Wholesale eCommerce: Good idea for your company? What You Need to Consider First
Wholesale can be a great channel for your business…but it can also really hurt your business if you’re not ready for it.
For growing ecommerce companies, the opportunity to start selling wholesale can be enchanting. But don’t get swept up in the excitement of the possibility of seeing your product on the shelves of those big box retailers.
Think twice before you make this move.
Adding a wholesale channel to your business not only involves a lot of risk, it also requires a ton of investment. To do wholesale well, it takes a very specific skill set. But you may not realize this until you get deep into it.
So, before you decide to go all in with a big box retailer, check out these pros and cons.
The Benefits of Wholesale for eCommerce Brands
1. Widespread Brand Recognition
As a growing ecommerce brand, you can only get in front of so many people through your array of advertising. Getting your product on the shelves of a big box retailer guarantees wider brand recognition that would be difficult to achieve so quickly online.
2. Influxes of Cash
Retailers place huge orders, which provide large influxes of cash periodically (but don’t forget about the cash out the door to build up your inventory to fill these orders).
3. Long Term Scale
The wholesale channel scales well over time as you get into more and more retail stores.
The Downsides of Wholesale for eCommerce Brands
Dare we say negatives? Here are the reasons that we think wholesale isn’t usually the best idea for fast-growing ecommerce companies.
With wholesale there is a lot of upfront cost to build up your inventory (often with specialized packaging requirements), design and distribute displays, and build out the technology you need to manage your wholesale channel with no guarantee that your products will sell through. This is especially concerning if you don’t have a favorable buy back clause.
2. Specialty Skill
Building and managing a wholesale channel over time is a skill. Getting into stores is step one, but getting stores to merchandise your products well is an ongoing effort. You are likely not the best person to manage this. Hire someone in house or a consultant to manage this for you that has the relationships and the experience to do it well.
We mentioned this in risk, but we’ll mention it again. There are a lot of costs associated with adding a wholesale channel, so make sure you have the cash on hand to invest in this.
If you are a new or relatively unknown brand, the terms that you can negotiate with a big box retailer just won’t be that good. You’ll have a buy back clause that requires you to purchase back your merchandise after a certain period of time. Just this clause alone can send companies into debt and out of business. Retailers also try to include an exclusivity clause that limits you to their chain.
We’d recommend waiting to pursue the wholesale channel until your business has enough brand equity to negotiate better terms.
Once you get into a big box retailer, the flexibility you have with your own DTC ecommerce store is limited. Flexibility or agility is arguably the number one benefit of your ecommerce channel. Retailers typically require advance notice of any sale that you do so that they also can run the same promotions. If you violate this, you’ll have to pay them back for their lost sales.
Mature companies can manage these terms to their benefit, but this often stunts the growth of young ecommerce companies.
Getting into big box retailers means possibly cannibalizing your own online sales.
Big box retailers are used to working with well oiled machines. They expect an easy wholesale ordering channel and a seamless experience. If you do not have this down, it’s going to be an incredibly difficult experience for you.
In ecommerce, reporting is immediate and attribution is easy. You know how your marketing efforts are performing in real time. Reporting from your wholesale channel won’t be like this. It is significantly delayed. It is a black box most of the time.
9. Customer Relationships
Through a wholesale channel, you lose communication with your customers. Even though they own your product, they are now the retailer’s customer. Owning the customer is THE KEY to building a successful brand, so this is a big one. The brand who owns the customer relationship wins, so consider this carefully.
In essence, when you sell wholesale, you lose autonomy and you lose access to your customers, so make sure the upside outweighs these negatives.
Don’t get us wrong. The wholesale channel, when done right, can be great for your business. We always look at implementing wholesale for any brand we work with as part of the long term strategy. But the timing has to be right and it has to be implemented correctly, or it could kill your business.
The key is leverage. Be patient, wait until you’re ready, your ecommerce business is booming, your brand is well-known and loved, you have cash in the bank, and retailers are knocking down your door begging to carry your product.