Kian has worked with a number of large retailers you will know and shares a number of their tactics on retailer negotiations so you can use them too. From leveraging factories to using inspections to protect your products and how to piggy-back off large retailers orders.
1 – Retailers I’ve worked with:
• Bed, Bath & Beyond
• TK Maxx
2 – Licenses:
• London 2012 Olympics
• Neymar Jr
Kian fills us in on how the big retailers leverage the factories with penalties, the massive terms they get and the tricks they do to return unsold stock.
How do retailers get away with such fantastic financial terms?
- They put all the financial risk on you, you have to finance the order to the factory, ship the goods send it to their Distribution Centre, they normally ask for 90 days credit therefore they pay you after they’ve sold the goods and if there’s ever a problem with the stock they’ll send it all back to you without having to pay for it. That’s big retailers negotiation for you!
- Which is why it’s so important to test your goods but financially you’re looking at paying your supplier deposit then goods are ready 60 days later, add 30 days shipping time and then you get paid from your customer on 90 days after delivery.
- So you’re looking at getting paid 180 days after you’ve made your initial deposit to the factory so you have to have solid cashflow.
- There are various ways you can offset that by having a good supplier relationship
- Sometimes they can support you with cashflow or not require deposit or you can delay payment to them once you get paid by the retailer etc but that only works if you convince your factory you are working in partnership which takes a long time to build up that trust.
Give some examples where retailers leverage factories unfairly?
- Retailers used to buy from factories directly then realised they didn’t need that headache
- So why not put the burden onto a company like us who can finance it and take care of the entire order process, design, production, testing, shipping etc.
- But where you do need to watch out is retailers will use any excuse in the book to return the goods to you if it isn’t selling as well as they planned, which is why you need certifications of your product and factory passing to the highest standards so they legally can’t return the goods to you.
- That happened to me with a particular retailer trying to return blankets for a fault that didn’t exist, I also know retailers give products to testing houses asking to find a problem with it so they can return the goods.
- Also, some use little tricks in retailer negotiations to fine you little penalties such as 5% for late delivery but they delay giving you their label codes so you need to be mindful of these things.
What are some of the key things you put in place to avoid questionable Tactics?
- For every retailer you supply you must fill out the factory information such as address, number of staff, years they’ve been in business etc, but ultimately they have all your factory info if at the end of the day they want to go direct and cut you out.
- So sometimes I put all the correct information but for the contact details I put my office address in China rather than the factories address so if they try to go direct I’ll know about it.
- The other thing was testing, get the products tested by intertek to industry standards and keep it in your back pocket so if they ever try to return goods to you for colour fastness or anything like that you can say nah, here’s my certificate and it passed with flying colours.
- You can also pre-empt any faults by having a pre-production sample tested and if it fails anything you know not to ship it to the customer.
- You also have to put everything in writing if there are to be any delays as a result of the retailer not supplying you with something so legally you are covered if it ever gets to that stage.
How do inspections for amazon sellers compare major retailers?
- Every retailer has their own testing requirements and they vary slightly.
- Wal-mart will test differently to Disney who’ll test differently to bed, bath and beyond etc. often when you contact a testing house like intertek for a specific product they will ask who is the retailer it’s being tested for as they’ll know what standard they adhere to.
- With amazon sellers you just want to make sure your product is compliant so if you were to get any amount of returns and amazon threatened to shut down your listing, you would have adequate evidence to show your product passes beyond industry standards, but if you don’t have that testing in place you don’t have a leg to stand on and your product is dead.
- Which I’ve had a few amazon sellers approach me and say what do I do, amazon have kicked me off because of a lot of returns and it was to do with a product defect but since he didn’t have any 3rd party testing to back up the product was fit for purpose he couldn’t get them back in.
- and you can still do the testing at any point, but you don’t know whether it will pass and why risk testing post production when you can do it pre production
How do retailers leverage factories on QC to cut their costs and get better deals?
- Well when the retailer orders from a factory either directly or through a company like us they always make the factory or supplier pay for the testing, so that’s never a cost that the retailer needs to incur.
- and even in my own business I always convince the factory that we are working in a partnership together to supply the retailer so because of that we always split the cost of any testing, because if they don’t pass I don’t get the order and neither do they. And if it ever fails then it’s on the factory 100% to pay for the second round of testing.
- Good factories will pass every time though because they have their own internal QC systems before even reaching out to a 3rd party testing house
- I’ve been in loads of factories where they have machines for testing fabrics, buckles, waterproofness coating, flex test on boots, inflation test on airbeds etc.
- The retailer must possess a document that says the factory has passed social and ethical audit, so you may remember 10 years ago you’d read in the newspaper ‘adidas is using child labour to manufacture tracksuits’ nobody wants that press which is why they have the social and ethical audits in place to go in and check the books to make sure there is no unpaid overtime, child labour, that you have enough lighting, fire extinguishers, etc etc.
- Those audits get uploaded onto a platform called Sedex – www.sedexglobal.com which I served on their board for one year after we completed our Olympic Contract.
What can amazon sellers learn from major retailers when negotiating with factories?
- They should definitely piggy back off of large retailer orders.
- One of the most important questions I ask when meetings with factories is which major retailers have you supplied before and also with which products, then if that product is suited to your business you should definitely consider it (making some changes of course so it’s not a straight copy) but there’s huge advantages in that product as it has been engineered down to the lowest possible price it can be (depending on the retailer) so you can benefit from all the development that has been done to get it down to such a low cost / high value item.
- As well as that, the factory workers have obviously produced very high volumes of that product so they are very skilled at making that type of product and have gone through all the teething problems and can make that product very fast versus making an item which you have developed for the first time.
- Furthermore, if you have a close enough relationship with your supplier you can ask them to inform you next time they are making an order for a national retailer so if for example they are making 50,000 units of an outdoor camping grill for wal-mart then you can ask your factory to make you an additional 1,000pcs on top of that but you have to make a slight change so it’s not a straight copy, we don’t like doing that and factories don’t like doing that but this way you can benefit from a large retailers economies of scale on your smaller order.
How hands on are major retailers on the ground in China?
- very little, traditionally they used to travel to hong kong and then do business with trading companies there, then they started going direct and cutting them out then they ran into all sorts of problems that people have dealing with China
- then started using companies like us who specialise in production and have the firepower to finance, ship, test everything etc.
- then factories started to get smarter and started to approach retailers directly so when we bid for business sometimes we are competing against a factory who isn’t adding the margin that we are, but we still win business because of the service we provide.
- But to answer your question, some retailers do go to the factories I know that for sure because I’ve met some of them there and some of them have a policy of not going and outsourcing that part but as times have changed so has the way these retailers do business with China.
How do they revisit price renegotiations?
- The pricing system is also one that has gone through changes, obviously you’re working on super low margins but it’s workable because the volume is there for retailer negotiations.
- But then newcomers come into the fold who have experience in China but very little overhead cost so they are willing to work off rock bottom margins
- Then there are factories willing to cut everyone out in order to ‘buy the business’ break even on it in order to win the order and get set up as a vendor for that retailer and then gradually put the price up.
- So because of this a retailer is always receiving the bottom price from various different sources, so they hold all the power
- If you don’t want to supply them, fine they have a few other vendors who are willing to bite their hand off for the business, so they will always get the price they want.
- I can tell you for one retailer I worked with recently they use a bidding auction system, so they list the items they want to purchase and have sent you samples in advance and you’ve costed it up etc
- Then the bidding starts, everyone puts in their offer price and it lists the best price and you bid, everyone has visibility and then after an hour or so they close the bidding and someone has won that order, so it’s open book and everyone can outbid each other based on who wants it bad enough.
- I’ve been on bids where we have won 16 out of 23 items and the buyer will call us up and say why don’t you take all of it so we only deal with one company.