May 27, 2010, 12:26 PM

Niche Nirvana

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Because they are producing to order, manufacturers typically want partial payment up front, often 30-50%, retailers say, with the rest paid when the supplier delivers the goods to the shipper. Suppliers will occasionally extend credit to retailers they’ve worked with before, Liotta says.

Factories invariably require a minimum order size, and what that minimum is depends on the value of the item. “Usually minimums are at least 300-500 units, and for something cheap it could be 5-10,000 units,” Liotta says.

Jacqui Rosshandler, CEO and co-founder of Jacquean Products LLC, which sells vegan gel caps and other breath-freshening items online and through stores, says Asian suppliers have lower minimum requirements than U.S. manufacturers. “In Asia, they’re happy to do 50,000 packs, not 1 million,” she says. And her cost averages 30 cents per unit, versus $1 in the U.S., she says.

However, direct sourcing is not for every web retailer. A merchant must be able to sell large quantities of a single item to source directly, and that’s not the case for online retailer Rugs Direct, which must satisfy customers seeking just the right color, size and style.

“Consumers dictate what sells on the Internet, whereas in stores you can dictate because you only have a limited stock,” says Bill Martin, executive vice president and chief merchandising officer for Rugs Direct. “I might need two of this, five of that, eight of that,” Martin says. That’s why Rugs Direct offers 68,000 SKUs online, taking orders from consumers and drop-shipping from suppliers in North America.

On the other hand, Kissling of The Bidness Group has decided that the low prices he gets in China make it worthwhile for him to order large quantities of a few items that he knows sell well, then act as a wholesaler on those items to other retailers. “It’s changed our business plan,” says Kissling, who uses to find suppliers.

Shipping issues
For retailers that do source from Asia, there are several options when it comes to shipping.

The cheapest is to ship by sea in a full shipping container. However, depending on the type of merchandise, a retailer may have to order $30-50,000 worth of goods to fill a 20-foot container, and often smaller retailers don’t need to order that much from a single supplier. In that case, the retailer can share a container.

That may cost 20% more than shipping via a full container, Liotta estimates. There can also be additional delays as the shipping company seeks another buyer to share that container who wants goods delivered to the same port.

Items that are light but high-value, such as watches and electronics, can be shipped by air. An item that might cost $5 per unit to send by air freight likely would cost only about 60 cents to send by sea, Liotta says. “Normally, it’s exponentially less expensive to use sea freight,” he says.

There are other shipping issues to consider, such as whether to receive goods at a West Coast port and then ship by rail or truck, or have them sent through the Panama Canal to the East Coast. An experienced freight forwarder can help with those decisions, Liotta says.

Ibrahim of Grow Green Industries, says the one mistake she made in ordering from China, working through a supplier she found on, was letting the supplier’s freight forwarder transfer goods from factory to ship. She believes she overpaid for that transfer and would have saved money if her U.S. freight forwarder had handled the shipment from the factory to her.

Ibrahim finds that language has not been an issue when dealing with her Chinese supplier by e-mail. “It’s not perfect English, but definitely understandable,” she says. That varies by country, says Liotta. He notes Japanese manufacturers are more geared to domestic buyers, and speak less English than Chinese suppliers.

Legal technicalities
Once goods arrive, retailers face a final hurdle: making sure they meet U.S. and Canadian product safety laws. That issue became front-page news in 2007 when Mattel and other toy manufacturers recalled millions of toys from China because they contained lead paint or small parts that could endanger children.

Retailers should demand that suppliers provide them with copies of required testing certificates because items that arrive without the necessary documents will be sent back, Liotta says. Smaller suppliers may not be aware of certification requirements, he says. “Plus, the U.S. laws change. It’s up to you to know, or talk to your freight forwarder and ask them to inform you.”

If a supplier has not had its goods tested and certified, the retailer may have to pay for testing, which could cost as much as $3,000, Liotta says. If goods arrive in the U.S. without required documents they may be rejected as they can’t be tested once they’ve arrived, he says.

ThinkGeek once had goods sent back because of a lack of documents. “We did get a refund, but this is only because we have a very good relationship with our suppliers,” Liotta says. He says in other cases goods have been delayed because documents were not in order.

Liotta does not know if Chinese goods are scrutinized more closely than merchandise from other countries. But, he says, “certainly there is much more scrutiny on items that are toys.”

Despite such complexities, many retailers say it’s worth dealing directly with Asian suppliers because in the main they’re honest and anxious to please. “They’re hungry for the business and very accommodating,” Stites says.

And Asian suppliers are used to custom orders, so niche retailers should ask for just what they want, says Ibrahim of Grow Green Industries. “If there’s a specific color or modification you want, ask for it,” she says. “More than likely they can do it, and it will make your offering unique.”

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