Buying Wholesale

Many startup business owners have the false impression that buying at wholesale means theyshould be able to source their products directly from the product manufacturer. A manufacturer’s job is to

make

products. They are not interested in selling their products a few cases at a time tothousands of retailers.Wholesale suppliers operate in a service industry consisting of warehouses, sales forces, supportand logistics offices, merchandising teams, delivery mechanisms and much more. The wholesaleindustry is the infrastructure that bridges the gap between the manufacturer (who makes verylarge numbers of products) and the retailer (who sells the product one unit at a time to the endconsumer).Wholesalers turn very large numbers of products into smaller, more easily distributable numbersof products. As a rule, wholesalers are the source from which large manufacturers require you toobtain your products.

Exceptions to the Rule

When sourcing products for your business, you will occasionally find a manufacturer who sellsdirectly to retailers. There is a reason for this and a potential downside.Wholesale suppliers are very aware of how much money every single square foot of their warehouse space costs them. Wholesale itself is a low-profit, high-volume industry. Becausewholesalers make their money by selling a lot of products very quickly, fast turnaround on thewarehouse floor is critical.For that reason, wholesalers don’t like to fill their warehouses with products that don’t havemuch brand awareness or are relatively unknown to consumers. Those unknown products sit on awholesaler’s warehouse floor far too long, and the wholesaler isn’t turning a profit on that floor space. Some small manufacturers of lesser-known products have a hard time getting wholesalersto distribute their products, so they may sell directly to retailers.As a retailer, you have to be careful if you work directly with small manufacturers. They have atendency to run out of stock unexpectedly, especially during the holiday season, and can also goout of business with little or no notice. If you base your product sourcing on direct relationshipswith small manufacturers, stay in touch with them, make sure you are well-stocked on productsthat sell well and do your best to forecast large orders well ahead of the holiday buying season.

Factory-Authorized?

When a wholesale supplier is factory-authorized, that means it has been chosen by themanufacturer to have a direct relationship and certain exclusive rights to wholesale thatmanufacturer’s products. Becoming authorized as a wholesaler for well-known, brand-name products isn’t easy. Wholesalers sometimes spend years working toward authorization to sell big brand names.Most manufacturers will choose only a relatively small, strategically located number of wholesalers to sell their products because it’s more cost-effective for them. When you’re lookingfor factory-authorized wholesalers of particular products, there may not be many choicesavailable.As a retailer, you must make sure you’re working with genuine, factory-authorized wholesalesuppliers. For the vast majority of physical products, brand name or not, that’s as close to amanufacturer-direct relationship as a retailer can get. Because the factory-authorized wholesaler is connected directly to the manufacturer, that is also where you will get your best pricing.

Brad Fallon, who started out as a retailer, founded Atlanta company Kate Aspen, a $15 millionmanufacturer and wholesaler in the wedding favor market. Fallon offers the following advice for doing business with wholesalers.

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Be unique to distinguish yourself from less professional retailers. “Some manufacturersand wholesalers don’t want to deal with online retailers at all,” says Fallon, 38.

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Seek resources likeOneSource, which vets suppliers so you know whom you’re dealingwith.

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Avoid fees. Fallon says drop-shippers or wholesalers who understand startups don’tcharge setup fees, add-on drop-ship fees or per-item fees (except for item costs) and don’tapply high markups on UPS shipping fees.

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Use product visuals and descriptions, which a good wholesaler or drop-shipper typicallyoffers.

Sourcing Scams

We’ve established that it’s very important to your business’s profit margin to only work withfactory-authorized wholesale suppliers. However, there is more to it than simply taking asupplier’s word that it is a genuine wholesaler.Whether your entrepreneurial endeavor is online or in a physical retail space, chances are youwill spend most of your time looking for wholesale suppliers on the internet. That’s becoming amore dangerous place to search for wholesalers virtually every day. An entire cottage industryhas sprung up around fooling entrepreneurs into thinking they are buying products from realwholesale suppliers when, in fact, they are buying from scam artists and middlemen and payingwholesale prices that have been marked up dramatically.Fake wholesalers have gotten very good at looking like real wholesalers on the internet, andsearch engines have become a prime location for these scammers to hang out. As many as 8 outof every 10 natural and pay-per-click search engine results on keywords such as “wholesale,”“wholesale product” and “drop-shippers” lead to wholesale middlemen, useless information andscam operations. They cheat thousands of retailers out of tremendous amounts of money on aregular basis.There are many ways in which product sourcing scammers operate, but their goal is always thesame: They want to get between you and the real supply of wholesale goods and make a profit bysimply taking your order and forwarding it on to the

real

wholesaler. In the process, they mark up the price you pay and cut into your profit margin.Here are some danger signs that indicate you’re probably looking at a middleman (fakewholesaler) on the internet or elsewhere.

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Any wholesaler who charges you a sign-up fee or a monthly fee

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Any wholesale website that does not give you full contact information

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Any wholesaler who does not ask you for your Sales Tax ID

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Any wholesaler who makes claims about how much money you can make using their services

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Any wholesaler who tries to sell you other services besides strictly wholesale products(such as a website)

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Anything that sounds too good to be true