Consignment vs Wholesale vs Dropshipping – Detailed Look

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GROWING WITH STOCKISTS

Many entrepreneurs start to think about stockists once they have started germinating their business seeds.
It is important to find stockists who are able to represent your business.

It is important to find out if your gallery or retailer manages its suppliers through a consignment arrangement. This could be wholesale, drop shipping or wholesale. This is a crucial financial and logistical decision, so it’s important that you are prepared for each case.

DBP has been at “both ends” the stockist arrangement. Angela’s online shop Leeloo had a range of wholesale and consignment agreements. Renee was an illustrator who stocked Leeloo’s items (that’s how I met Renee! She also managed Baker and Bailey, and signed a variety wholesale and consignment agreements with stockists.

These experiences, as well as some research, have led us to provide the following general advice for Australian designers and makers on how to set yourself up for success as a stockist.

CHOOSING YOUR STOCKIST

First, do the brand and item match? You should ensure that your items match the gallery’s overall design and that they are friendly with customers. Try making a secret purchase and seeing how it goes in-store or online. To get a sense of how they operate their business, you can determine if yours is appropriate.

It is important to remember that you don’t want stockists too close together. You should state that one stockist will only be available within 5km, 10km, or more depending on how important exclusivity is to your retailer.

Handy Tip: List your stockists on your website to support them. Your audience will have the opportunity to see your pieces in person, between market stalls.

WHOLESALE

This is the preferred choice for most makers and retailers. It involves your products being bought wholesale from you and then sold by the retailer to customers.

The wholesale price is generally 50% of the retail price, minus the 10% GST registration. If you are a new maker, pricing is an important factor. It may mean that you’ll need to review your entire pricing structure to accommodate a wholesale arrangement.

It is not a good idea to sell yourself short in order for another business to make money selling your products. Even if your wholesale price is 10%, it’s important that you consider the profit margin.

Wholesaling is when the buyer (retailer) takes ownership of the stock and they then have to sell it within their business. These items are likely to have been purchased from you through your wholesale catalog. Some online stores like Shopify allow you to have a separate space or code for your wholesalers to use to login, so you only have one point of inventory to manage.

They may display the items in a shop or online. This ensures consistency across brands. You, the maker, have little to no control over the fate of your products after they are purchased by an end retailer. However, you can provide information about yourself, your products, and your sales process to the retailer in order to help them sell. Influencing final purchases is a key role for the retail store’s sales staff.

It’s worth considering: If the retailer decides that it’s time for you to heavily discount your items if they’re not selling, then you may want to establish terms and conditions. If you are concerned about the issue, it is a brand decision you should make.

Your retailers might appreciate a display of your products. This helps to maintain brand visibility in places where it isn’t possible.

Tip: Make sure to include your contact information in your visual merchandising. This will allow the retailer to quickly restock your products. Do not be afraid to visit the shop or check with your retailer to verify your products.

CONSIGNMENT

Consignment is a method where the majority of the risk is with the sellers. This arrangement can vary from one retailer to the next.

A consignment system is where a maker supplies pieces to a reseller or retailer. The pieces are kept by the reseller or retailer and sold to customers. There is a risk that the reseller will not pay the consignee for the items until they are sold.

Another important aspect is that the retailer will take a percentage off the retail price. If your consignment agreement rate is 30% and your items sell at $100, the retailer will pay $70 once that item has been sold. That percentage rate changes from retailer to retailer.

Again this can be affected on the GST registration status of the businesses.

Galleries and other businesses can fill their spaces with pieces, without needing to spend a lot on stock that might not sell. Producers have the opportunity to be present among other brands while still owning the products.

You may be required to agree to terms and conditions of consignment by some retailers. You should carefully read them and only accept what you feel comfortable with.

Important to remember: Once you have set up this arrangement, it is important to keep track of all stock sent, sold and remaining stock. You can usually take it back if it doesn’t sell so you can sell it at an upcoming marketplace, for example.

Handy Tip: Keep in touch with consignment stockists regularly to check how your items are doing. If products are not being sold, you might consider switching to other products. If it is not already, request a monthly update.

DROPSHIPPING

This model allows retailers to run their businesses online without the need to store inventory, ship, or manage shipping. While the retailer provides the technology and sales platform for the business, all other aspects of the business are outsourced or managed by logistics operators.

Both the seller and maker have many advantages and disadvantages from this scenario. Dropshipping basically means that the goods are shipped to you and not to the stockist. You may be charged a yearly fee or a percentage of the sales of items purchased via their website. Dropshipping arrangements vary from one store to the next.

If an item is sold by an online or retail store, they will notify you. It is your responsibility to ship it to the buyer. Either way, the online store will either have purchased a third party logistics provider (or “3PL”) that handles all shipping for the retailer. It is important to understand your delivery obligations and how you pay for them.

Dropshipping is easy for retailers and it comes with low risk. Dropshipping is a cost-effective way to sell products online. To facilitate sales and encourage customers to shop with them, the retailer must create and maintain a website. Order fulfillment is left up to the manufacturers.

It is important to ask yourself: Are you getting the most bang for your buck. How much influence does the retailer platform have over buyers?

It is important to make sure that the retail brand you choose matches your business. You should verify that other retailers have a good reputation. Dropshipping is an opportunity to build brand awareness and increase exposure for manufacturers. It’s less profitable and takes more time and labour to manage the deliveries. Dropshipping arrangements should be viewed as a partnership, not as a stockist that implies a customer relationship.

When deciding to align your business with a retailer, you want to be able to see their marketing efforts and identify positive outcomes from their campaigns.

When there are many makers shipping from different locations, there are many points of failure. If other makers don’t pay attention to details or are slow to ship items to customers, it could affect your brand’s reputation.

You should know how the retailer will handle returns and refunds, and how this will impact you and your business.

Handy Tip: Offer drop shippers an exclusive range of products. This will allow you to manage your own inventory and track the success of the retail partnership. Dropshipping partnerships are a great way to get brand recognition and brand alignment.

This advice is for Australian designers, artists, and creatives who are interested in finding stockists to sell their products. Always read the terms and conditions of each wholesale, consignment, or drop shipping agreement before you sign.

If you’re interested in setting yourself up for wholesale but you don’t know where to start, let us know. Many of our mentors have been able to help them get into wholesale with their businesses fully prepared and their eyes open.

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