The Wholesale Question
One continually evolving issue that I have to think about is whether or not to offer my items to wholesalers. It's a question that many makers will have to think about at some point and I've spent a fair amount of time making decisions (and then changing them) since starting Wright and Rede. I thought it might be helpful to write down some of my thoughts on the issue.
If you want your stuff to be carried in a brick and mortar store (or online for that matter) that's not yours, you generally have two options; consignment or wholesale. Each has it's pros and cons and there is a correct and different way I handle each type of account.
I see a wholesale account as a owner-to-customer relationship. The wholesaler will order a larger quantity of your goods in exchange for a discount so that they can resell them at a profit. This can be a single transaction or a repeatable transaction. I say it is a customer relationship because people seem to forget that just because you landed a wholesale account does not mean that they'll ever order from you again. Like any customer, they expect quality customer service with their purchase. They are going to expect well made goods that are thoughtfully packaged, cross promotion of their store, and ready trouble-shooting if any problems arise.
The right wholesaler can add to your brand identity. Getting your things carried in a really cool store can make you cooler by association.
A good wholesale account can introduce you to new markets. If you live in Cleveland trying to sell your goods in L.A. can be kind of difficult. A good wholesale account (who is enthusiastic about your goods) can excite and educate potential customers in that area.
They can sell when and where you can't. If a customer wants to check out your goods, but you don't have a storefront, you can direct them to the wholesaler to see your goods in person. I found this to be very helpful during the holidays. Towards the end of a show I might run out of something. It's handy to be able to tell someone that you're all out of phone cases but they can check out so-and-so's store because they still have some in stock. This can be especially handy a few days before Christmas when people are a little panicky and you are running low on product.
A wholesaler has an investment in your product. They've already spent money on your goods which they need to see pay off. They have a fairly large incentive to make sure that your goods are being presented in the best possible way to sell.
A discount of 50% is pretty standard for a wholesale account. Can you make a living selling your goods at 50% off? Is it worth it? Are you charging a price that will allow you to sell at that much of a discount?
Your pricing structure gets linked to your wholesale accounts. Let's say you try out a new product. You charge $50 for it. A wholesaler loves it and buys 20 of them. Turns out that new design wasn't the hot item you thought it would be and you want to keep producing it, but at a lower price point. How happy is your wholesale account going to be when they see on your website that you are selling the item that they have to charge $50 for at only $35?
How many will they be ordering? Let's say a really cool store wants to carry a new item that you are making. The new design is a pain-in-the-ass to make but you really want to be in this store. So you cut them a good deal. You bust your butt getting the order out and you don't make much money in return, but hey you can tell people that you are in that really cool store. Then they never order from you again.
The opposite side of that coin is even worse. They order a ton from you on a regular basis. You're so busy filling their orders that you can't make your own stuff. Now you are in the business of providing one pain-in-the-ass-item at less than you should be charging for it. Iif any of your own customers wants one you can direct them to this really cool store where you will be making less than 50% of what it is worth.
You'll need to invest a fair amount of time writing out a wholesale agreement (that clearly defines the relationship) and coming up with a price sheet (with pictures and descriptions).
Consignment is a different kind of relationship. I think of a consignment account as taking on a small business partner. The arrangement is basically that you will be the back-end (manufacturing) and they will be the front-end (distribution and sales) and then you'll split the sales 50-50. (Notice I said sale and not profit.)
Consignment agreements tend to be a little looser. Most stores will ask to carry your stuff and you can decide what specifically to bring them. This can be a great way to promote a new item. You can also tailor what you bring to the account. You can work with the consignor to figure out what will move the best at their location.
Many consignment agreements will allow you to adjust your prices and inventory as situations change. If you thought something would go over well, and instead they're just sitting on the shelves, you can frequently ask the shop owner if you can swing by and switch some stuff out.
Like a wholesale store, your items can be found in times and locations where you aren't present. If you have a bunch of accounts and decide to take the day off, your consignment accounts are still out there trying to sell your goods for you.
Consignment stores are always bringing in new vendors. As a result they tend to have very active social media campaigns. A supportive consignor can give your social media platforms a nice little boost.
Because the inventory is fairly flexible in a consignment shop, new products getting dropped off by the other vendors will help add to the interest for that location. If the shop owner is doing a good job curating the store then this means a steady supply of interested customers even though you aren't coming up with a new product every week.
The relationship with a consignment shop is very different from a wholesale account because they are looking for a different return on investment. A wholesale account is looking to get their money back. So it is in their best interest to move items that are selling poorly. A consignment shop is looking to make the most profit on the space and energy they have allotted to you. If your items aren't selling, then they probably aren't going to get a prime spot in the store and not much enthusiasm from the staff. A bad consignment deal can turn into a graveyard for your goods.
You are going to get product back at some point. If you have a consignment deal that isn't working out, and you pull out of the shop, you are going to get back all of the product that they were holding for you. This can be a boon if you are low on stock. More likely you will be getting back a bunch of stuff that didn't sell. There is also a good chance that the stuff you get back has been sitting around for a little while and may no longer be up to your more developed standards as you improve your skill level.
You'll be signing a contract. Most run from 6 months to a year. If the consignment deal turns out to be a dud you're going to be dealing with them for the length of the contract.
Consignment shops tend to profit off of quantity of dealers not necessarily quality. This is not always the case. I can think of several consignment shops that carry really fantastic stuff. In general the shop is betting that enough of their dealers will be profitable to make their business successful. The more dealers the better chance they have of finding a winner. Sometimes this means that you get to have your stuff surrounded by a great mix of popular items. Lots of times it means that the shop needs to try out new dealers on a regular basis and some of these dealers don't have the same standards for their business as you do for yours.
Signing with a consignment shop really is like taking on a business partner. They will be getting 50% of the total value of everything you give them. Ideally you should be reviving 50% of that value in service back from your consignor. This means promotion of your goods in the store and on social media, proper merchandizing (making your stuff look appealing in the store), educated and interested staff, theft-prevention and security, and reliability. If you sign a contract with a store that turns out to have pissed off lazy staff, they close the store randomly and at odd hours, the only people who know your stuff is there are the people who you send in there, and they display your stuff in a dusty stack in the corner, you are going to be dealing with them for the next 6-12 months.
In general I wouldn't recommend consigning with a store that I can't get to on an occasional basis. When I ship out a bunch of product to a new store I now have a significant investment in that store. The responsible thing to do is to occasionally make sure that your investment is well placed. You should stop in every now and then and make sure that your product is being looked after. Most consignment shop owners are friendly and want to see a client that is engaged in their store. If you live in Cleveland and the store is in Atlanta you are pretty much hoping that they are holding up their end of the deal.
Another issue from having distant consignment accounts is inventory related. Let's say I sell t-shirts and I get a check saying that I sold 12 shirts that month. Fantastic, were those Small, Medium, or Large? This is a pretty common issue. If you can't get to the store and figure out what sizes you need to restock and the store's owners or employees aren't cooperating, trying to restock that store is going to be a regular pain in the butt.
There is also the possibility that they sold 20 of my shirts and paid me for 12 of them. I'd have no way of knowing this if I couldn't stick my head in there every now and then. I've never had this happen to me. I know of many people who have had this happen to them. It sucks and it happens.
So was that a lot of information to take in? Most of these issues will be relevant to your business in specific ways. If you are a graphic designer selling posters, and getting a bunch printed off isn't a huge deal, then consignment shops all over the country might be a great option for you. If you are a ceramicist and making really labor intensive products, consignment and wholesaling may be the wrong answer for you entirely.
For myself I stick by these rules (which will probably get changed as my business grows and changes).
- My goods are labor intensive so I limit the total number of accounts, of any sort, pretty heavily.
- Not every item I make is offered to my accounts. Some things I just can't make at 50% off.
- I have almost zero consignment. I love the idea, but I have discovered that the proportion of investment between the two parties is rarely equitable. The only consignment I do these days usually involves some sort of pop up shop, seasonal event, or a very specific goal or cause.
- I will not take on a consignment account that I can't comfortably drive to and from in a day.
- I try to walk though any store I'm going to have my goods sold in. If possible I do this anonymously. While there I will look at the other goods sold, their price point (I don't want to have the most expensive or cheapest goods in the store), and how they are displayed. I try to ask some casual questions of the staff to see how engaged they are. Finally I look to see if the store is getting managed properly. A little chaos is fine. My workshop is a mess sometimes, so I don't judge. There shouldn't be boxes piled up around the store, broken display pieces, or frazzled or clueless staff.
- Is the shop brand appropriate? This has been one of the hardest ones to deal with when starting up. At first it's really exciting to have someone want to carry your stuff. Especially if it's a wholesale account and they want to give you some money. I ask myself if I'd be happy telling people my stuff is there. A shop that sells local handmade things, a shop for guys, a shop for rugged outdoorsy things, a cool stationary store, might all be good matches. A shop that sells accessories for girls ages 4-12 and is called Silly Sally's Princess Palace (I just made that up, but if you're out there SSPP I love your store name) is probably not the best image for my brand.
- I sell things personally all over Cleveland at all times of the year. I also sell on this website 24/7. Since what I produce is labor intensive, and I can only make so much, having a bunch of accounts (wholesale or consignment) all over Cleveland isn't the best option. If I'm selling everything I make then supplying a bunch of shops in my same area, instead of producing for myself, doesn't make much sense.
- The number of shops I'm willing to take on is also influenced by the amount of variation I can generate between my products. It's doesn't make any sense to have four stores selling the same thing in a 1 mile radius.
Like I said these are just some of the guidelines I've developed for making decisions on what accounts to accept or pursue. As my business grows and changes so will these guidelines. I think the most import thing is to have a set of rules that help me figure out which opportunities are good ones. It also helps me feel more secure when I have to tell someone no.
If you are a maker or store owner I'd love to hear your input as I'm always evolving my opinion on this. You can comment below or email me at firstname.lastname@example.org if you are worried about airing your dirty laundry on the internet.