Managing Growth

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3 Times You Should Say "NO!" To A Retail Distribution Deal

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I wish more vendors/brands were willing to say “no” to retail buyers because the deal didn’t benefit them.

For the ones who did say no to me and stated their reasons, I respected and admired it. One reason I would hear would be because the brand was afraid of deteriorating their brand and angering their more premium retailers. Obviously I’d try to work with them to come up with a solution that would preserve their brand equity and my plans for them in my assortment, but if we couldn’t reach a win-win agreement, I understood the reasons why and never faulted them for it.

I WISH more small vendors said “no” to me. Here are some occasions when vendors SHOULD have said no, but didn’t.

1) Vendors who were in no financial position to be doing business with a major retailer. For example, those who agreed to sell to Target but had to stretch themselves to fund production. Or those who could not handle the cash hold we placed on new vendors. Yes, retailers hold back some of your invoice payment (amount varies, but it can be as low as $5,000 or as high as in the tens of thousands) to cover chargebacks or other fees.

2) Vendors who would have to take a substantial hit on their margins and/or lower their wholesale costs much lower than they had planned. Desperation does strange things to people, include making concessions that would hurt their profitability and long-term sustainability. Stick with the margins you budgeted for yourself at the onset of your business. Rarely does it make sense to lower your wholesale costs too much. Because that margin will already be eroded by the unexpected costs of doing business with that retailer. So to start off with a deflated margin only hurts you long term.

3) Vendors who have an untested supply chain and/or little manufacturing experience at high volumes. Many vendors said “yes” to me and hoped for the best when production time rolled around. Hope is not a strategy. I’ve seen many vendors flop because they couldn’t get inventory to DCs in time because they failed to foresee certain hiccups, resulting in penalty fees for late delivery. Or other vendors would learn that their factories couldn’t produce consistent quality product at high volume levels and when those vendors failed quality testing, I’d kick them out of the assortment, leaving them with unsalable inventory. Nothing incurs more wrath from a buyer than poor execution.

So don’t be afraid to say no to retail buyers. It is not closing a door, but rather, a step towards building a long term relationship.

They’ll respect your sound business judgment and think more favorably of you as a future business partner. Credibility is in short supply in the vendor community. Saying “no” can build more credibility than you realize.

Update: December 2021 - Another time to say “no” to retail distribution is if you have not built enough traction on DTC first. By DTC, I mean your own e-commerce store (i.e., Shopify) and not a 3rd party e-commerce site or marketplace. DTC is a great way to establish proof of concept, as well as to collect performance metrics to give you confidence that your brand and products will sell well in the larger stage of retail. De-risk your brand and product line first on DTC before moving into retail.

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Trending Retail News: E-Commerce Brands Are Opening Physical Stores

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This is a trend all readers need to know about and follow.
"We believe that ‘pure play’ retail is going away, that e-commerce companies are either going to open stores or go out of business. And retailers need to be either excellent at retail, or they will go out of business. I also believe that Amazon cannot survive as a pure play retailer." Scott Galloway, NYU Professor.

The business takeaway is this: a brand cannot survive on e-commerce sales alone. While e-commerce continues to grow rapidly, multiple data points indicate that it will never overtake the market share of in-store sales. Physical store sales will always represent the lion-share of total retail sales. And brands who stick to solely e-commerce sales will see their sales growth plateau. 

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Markdowns. What they are, why you need to consider them, and strategies for minimizing your risk.

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Note: “Brands” and “Vendors” are used interchangeably in this post.

Markdowns are what happens when inventory goes on discount.

You’ll find 4 major types of markdowns in retail:

1) Promotional markdowns

These are discounts that derive from any type of promotional sale such as a temporary price reduction, circular promotion, coupons, endcap promotions and more. 

2) Clearance markdowns

An item goes on clearance when the retailer plans to never stock that item again. Maybe it is an older style that will be replaced by that brand’s latest style, or maybe it’s a poor performing item that the retailer will never stock again. Clearance is basically code for “getting rid of excess inventory”. 

 

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Lessons learned from West Coast Port Delays

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As of today (Sunday, 2/22) West Coast ports are expected to come back to life. The backlog will reportedly take up to 8 weeks to clear. So the impact to importers and retailers will be felt long after the labor contract dispute ends.

While all my clients who import felt the pinch (more like 'crush'), some felt it more than others.

The companies that minimized the impact of port closures did so because they could:

  • Divert boats on water to the gulf coast ports (or be ready to pull that lever)
  • Leverage their safety stock in domestic warehouses (one client always keep 6 months of supply on hand)
  • Air ship some inventory as needed
  • Leverage their early (and heavier) orders placed in anticipation of Chinese New Year to fill the unexpected holes due to the port closure.

I Have All These Retailers Who Want My Product Line. How Do I Prioritize?

What a great problem to have! No, really – it can be a problem.

Last week, I was at Target HQ to present a line that recently launched in market. How they were invited to Target for a line review is actually a crazy story. They launched in Spring 2014 at a trade show at which a Target buyer stopped by their booth and collected information. Fast forward a couple months later,  out of the blue, they received a call from (a different) Target buyer inviting them to Minneapolis to present their line for consideration for the 2015 assortment.

Let me be clear. This rarely happens.

What Cash Flow Considerations Should I Be Thinking About Now Versus Later?

Selling to major retailers is a strain on cash flow.  There are many fees and charges you will be exposed to within the first 6 months of getting a “Yes” from stores like Target, Walmart, Costco and other national retailers.  These costs will be covered in more detail in a future post, but for now, here are the cash flow considerations you should investigate further.  I’ve taken the approach of suggesting cash investments you should make now versus later to increase your appeal to retail buyers (and improve your cash flow down the road).

NOW:

Invest in funding the “right” Suggested Retail Price

Avoid artificially high retail prices.  Many first time product entrepreneurs are unable to get favorable costing because of their small production orders.  As a result, they price their products (both retail and wholesale) artificially higher to offset the high production cost per unit.  Make sure you price your product strategically (e.g., good, better, best) and based on what the market will bear.

Will Selling At A Major.com Help Me Get Into Major Retailer's Shelves? (Updated in January 2022)

The short answer is no, except in one unlikely situation.

The long answer is….

Major retailers are more concerned with the sales traction you have built in other brick and mortar stores.  And the more established those stores are, the more impressive your sales results.  It is important to note that how a product sells online does not directly transfer to how it will do in-store.  This is why selling in the .com channel doesn’t do much to win over the store buyer.  Even if it is Amazon.com.

What Type of Information Should I Be Collecting From My Current Retailers?

You want to collect results (both sales and qualitative feedback) on marketing programs you have previously implemented at a retailer. Showing proof of past successes will make future proposals that much more enticing. Retailers love measuring ROI.

Why Is It Helpful To Follow The Financial Performance And Read The Annual Reports Of Publicly Traded Retailers Like Walmart, Target, and Walgreens?

This tip is THE most often ignored advice I give. Which is frustrating because it is among the EASIEST of critical steps to complete in your process of woo-ing a buyer.

Showing that you know the retailer’s business is important.  Before you go into any conversation with a retail buyer – be it an initial email to make first contact or an in-person presentation or as a current vendor, you should always know the following, which can be found in a retailer’s annual report (also known as, 10K):

Preparing for the Pitch: What To Look For When Doing In Store Research?

When putting together your pitch to retailers, your first order of business is to shop their store and get a sense for the selling environment. Develop opinions and propose recommendations for how your brand or product line can live successfully in their store environment.