I, for one, am all about representing self-distributed brands. There’s something so rewarding about managing a healthy list of accounts, each one a long term partnership that you grow from the ground up, and tend to for as many years as the partnership remains mutually-rewarding. Sure, self-distribution has its share of hassles, but that’s all in a day’s work.
Nevertheless, there comes a point in every sales team’s course where you run up against the limits of what can be achieved through self-distribution alone, in terms of both revenue and market penetration.
At this point, many businesses turn to distributors as a means of expanding their reach while assisting with certain labor-intensive, logistical aspects of doing business, such as order management, fulfillment, delivery, invoicing, and accounts receivable. Having a distributor can help pave your way into higher volume chains and department stores like Williams-Sonoma, Crate and Barrel, Sur la Table, Paper Source, and Whole Foods. Landing one of these accounts can be like landing 100 independent stores in one fell swoop — the wholesale equivalent of striking gold.
From that standpoint, distributors seem like a no-brainer. But let’s take a look at why many brands either avoid distributors altogether, or only use them to access certain channels, while continuing to service their independent accounts directly.
Thirteen Downsides to Distributors
The same logic that convinces a startup brand to begin wholesaling in the first place can also convince a brand to take up with a distributor (or two, or ten). In both cases you’re taking on a middle man in exchange for increasing your exposure and volume. The same way that a retailer takes their cut for putting your product on their shelf, a distributor takes their cut for putting you in their catalog. However, wholesale and distribution are two very different beasts, and signing on with a distributor can be like introducing snakes to deal with your mouse problem. Here are some reasons why you might choose to avoid them:
- Distributors are expensive. They will require a margin in the neighborhood of 20-30%, plus promos, advertising, free fills, etc. If you want your product to continue landing on shelves at your MSRP, the distributor’s cut must come out of your margin.
- Merely having a distributor does not guarantee you placement on the shelves of bigger stores and chains — you will likely need to hire a sales broker with “ins” at the stores you’re targeting, and they will require about a 5–8% commission.
- In working with a distributor, you may lose some control over the stores you end up in, which can be problematic if you are choosey about the sorts of retailers that you want to represent your brand. Many distributors have no obligation to tell you which stores they’re selling your product to. Some will provide distributor reports that show which stores they have you in and how your product is doing in those stores, but they often charge for these reports as an à la carte service. Furthermore, these reports can be woefully incomplete, since it is ultimately up to the stores to decide whether or not the distributor is allowed to share their data.
- Smaller independent shops and boutiques often don’t buy through distributors, or if they do, it’s unlikely to be the same distributor that you work with. Therefore, even with a distributor, you’ll still have to sell directly to them.
- Independent stores base their businesses on the uniqueness of their selection. If you start selling to larger retailers through a distributor, or if your distributor places you in every store in their territory, your independent stores may start dropping you in favor of your harder-to-find competitor.
- When you sell through distributor, you will naturally lose some control over how your product is physically handled. Each middle man means an extra set of hands on your product, and the quality of your product could diminish as a result.
- Distributors represent hundreds, if not thousands, of brands. Smaller regional distributors might be more active about selling your brand (for a price), while larger national distributors will do little to sell your brand beyond listing you in their tome-like catalogs.
- Even the smaller regional distributors will only give your product line the “mindshare” equal to the percentage of their total sales that your line makes up. If your line isn’t selling as well as another that the distributor represents, your line will be given less attention. Certain products are cash cows for distributors. Their sales reps generally work on commission; naturally they’re going to push the cash cows in their catalog harder than those products without established track records.
- If one of the distributor’s sales reps has poor customer service skills and offends a buyer, it can reflect poorly on your brand.
- By passing your sales off to a distributor, you forfeit your direct line to buyer feedback. Valuable product and brand feedback will now be filtered through the distributor’s reps, if it makes it to you at all. This dulls your awareness of your brand and products.
- Distributors place large orders and have long payment cycles (typically Net 30 or Net 45), which can tie up your production and cash flow.
- Distributors and volume retailers drive hard bargains. Their contracts are laden with complex clauses and industry speak (for a taste of this, refer to the “Big Retail, Distributors, & Brokers” section in our Glossary). If you don’t read and internalize the fine print, you can easily get burned. Have a lawyer with experience in retail review all distributor contracts.
- If you have a large product line, distributors are likely only to take on a selection from it, and usually just your top 3–6 sellers. This is not necessarily a downside unless you’d rather your full assortment be available at every store you sell to.
Finding A Balance
In short, when you sign on with a distributor, you forfeit a lot of control over your brand. Distributors can be a serious headache to work with because they will behave in a way that makes the most sense to them and their business. From your standpoint, they will often appear to be completely incompetent and irrational, but they’re just running their business the way they’re going to run it. If you don’t like it, tough.
Naturally, there’s a time and a place for distributors. It’s a personal question of whether you really need them for your business, and if your goal is to get big, then you will have to play that game at some point. Just don’t expect them to be a magic bullet solution to all of your problems.
The Golden Rule of Wholesale
At the end of the day, there is one golden rule of wholesale that, when internalized and applied to everything that you do, will work wonders for your business, and go endlessly far in smoothing the road ahead:
It’s all about what the retailer needs.
Your primary consideration in everything that you do should be, How can we make our retailer’s lives easier? In the case of distribution, the question you should ask yourself is, What do my retailers need? If you’re hearing many of your retailers tell you that working with you is a pain because you only sell direct, then it’s time to look into your distributor options. If most of your accounts are independent shops that are content buying from you directly, then stick with self-distribution, and live by that golden rule within that distribution strategy.
Give the retailer what they need, and don’t be a pain to work with. It’s really that simple. The easier you are to work with, the more you will stand out from the legions of Small Wholesale Producers who are learning customer service on the fly, and the happier your buyers will be to order more and more of your product.
Retailers need a lot from you, and we’ll cover much of it in the posts that follow. But there’s only one sure-fire way to know a particular retailer’s needs: come right out and ask them. What are their pain points with your product? Maybe your case size is too large, or your packaging lacks certain key info. Maybe you’re priced too high. What are their pain points with your competition? Maybe they’re too cocky or aloof, and they don’t check in frequently enough. Maybe they check in too frequently. Maybe their packaging is drab and they don’t offer demos.
Any number of things can make you a pain to work with. Your distribution strategy can certainly be one. Retailers are generally too kind-hearted to volunteer criticism of your brand, so you need to ask, and you need to show that you are listening by incorporating whatever you reasonably can into your wholesale program.
The purpose of this blog is to provide tips and tricks of the trade that will help you sell your brand more gracefully, efficiently, and profitably, while avoiding the common pitfalls of wholesale. At their essence, these tips and tricks boil down to our one golden rule:
It’s all about what the retailer needs.
You will see this maxim repeated under various guises throughout the posts that follow, because it is absolutely fundamental to the success of your wholesale business. Take it to heart, and let it guide you in every business decision you make.