In its second-largest acquisition, Amazon buys the company for $970 million.
The Internet brings Asian suppliers close enough that even small e-retailers can get just what they want.
Niche retailers thrive on the web. That’s because they can find online a broad audience for such specialized products as vegan breath fresheners or grow lights for hydroponic gardens. And though they don’t have the scale of a Wal-Mart or Amazon, specialty e-retailers are finding that they, too, can realize dramatic cost savings by sourcing goods directly from manufacturers in Asia.
They’re benefiting from the emergence of web-based technologies like online supplier directories, e-mail and the Skype phone service to communicate inexpensively with Asian suppliers. That lets them tap into the explosion of manufacturing in Asia, especially in China. U.S. imports from China have tripled in the past decade to $300 billion, and that’s spurred the growth of thousands of factories that exist solely to meet the needs of the North American market.
Those factories mainly produce to order, and they will go to great lengths to satisfy buyers, says Ty Liotta, senior merchandiser at online gadget retailer ThinkGeek Inc., which has been sourcing goods from Asia for years.
“The answer is always ‘yes.’ There are no ‘no’ answers,” Liotta says. “The question is: Can they meet what they’re promising and how much money are you willing to pay to get what you want? Usually there’s a way of getting something done.”
In fact, ThinkGeek, which had 2009 online sales of $49 million, spends millions of dollars sourcing directly from Asia, a figure that’s steadily grown as the e-retailer has found it can trust those suppliers to deliver good quality merchandise, usually at about half the price of a U.S. supplier, Liotta says.
Even much smaller e-retailers have discovered that the web enables them to buy at low prices directly from Asian factories. And because those factories are geared to produce to order, North American online retailers can specify exactly what they want, and get it in no more than 60 days, often less.
While there’s much to learn about everything from inspection practices to shipping, North American retailers generally are enthusiastic about working with Asian suppliers. Size is not an obstacle, and e-retailers are not limited to what Asian factories are turning out for bigger customers. As for culture and language differences, Liotta says, learning to work with Asian suppliers “frankly isn’t all that difficult.”
Many North American retailers have become well acquainted with Asian manufacturers. China alone accounts for more than 90% of toys exported to the U.S., 80% of footwear and 35% of clothing, says the National Retail Federation.
Low price is the main reason for that dominance. A set of light hangers that a U.S. wholesaler prices at $8.50 costs Mike Kissling $2.49 when he gets them directly from China, $3 with shipping. “That’s a big difference, more than $5 on one item,” says Kissling, a partner in start-up The Bidness Group, which is developing LonelyGrower.com as an online store for hydroponic gardening supplies.
That price differential makes it worthwhile for Kissling to spend many evenings on the phone, communicating via Skype with suppliers in China. And it justifies for Kissling and many other e-retailers the investment in learning the basics of dealing with Asian suppliers, which include how to find suppliers, ensure they deliver good quality, arrange delivery and manage payments.
Finding suppliers is especially easy for web retailers because the suppliers often search the Internet looking for potential customers, says Adam Stites, president of iStores Inc., which sells paintball guns, apparel and supplies at Paintball-Online.com. Stites has also used the online exchange Alibaba.com to find overseas manufacturers, and such services are growing rapidly.
Alibaba, which is based in China, had 1.4 million suppliers offering goods in its international marketplace and 11.6 million registered users at the end of 2009, a 45% increase in users over the previous year. It’s one of several online services that match Asian suppliers with Western customers. Others include Made-in-China.com, Trade India and ECPlaza, which is based in South Korea.
Recognizing that trust is an issue, these exchanges offer services that vet suppliers. For instance, Made-in-China.com has engaged a Swiss company, SGS Group, to audit suppliers, which includes visiting their factories and verifying that they have the business licenses they need.
Alibaba is preparing to launch this spring a new service called AliExpress specifically geared to retailers making smaller orders. As part of that service, which the marketplace has been testing since fall, Alibaba holds a retailer’s funds in escrow, only releasing them to the manufacturer once the retailer confirms receipt and acceptance of the goods.
Still, trust remains a big issue, especially when working with suppliers for the first time. Typically, retailers start by asking for a sample of the product they want made. In some cases, suppliers may charge for the sample, or for shipping charges.
Once he has a sample in hand, Stites of Paintball-Online.com uses online video conferencing to show a supplier in detail what he wants, for instance, pointing out where a seam on a pair of pants has to be reinforced. “It’s amazing what we can communicate over a webcam with a pair of pants they FedExed to us,” he says.
Stites relies on the samples he receives and doesn’t hire agents in Asia to check the merchandise. He says he’s never had an issue with items he’s received that he could not resolve with a vendor to his satisfaction. Mareya Ibrahim, president and founder of Grow Green Industries Inc., which launched last year selling food-cleansing products online, says her agreement allows her to return products for a refund, although she’s not had any problems so far.
ThinkGeek, which spends millions of dollars each year bringing in techie novelty items, does on occasion hire agents not associated with the supplier’s factory to check goods before they are shipped. “You want to make sure the packaging is correct, that the thing turns on. They check a certain number of the items,” he says. “But nine times out of 10 the product will be just like the sample.”