Selling to Retailers Phase 1: From Basement to Brick and Mortar

In just about any retail store, you’ll find items for sale that started out as someone’s hobby. Whether it’s homemade baked goods, a hand-knit scarf, or a clever household gadget, what was once someone’s passion is now a product. These goods didn’t end up on retail shelves by accident. Instead, a small business owner had a well-thought-out plan to sell wholesale to retail stores. And in almost every case, the first step in that plan was to get into small, local brick-and-mortar shops.

In our previous article, 10 Essential Tips for Selling Wholesale to Retailers, we discussed best practices for dealing with retailers and the importance of having a plan to forge relationships with them. In this first piece of our three-part series, we’ll discuss the pain points for business owners who are getting ready to take the plunge into getting their products into retail stores for the first time.

So you can see how the process unfolds, we’ll follow the growth of a fictional business that is a lot like our average entrepreneur. We’ll follow the story of this company from its humble start as a side-hustle in someone’s garage to a full-blown manufacturing business.

Our fictional entrepreneur is Charlie Awesome, founder and owner of the Awesome Block Company (ABC). Charlie has been making artisanal wood toy blocks in his garage for two years. He sells his blocks directly to consumers at local events and farmers markets, and he just started selling them through a website as well. He’s built a brand with loyal, satisfied customers. Now he’s ready to expand his brand’s reach and sell his blocks wholesale to retail stores.

As we describe best practices for getting products wholesale into retail stores, we’ll follow the growth of ABC and all the ups and downs that come with manufacturing, storing, selling, and shipping products at scale.

Starting Small

With a small business, it’s wise to grow gradually and deliberately. While the idea of overnight success sounds appealing, it’s risky and comes with a host of problems. You may have heard of the “Oprah effect.” A sudden, nationwide endorsement by Oprah, Ellen DeGeneres, or some other celebrity can cause a product’s demand to skyrocket. Sure, you might be famous, but unless you can fill all those sudden orders, your entire business can crash and burn.

Instead of being “discovered” or aiming for a spot on Target or Walmart’s shelves, smart business owners start smaller. They target local shops and boutiques to sell their products. Stocking your item in the local gift shop might not seem like a big stretch for your small business, but it comes with a new set of challenges. The B2B world is different than the B2C world, even if your retail buyers are small, too.

Laying the Groundwork

If you’re ready to move into retail, we’ll assume that your current business processes are working efficiently. If you haven’t optimized your inventory tracking, storage, receiving, and shipping practices, you’ll have trouble right out of the gate. Even small operations have plenty of opportunities to automate with barcode scanners and shipping/inventory tracking software.

In addition to making sure business-to-consumer operations are running smoothly, you’ll want to do some additional product and market research. You likely already have a feel for who your customers are, who your competition is, and what makes your products stand out.

Now is the time to ask new questions: How do your typical customers shop for products? What else are they buying? Which stores are best suited to sell your product? What will a customer’s first impression likely be when they encounter your product?

You need to know these answers before you start approaching retailers. Small retailers have limited budgets and limited space in their stores. They’ll want to know that your product is a good fit for their store and is likely to earn them a profit.

Charlie has decided to try to get ABC into two local retailers: A local mom-and-pop toy store and one that sells educational products and teaching supplies. Both stores sell products similar to his, and both cater to customers who appreciate more trendy, bespoke products.

Planning the Pitch

The ultimate goal isn’t just to get a product into a retail store, but to keep it there. Instead of approaching every store in a 50-mile radius, it is better to focus efforts on a few at a time. One or two stores that become long-term partners is a better prospect than a dozen stores that shelve your product once and never restock.

Once you figure out the preliminary issues like who to contact and the best way to do so (email, phone, or in person), it’s time to present yourself and your product in the best possible light. You must be armed with samples, market research, sales data, and testimonials.

Charlie is so excited to get a meeting with the owners of the mom-and-pop toy store—success! However, he makes the mistake of assuming they will simply want to know about the product. He figures that, if he comes with some samples, a smile, and a lot of enthusiasm, they will naturally want to carry his line of blocks.

But getting a retailer to like you and your product is only half the battle. There are other factors that can make or break the deal:

• Your price point must satisfy their desired margins without ruining yours.
• Your packaging must fit the store’s style and be easy to store, display, and check out.
• You must make it easy for retailers to order your product.
• You must be able to meet demand.
• You must ensure quality control and handle returns.

Retailers will want to know that you’ve considered these issues and have ready solutions. Once you commit to wholesaling to retail, these stores can become your biggest, and most demanding, customers. Letting them down will be costly and damaging to your business.

Imagine Charlie’s surprise when the couple starts asking him about sales data, order cycles, customer testimonials, and more. Charlie does his best, but the couple ends up telling him, “We can’t sell this at a price that makes sense.”

Price Point

When you’re selling your product on your own, you have only your margins to worry about. If the cost of your materials or shipping to customers increases, you may tweak your sales price or look for ways to reduce costs. When you sell to retail, things get much more complicated.

Stores may love your product, but they have their own margins to meet. They will mark up what your product cost them to make their desired profit. Choosing the appropriate price to charge retailers can be tricky. Charging too much could result in your product’s retail price being too high to sell well. Even though you will most likely need to sell your product at a discount to stores, you’ll be selling more and making up your margins in volume.

Increased volume can also open up better opportunities in the supply chain. You may be able to take advantage of discounts for larger orders from suppliers or bulk shipping savings.

Before locking into a certain price in a retailer’s contract, be sure to understand their margins and yours. If their pricing requirements cut too close to the bone, even if you reduce costs and increase efficiency, it might be best to walk away.

Charlie returns from the mom-and-pop store to do more research. He revises his pitch using market data that illustrates the demand for hand-made artisanal blocks. He also realizes that the size of the store’s orders will allow him to save money by selling and shipping in bulk. He can offer a deeper discount than he thought. Charlie will make up the difference in volume and the store will meet its desired margin. It’s a win-win.

Packaging

When consumers shop online, they might not care about how a product is packaged. Unless it’s a gift item, the box or wrapping just needs to be functional and safe for shipping. Retail changes that completely. If a store is going to have your items on its shelves, they need to look good to attract buyers.

Packaging must also work with the retailer’s space. They have only a certain amount of floor space, and they’re limited in the ways they can configure shelves. Large, cumbersome products will be difficult to display and check out. Having a solution for how your product can fit into the store’s layout will help you in your presentation to the retailer.

To start, Charlie sells his product in canvas bags that hold 20 blocks each. He ships the bags directly to customers in a box, so it doesn’t matter that the blocks are loose in the bag. But how is he going to display a bunch of lumpy bags at the store? He might decide to change his packing procedures to stack the blocks and shrinkwrap them into a stackable cube within the bag. Or he might provide a special bin or wire display rack to hang the bags in the store.

A manufacturer may need to adjust the way a product is packaged or arranged to accommodate a retailer. These changes may affect the cost of the item and should be accounted for when determining the price point and margins.

If a manufacturer isn’t already using barcoding software, launching into the retail market is an ideal time to do it. Being able to provide pre-barcoded products will make selling them easier for the retailer, which creates another selling point when approaching them.

Ordering and Demand

Retailers are much more likely to take on products that are easy to keep in stock. This means keeping up with demand but also having an efficient and user-friendly ordering software. If it is too much trouble to place an order, it could hurt your chances of having them continue to sell your products once they run out.

Once demand picks up, especially if products are sold in multiple channels, inventory tracking (“inventory certainty”) becomes crucial. The ordering system used for retail buyers must be integrated with e-commerce sales too, or the company runs the risk of running out of product. Some companies solve the issue by earmarking items to be set aside in inventory to meet anticipated retail demand.

If the budget and warehouse storage space was unlimited, the company could simply buy tons of material and increase production. But this is rarely the case. One solution is inventory tracking software that will automatically order supplies when stock reaches a pre-set level. The company will never run out of materials and will be able to deliver goods to both retailers and online customers.

It might also be time to review labeling and shipping software. It needs to be able to handle omni-channel operations. Like the inventory software, shipping software can also be integrated to sync with ordering and customer billing.

For more on the basics of inventory management rules, see our article “The 3 Rules of Inventory Management (And How to Live by Them).”

Quality Control and Returns

Small business owners often find that entering into the retail world forces them to give up some of their control over their product. When it’s a one-person show, the entrepreneur can personally see and touch every piece that goes out the door.

It might be necessary to hire employees to help with one, or several, parts of the process. It is essential that quality control doesn’t suffer during this growth period. Retailers who were impressed with the product will be unhappy if its quality doesn’t remain consistent. They may not continue to carry the item. If the owner hopes to someday take the company beyond small stores and into larger retailers, failure at this early stage could ruin its chances.

Even the best products will sometimes need to be returned. Handling returns from the retailer efficiently is as important as having an easy ordering system. Anything that is difficult or time-consuming for your retail partners can count as a reason not to sell your product.

Charlie learned this lesson shortly after signing on with a few stores. A customer returned a set of not-quite-square blocks that had somehow slipped past his quality control procedures. He had no process in place for returns. The store had to call him to find out how to get reimbursed. He contacted his courier to collect the damaged items.

Charlie solved the problem by activating return procedures in his ordering software. Now when a store has a return, they simply fill out an online form that prints out a return shipping label, alerts Charlie to send a replacement, and adjusts inventory and billing. He also looked into what went wrong and tightened his quality control procedures.

A WMS that includes a process for returns is a good choice. Not only can it provide a method of handling the returned product, but it will also provide analytics to pinpoint problems in the manufacturing, picking, or packing procedures.

Small Retail Stores: Building Blocks for the Future

Getting your product into a retail setting can launch a small business into a new, exciting, and profitable direction. It’s important to understand that retailers are customers with specific expectations. Manufacturers must play by a new set of rules and may have to change their operations to accommodate this new B2B challenge.

If all goes well, a small manufacturing company will be busier than it’s ever been. It may start running out of storage space, or expanding staff may start staff running into each other in tight quarters. Optimizing the layout of a small warehouse will play a huge role in keeping up with the new pace created by wholesaling to retail stores.

Wholesaling to small retailers is often the first step to scaling a business that could ultimately sell to nationwide retail chains and big-box stores. It is typically easier to convince a small retail shop to sell a product. It can also be a great way to test a new product and perfect it before scaling the business.

The choices made at this point will be important as the company grows. Picking the best software and WMS, making sure it’s integrated, adding automation wherever possible, and optimizing warehouse space all are essential to the business’s success.