To wholesale or not to wholesale? That is the question. That is my spin on the question I often get asked:“What is Wholesale?” Fashion wholesale was and still is the backbone of the fashion industry depending on the fashion market level.
Although direct-to-consumer brands appeared to be the most hyped business model pre-covid, traditionally, most ready-to-wear brands rely on wholesale accounts. Recently, I was listening to a podcast and was astounded to hear that a resort wear brand launched in 2016 made 90% of its revenue via wholesale. Fashion wholesale is very much still relevant. Ignore it at your peril.
Don’t get me wrong, the direct-to-consumer-only business model does work. Direct to consumer or what the industry used to refer to as Private Label, is when you create a brand that is not available for wholesale, i.e. not available through third-party retailers, only allows customers to purchase via its own channels (store or website etc).
However, when developing your distribution strategy consider that wholesale or bulk sales plays a crucial role if you have limited resources. Scaling up with limited funds means making products accessible to a wide audience and one of the easiest ways to do that is via a wholesale model. If you are considering wholesale read on to understand the advantages and pitfalls.
Understanding Fashion Wholesale
Fashion wholesale is a supply chain model that involves the sale of products in bulk quantities to retailers, such as department stores, independent boutiques, and online stores.
It acts as a bridge to allow fashion brands to reach new customers, expand to new markets and reduce financial burdens and risks. Orders are placed and full or part-payment is made before the product is manufactured, which helps maintain liquidity and positive cash flow.
By definition fashion wholesale allows other multi-label retailers to sell the brand’s products at a profit. That profit margin is subject to negotiation and may vary depending on the market. For example, some high-end retailers may expect a 60%-80% margin at retail. Whilst mass market retailers might accept lower margins since more volume is sold.
Speaking of volume, wholesale works on the premise of larger quantities. The wholesale brand must set a minimum quantity the retailer needs to order to make a profit. Established brands think in terms of collections, which includes style, colour, materials, and sizes. For very successful brands they control what the Retailer receives and may stipulate the retailer orders the entire collection and in the specific sizes. This usually reflects what is negotiated with the brands’ manufacturer. By definition, fashion wholesale is a B2B (business-to-business) model.
Benefits of Fashion Wholesale: Reduced Risk of Unsold Inventory
Direct to retail to consumer always runs the risk of having excess inventory at the end of the selling season. With a wholesale model, since payment is made upfront before manufacturing or agreed timeline, the risk is transferred from you to the retailer. Who holds the title of the goods, and is responsible for sale. Unlike a consignment model when the retailer sends back any unsold stock.
Benefits of Fashion Wholesale: Economies of Scale & Efficiency & Spreading Risk
Orders are secured in advance of production and brands can use this knowledge to negotiate with suppliers based on the quantity of orders they place with the factory. This is known as an economy of scale. If you only place orders for direct retail, you may have less quantity to manufacture and therefore you miss out on potential cost-savings.
With regards to spreading or reducing your risk or exposure to unsold inventory let’s say for example the minimum quantity the factory accepts is 300pcs, if I have 2 wholesale accounts then you could spread that risk with Retailers. By stipulating that retailers must order a minimum of one hundred pieces (approximating 100 per retailer and 100 sold directly). Of course, you should have built a ‘must-have brand’ to wield some negotiating power. Retailers will want to reduce their risk by ordering the lowest quantity possible.
Benefits of Fashion Wholesale: May benefit from the Brand Equity
Retailers, whether physical stores or e-commerce have a brand reputation, some have a loyal customer base, who may try a brand for the first time on the recommendation of being in their favourite store.
Successful retailers have more foot traffic or online visitors than individual brands especially legacy retailers such as Net-a-porter, Liberties of London etc. For e-commerce that sense of familiarity and trust may also work on the level that consumers are confident their personal data and credit card information is safe with larger or more established retailers.
Benefits of Fashion Wholesale: Widen Customer Base
If you target the correct Retailer who shares a similar target market with your brand you can attract new customers, who may buy directly from you in the future. The most important factor is wholesale allows you to have either an online or physical presence in multiple markets without incurring huge costs.
Wholesale accounts get you distribution in more countries and broaden your customer base. In an economic downturn, this is a critical strategy, since one market may be in the doldrums whilst another maintains sales and therefore may result in less impact on your revenue.
Benefits of Fashion Wholesale: Cross-marketing
Since brands help retailers offer new fashion trends and seasonality there is an opportunity for cross-marketing and sharing the cost of communication. A brand and a retailer may create content online, posters in store, or even co-advertising in traditional media like fashion magazines. The retailer may have the brand cache or connections to create PR buzz and secure lower media costs due to long-term relationships which would in turn help your brand.
Benefits of Fashion Wholesale: Serendipity
Although this sounds intangible, and of course may not always happen, there is something to be said for serendipitous moments, whilst being stocked in one store, I have been approached by stylists, and photographers, and found a life-long network from other brands. Wholesaling in specific retailers especially retailers can expand your network, allow you to meet other founders, and pick up best practice tips from the retailer and other wholesalers.
Pitfalls of Fashion Wholesale
Of course, not every fashion business works wholesale distribution. For example, if your product is unique, or the cost prices are high, the price the end customer is willing to pay may not support a wholesale model. Carry out some cost analysis and you will quickly find out if your product can be sold at wholesale and the quantity required.
Some fashion business models may not support wholesale such as bespoke, or if the pieces are hand-made, or one-off. However, we are seeing upcycled brands providing unique products that disrupt this traditional idea.
As mentioned earlier suppliers/manufacturers have Minimum Order Quantities (MOQs) therefore this must be taken into consideration when offering your MOQs to retailers. Some smaller retailers may be clients that you grow with over time. If they find it challenging to meet your minimums you may have to forgo supplying them, which could mean missing out on a future retail star.
Not all wholesale accounts are made equal. Some retailers are notorious for long invoice payment terms such as 90 days, some do not pay at all. I have heard and experienced first-hand horror stories of non-payment, however, that could happen with consignment. So due diligence is required in each scenario. Don’t be afraid to ask questions, do some background research to look into the finances of the retail business. Ask if other brands that supply that retailer.
Ensure MOUs or contracts are signed and returned and provide a paper trail. I would also recommend you always ask for a deposit of at least 30% to cover the cost of manufacturing. Unfortunate, or unforeseen circumstances could see orders cancelled at the last minute.
Take COVID-19 for instance, many retailers through no fault of their own had to cancel orders to survive the sales downtown. In such instances empathy and coming to mutually beneficial agreements are the only long-term solutions.
Conclusion
The advantages of cost savings, widening target market, scalability, and promotional opportunities make fashion wholesale a cornerstone of the industry.
While challenges exist, such as minimum order quantities, finding the right wholesale accounts and following up on admin and payment terms, the benefits of fashion wholesale outweigh the drawbacks.
As the industry continues to evolve, brands would do well not to ignore third-party retailers as the entire industry must adapt to changing consumer preferences and technological advancements to stay competitive and continue delivering to savvy consumers.
Singapore
In Singapore, wholesale accounts are as rare as unicorns, with retailers preferring consignment arrangements. To survive small fashion brands often rely on corporate or bulk orders from organizations that make bulk orders for special occasions such as National Day, Mother’s Day, Teachers Day and Women’s Day. The price is not always at Wholesale since it’s often a once a year purchase. I’m told it’s usually at retail or a negotiated discount. If you are an entrepreneur based in Asia you could do well with ensuring you know the difference between discounts and wholesale pricing if you hope to expand and sell globally.