Wal-Mart’s headquarters in Bentonville, Ark., are famously situated in the middle of a sprawling sea of supplier offices and also in the middle of nowhere. Wal-Mart has more than 100,000 suppliers. Hundreds of thousands more lurk at its buyers’ doors, hoping to win shelf space within a few miles of almost everyone in America.
But the process of getting a product into Wal-Mart’s supply chain requires financial risk reviews from Dun & Bradstreet, millions of dollars in liability insurance, proof that you can produce a zillion units of whatever you make cheap and a perfect sales pitch just to be considered.
Yes, a Wal-Mart contract is a nearly-instant road to million-dollar revenues. It’s also a giant pain in the neck. If you’re a small supplier and still building a track record, elbowing your way into a Super WalMart, Target, Home Depot or other big-name big box retailer is going to take time.
Let us begin with a word of advice: You should probably start small.
That may sound unglamorous, but small suppliers can find themselves in a Catch-22. To win big distribution deals and shelf space with big retailers, a producer needs evidence of strong sales and a track record of success. But that track record of success can be hard to produce without distribution deals.
This is one reason why some suppliers start their own retail stores, advertise direct sales on television informercials, run house parties like Mary Kay and build e-commerce Web sites. No one can kick you out of your own shop.
The issue we’re talking about here has a formal but unsexy name – distribution channel management.
Selling directly to retailers is one channel. So is selling online as your product piles up in your basement between runs to UPS. Small businesses have three basic choices to get their product in a brick and mortar retailer: selling straight to a store, selling through a distributor or a wholesaler,d and selling through manufacturer’s representatives.
You’re not going to weasel your way into Wal-Mart with a new, untested product. But small independent retailers might be looking for something new, and they might like doing business with other small businesses.
Be prepared. You’re going to need to present marketing materials – sample products, a brochure, maybe even a business plan – to be heard. Understand this: It’s good to be heard. It’s better to listen. When you get an audience with a store owner, you may be able to learn more about what customers are really after. Even a rejection may contain valuable advice about who might be willing to buy – or sell – your product, and perhaps for modifying your goods and your marketing to meet customers’ needs.
Your success with this will depend to some extent on the competitive environment for your product. Some kinds of goods – microbrewed beer, gourmet cheese, craft art, weird board games – lend themselves to being sold in specialty stores. But if you’re trying to compete with makers of detergents or running shoes – the sort of things people only buy from big retailers – then you’re probably going to run into trouble.
Most stores buy their goods at a wholesale price and resell them at retail prices. But for a very new product, some smaller stores might offer to sell on consignment – you get paid when they get paid. This is a low-risk way for producers to test market their goods.
But the drawbacks as a long-term sales plan are obvious. Retailers will push to sell goods they own, especially if the margin you’re offering is lower than what they can earn on other products, because products sold on consignment don’t cost retailers money. You don’t have much control over damage to your goods or product placement. You’re also going to need a way to track your sales. And you’re bearing the inventory costs.
You might be able to overcome some of this with an incentive to the retailer, by cutting your margins to boost the retailer’s, or offering to help with advertising costs.
If you've got someone manufacturing your product, that factory can occasionally help find distribution, but selling directly to a store can be devilishly difficult. “It’s a long and tedious process,” said Mike Kontopidis, who runs Mini Gadgets Inc., an electronics wholesaler in Atlanta. “You usually have to have one of two things going for you; either your connections, or the uniqueness of your product.”
Wholesalers and distributors can buy large lots of products from several manufacturers, break them into smaller groups, bundle them together and sell them to stores which might not want to keep a warehouse full of inventory. Wholesalers can also supply those connections and a reputation for solid business practices, which a new business might lack. “It may be difficult for you, but for someone else who has a rapport, it may be less difficult for him,” Kontopidis said.
Wholesalers are classic middlemen. They’re under continual pressure from foreign producers marketing directly to retailers, from logistics companies extending their business and from big-box retailers which can warehouse their own supplies. About 90 percent of wholesalers are small, employing fewer than 20 workers, according to the Bureau of Labor Statistics. Government analysts believe that wholesale trade firms will keep consolidating into fewer and larger companies, and that the survivors will focus on specialized markets and on customer service.
You may still need to use a sales representative to get onto someone else’s shelves. You can employ one in house, or you can hire a manufacturers representative. Jerry Leth, director of membership for the Manufacturers Agents National Association, explained the trade-off. A direct sales person is an employee, with all the tax, insurance and salary implications. An outside manufacturers rep usually works completely from commission.
When presented with a product, a manufacturers representative will evaluate the product to see if it fits into his or her line. Manufacturers representatives sell complementary but not competitive products, Leth said. An auto parts representative, for example, might sell mud flaps and headlights, dashboard hula girls and chrome, but not two competing kinds of truck bed liner. Your chances for landing a spot in a rep’s sales kit improves if there’s a hole in their product offerings.
Outside representatives trade on their relationships with retailers, Leth said. “We all want to buy from people who we know and trust.” The more products a representative brings to a retailer, and the better quality of that stuff, the better the relationship.
That pressure to bring solid products can leave you in the same retail Catch-22 – needing a track record to prove your product can sell. “A manufacturer's rep is not going to be a pioneer,” Leth said. “They’re businesspeople, and they're looking for long-term, profitable partners.”
Entry into larger stores will require you to get to know EDI, or electronic data interchange. The EDI system allows suppliers and retailers to trade information about what’s in inventory, what’s been shipped, what’s been sold and who owes whom. It’s been around for about 30 years in various incarnations.
The larger the retailer, the more seriously it will take EDI. Most larger retailers and many smaller ones have a long list of EDI compliance rules for their suppliers, to make sure the retailer’s software can speak to everyone in the company’s supply chain. We have partners who can help with that.
You’re also going to need to be able to conform to the packaging standards of the retail stores you’re pitching. Again, larger stores often have stricter requirements – take Macy’s 57-page vendor standards manual as an example. You’ll need a UPC bar code and marketing materials.
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