Consignment, Wholesale or Drop Shipping — Advice for Australian Designers

Ceramic mugs consignment wholesale or dropshipping
GROWING WITH STOCKISTS

When you start germinating that business seed and things are on the up, many makers start considering the possibility of stockists.

Finding stockists that appropriately represent your business is an important part of your brand choice.  

One of the main things to determine is whether or not your chosen retailer or gallery actually manages their suppliers via a consignment arrangement, wholesale or whether it’s a drop shipping set up.  That becomes an important financial and logistical choice too, and it’s important to be prepared in each case.

At DBP, we’ve been on “both ends” of the stockist arrangement.  Angela’s online store Leeloo maintained a variety of agreements, both wholesale and consignment.  Renee was one of the illustrators that stocked items with Leeloo, (that’s how we met!) but additionally during her time managing Baker and Bailey took on a variety of consignment and wholesale agreements with stockists.

Based on those experiences and some good old research, please find below general advice for Australian makers and designers on what to consider when you’re setting yourself up for stockist success.


CHOOSING YOUR STOCKIST

Firstly, is it a brand match?  Make sure your items suit the overall look and feel of the store or gallery, and that you’re comfortable with the way they treat their customers.  Maybe do a secret purchase to see how the process goes, whether in store or online. Get a feel for how they run their business to determine if it is professional enough to be aligned with yours.

What’s important to consider: You don’t want your stockists to be too close to one another.  It’s worth asserting that you’ll only have one per 5km or 10km or more depending on the importance of exclusivity to your retailer.

Handy Hint: Support your stockists by listing them on your website.  Give your audience an opportunity to find your pieces in real life in between market stalls.


WHOLESALE

The preferred option by most retailers and makers, this process occurs when your items are bought at a wholesale price from you and sold by the retailer to their customers.

Your wholesale price, generally speaking, is 50% of the recommended retail price (give or take the 10% based on GST registration).  Pricing is a very important consideration if you’re a maker that’s never set up a wholesale agreement before. It may mean that you’ll need to review your entire pricing structure to accommodate a wholesale arrangement.  

You don’t want to be selling yourself short so that another business can make money from selling your pieces for you. It’s important to consider the profit margin you’re making on that wholesale price, even if it narrows it down to 10%.

Wholesaling means that the retailer (buyer) owns the stock after purchase, and that they are then responsible for selling it within their own business system.  It’s likely these items have been ordered from you via your wholesale catalogue. Some online stores like Shopify allow you to have a separate space or code for your wholesalers to use to login, so you only have one point of inventory to manage.

If it’s a shop, they display the items in store, or if it’s online they may photograph the products themselves to ensure consistency across a variety of brands.  As the maker, you have very little, if any control over what happens to those items after they’re purchased by the end retailer. You can however, empower the retailer with information about you, your products and your process to assist them with sales.  The retail store’s sales people are a key part of influencing final purchases.

What’s important to consider: You may wish to set-up terms and conditions for how your items are displayed (for example keeping the tags on your items to show your brand) and the possibility of offering a buy back if the retailer determines it’s time to discount your items heavily if they haven’t sold.  It’s again a brand choice you need to make if you’re concerned about it.

You might want to provide a display to your retailers so that your products are shown at their best.  Additionally, this helps maintain your brand visibility in a location where you can’t be assured of that.  

Handy hint: Pop your contact information on your provided visual merchandising so that the retailer can re-stock your products with ease. Don’t be afraid to check in with your retailer, or even visit their shop in person to check on your products.


CONSIGNMENT

Consignment is a system whereby the majority of risk is with the makers. This arrangement varies from retailer to retailer.

In a consignment system, a maker provides pieces to a retailer or reseller. That retailer or reseller keeps those pieces and on sells them to their customers.  The risk is that the reseller does not have to pay the consignee until the items have sold.

The other key component is that the retailer takes a percentage of the recommended retail price.  So for example if your consignment arrangement agreed rate is 30%, and your items sell for $100, the retailer will provide you with $70 for that item once sold.  That percentage rate changes from retailer to retailer.

Again this can be affected on the GST registration status of the businesses.  

It’s helpful for galleries and so on to be able to fill their retail spaces with pieces without having to invest heavily in stock that may or may not sell.  It also provides producers with opportunities to have a presence amongst other brands, while retaining ownership of the products themselves.

Some retailers will have terms and conditions for consignment that you may need to agree to.  Read those carefully and only engage where you’re comfortable.

What’s important to consider: When you’ve set up this kind of arrangement it’s important to keep your own inventory of stock you’ve sent, stock that’s sold, and stock that remains.  If it doesn’t sell you are usually welcome to take it back, so that you’re able to sell it yourself at an upcoming market for example.

Handy Hint: Get in touch regularly with consignment stockists to see how things are going with your items.  Consider switching products around if things aren’t being sold. Request a monthly update if it isn’t already provided.


DROP SHIPPING

This model allows a retailer, mostly online, to manage their business without having to maintain inventory, storage or shipping for themselves.  The retailer provides the technology and sales platform, while all other components of the business are outsourced to the makers or logistics operators.

This scenario provides many pros and cons for both the retailer and the maker.  Drop shipping essentially means the goods stay with you, whilst being sold via the stockist.  They may require a yearly fee and/or a percentage of sales of your items that occur via their website.  Drop shipping arrangements differ from store to store.

When the online or retail store has sold an item that belongs to you, they notify you and it is your responsibility to ship the items to the purchaser. Either that, or the online store will have invested in a “3PL” or Third Party Logistics provider who organises all of the shipping on behalf of the retailer.  In either case it’s important to know what your obligations are for deliveries, and how payment for those deliveries is managed.

A drop shipping set-up is very simple and straightforward for the retailer, it’s a low risk set-up.  There is no warehousing or storage to pay for or manage, and generally speaking these retailers operate solely online.  The retailer has had to build and maintain a website to facilitate the sales process and encourage customers to come to them to shop, whilst order fulfilment is left to the makers.

What’s important to consider: Are you getting bang for your buck? What kind of influence does the retail platform have on buyers?

You want to ensure that the retail brand is a perfect match for you and your business.  Verify that the other brands involved with the retailer have a good reputation. Getting involved in a drop shipping arrangement is primarily a brand and exposure choice for makers, as it’s lower in profit and requires labour and time to manage deliveries.  It’s wise to think of drop shipping set-ups as a business partnership rather than having a stockist which implies a customer relationship.

You want to make sure you can see the retailer’s marketing efforts, identify beneficial outcomes from their campaigns, and again, and probably most importantly, whether their customer service and management is acceptable to you when aligning your business with them.  

There’s many potential points of failure involved when there’s a variety of makers shipping from various locations.  For example, your brand’s reputation may be affected if other makers aren’t as diligent in their attention to detail or timeliness when sending items to shoppers.

Make sure you determine how refunds and returns are going to be managed by the retailer and how it will affect you and your business.

Handy Hint: Consider offering an exclusive range of your products for drop shippers.  That way you can more easily manage a separate inventory to identify the success of the retail relationship.  Make sure it’s a profitable item for you to select for drop shipping partnerships since your benefits are mostly brand alignment and exposure.  


This is general advice provided to Australian designer-makers, artists and creative interested in seeking stockists for their products.  Please always consider the individual terms and conditions of any wholesale, consignment or drop shipping agreement you enter into.

If you’re interested in setting yourself up for wholesale but you don’t know where to start, let us know.  We’ve helped many of our mentees go into those arrangements with their business adequately prepared and their eyes wide open.

REFERENCES

The Australian Consumer Law

Product Pricing for Wholesale and Retail

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