As a brand or a contract manufacturer, it is a compliment and a great opportunity to be invited by a buyer to work with a leading retailer. It adds kudos to your brand, not to mention the potential sales and revenue you could generate. Securing a meeting let alone an order from a leading retailer, seems to take forever. Your ship has finally sailed, and it looks as if you are on the other side of the horizon, so realistically you should be feeling proud and content.
You may be thinking, but surely the entire point of building my brand and my business is to secure as much business as possible. Why would I possibly say no? As counterintuitive as this sounds, there are times when it is not financially viable or sensible to go ahead with a retailers’ order. Sometimes it is just not the right time. The order comes in larger than anticipated, your margins have been negotiated down, you are expected to fund promotions, your cash flow is now strained from having to bootleg the business for so long, due to timing and stock levels it is going to be a great stretch trying to deliver upon this.
Sometimes it is in your best interest to walk away. Whether you are pulling out of a promotion or even pulling out of a retailer due to not being able to come to a win-win agreement for both parties. I have worked with brands, who have been stretched over their limits, some have gone into liquidation. Looking back, at the time it would have been better to decline and pull out, saving brand equity by doing so.
Some cases in which it may be better to walk away:
When you are not financially secure. I have worked with suppliers who had to stretch themselves to fund large production runs or promotional campaigns, which have crippled their business, to the extent that they couldn’t afford to continue.
When you know that you won’t be able to deliver on time. The first step to building a stable relationship is ‘on time deliveries’, retailers detest out of stock situations and it is the supplier who carries the cost of the mistake not to mention they may be considered for ‘delisting’. If you are not able to deliver a required order on time, let the retailer know.
When you have had to sacrifice costs, lower margins or prices, you know you can’t feasibly afford to accept. As a new brand breaking into retail, it is exciting, it seems as if you have finally reached your goal however what comes thereafter can be far more challenging than you anticipated. You didn’t intend to negotiate your pricing down so far or accept lower margins, but somehow because it is a big retailer you have accepted this. This can have detrimental effects on your cash flow. Your cost prices and margins will constantly come up for negotiation and review with buyers, better to protect them from the word go and negotiate around other factors.
If you have recently launched your company, and are inexperienced in delivering large orders to retailers. If you haven’t delivered large production runs before, don’t hope for the best when the opportunity arises, particularly not with a prominent retailer. If something goes wrong, the goods are not approved due to quality control problems, or they are delivered late, the penalty fees and returns can be astronomical. Not to mention what this does to your credibility as a reliable supplier moving forward.
If you have placed all your ‘eggs in one basket’. In theory, exclusivity can be great. A retailer may ask you for exclusivity for a period of 6 months or more. There are benefits and drawbacks. Exclusivity provides you with stronger negotiating power for shelf space and promotional exposure however you are giving up control of building further retail relationships and how you market your brand for a period of time. Whilst many brands jump at the opportunity, think about this carefully. If something goes wrong with your delivery to that retailer, and you must take the stock back or it isn’t a success, where does that leave you?
Understand what retailers are looking for before you build and launch your product range, is elementary to your success. Ensure you do your market research thoroughly and understand your customer, your competitors and how you are going to differentiate yourself. You can save yourself a lot of time and money in the process.
Do you need help with planning your retail strategy? Get in touch today to discuss how we can help you.
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