper than you probably want to start. Consider just one style of home decor. You might focus on rustic home decor, modern or contemporary home decor, just lamps and lighting, or framed prints. Find your niche and master it. In a world of retail giants, this is the only thing that can set you apart from them. Chances are, Amazon already carries everything you want to sell. Most people don’t want to go through the hundreds of pages of products that won’t interest them, though, so they’d rather pay a couple dollars more by finding a store or web site that caters to exactly what they are looking to purchase. If you own a store that only sells wall art, people will learn to look at you first when shopping for something to go on the bedroom wall. If you specialize in rustic accents and log furniture, you won’t get the industrial loft dwellers, but you’ll have a steady stream of customers who decorate in a rustic lodge style.
We’ve all come across those web-sites that offer home decor, hand tools, appliances, clothing, pet supplies, and who knows what else in an effort to get everyone to their site. Chances are, you didn’t stay on that site very long because it’s too much. You couldn’t find what you want, and that site didn’t have the clout of the big-dog retailers to earn your trust and ensure you could find anything at all there. They lost your sale because they weren’t specialized.
Curate
Curated collections drive repeat traffic. This is true for both foot traffic and web traffic. There are simply too many choices for the average person today. Part of the value in curated collections is that you’ve already done the work of finding things for your niche market and pushing aside everything else. This takes time. It takes a deep understanding of your target market. It takes market research and it takes persistence. But, at the end of the day, a well curated collection will have a greater value for your customer. This means you can charge a little more, build a little stronger relationship, and lock that customer in for life.
Estimates vary widely, especially by industry, but creating a new customer costs anywhere from 7 to 35 times as much as reselling to an existing customer. Why spend all your time trying to chase a constant stream on new customers for a non-specific niche of products, when you could save so much money re-selling to the same customer over and over and over with products that are related?
Customize
There are so many ways to offer customization for your customers. “Private Label” is one of the favorite buzz words used by amazon retailers. They find a company with a product they believe they can sell, and they pay a slight premium to slap their own brand name on it. Wayfair has mastered this game, and might be one of the best placed to look at how to private label home decor and home accent products. Very few products on wayfair.com are listed under the brand that actually sells them. Wayfair has very carefully curated their entire product offering into their own brand sections. When you receive a product is is often marked with tags from the original brand, but on-site it’s listed as something such as “Manufactured for Orren Ellis by 7055, Inc.” In this case, the original brand is 7055, Inc, but when on the Wayfair site, you’ll see it listed as part of the “Orren Ellis” brand.
Another customization option is to literally customize the product and/or packaging. Most wholesalers in the home decor industry will use custom packaging or can make slight design changes for companies who buy in large quantities. Keep in mind that when requesting customization, that you’ll need to plan for a large enough bulk purchase to make it worth disrupting the wholesaler’s normal production schedule. Custom products and custom packaging take more time than standard production, so you should always expect an up-charge to cover any added expense to the wholesale supplier. You can often offset the up-charge if you purchase in large enough quantities to qualify for bulk discounts.
Hit the Road Running!
Styles Change Quickly
If you’re still serious about getting involved in the home decor industry and buying wholesale, keep in mind that trends change fast in this industry. Think of it as “fashion for your home.” Just as you wouldn’t want to get stuck with 700 Cases of men’s shoes that have just gone out of style, you won’t want to get stuck with 75 framed oil paintings in colors that went out 2 years ago. Plan wisely. Know the trends. Have a marketing plan in place (as well as an early liquidation plan) so you don’t end up tied up with a pile of inventory that gets so dated it looks second-hand.
It’s important to do your research here. You must be a master of trends, fashion, fads, and pop culture. The more cutting edge you can be, the longer your sell-time window will be. The longer you have to sell inventory that looks fresh, the more profit you’ll be able to demand per piece. Always stay fresh!
Plan, Plan, Plan, Plan!
You can’t plan too much when starting or expanding a business – especially into the wholesale home decor arena. It’s essential that you create a variety of plans for every imaginable situation. We’ve created a downloadable guide that will help you create and execute your own business plan. This guide covers finances, inventory, marketing, expansion, and more.