Retailers find product from a variety of sources. The sources that you use depend on the nature of your business and product, your capacity for inventory and so on.
- Drop Shipping
- Local Sourcing
- Low Volume: Wholesalers
- Mid Volume: Importers and Distributors
- High Volume: Manufacturers
- Liquidation Sales
Drop shipping allows you to sell products without having to hold inventory of the merchandise. The drop shipper holds the stock for you, you don't actually pay for the item until you sell it. Also, you never even see the product because the drop shipper ships the product directly to the customer for you.
Drop shipping can be a good sourcing practice to test the market for a specific product. If the product sells, you may choose to make a larger investment with a bulk order of the product.
- No cash tied up in inventory
- No storage requirements
- Low risk
- Wholesale cost is higher
- No control over shipping
- Bound by supplier's return policies
- Easier to setup, therefore more competition
Local sourcing is finding products sources such as car boot sales, discount shops, and local outlet stores. This is a good technique to help you get started immediately in finding products to sell, but it is the most limited type of product sourcing because you are basically purchasing one time articles that you must resell as unique items versus being able to build a sales strategy around a collection of products that can be marketed to a specific group over and over.
- Good starting point
- Profit can be high for one of a kind
- Can't reproduce items
- Time consuming to sell individual items
Low and Medium Volume: Wholesalers, Distributors and Importers
If you plan to be a serious e-tailer, offering a consistent product line, you want to start holding inventory of the products you resell. To start with, you may want to begin small, then gradually increase the quantity of inventory you hold. Wholesalers are the best option for purchasing low volumes, they are generally very flexible with retailers. Once you are prepared to hold larger quantities of product, consider using Importers and Distributors; while they have higher minimum order requirements, they can offer you pricing arrangements which can be considerably more profitable than dealing with wholesalers. It is advisable that once you reach this stage of the sourcing cycle you consider registering as an official business, including having a business or tax ID number.
- Lower pricing
- Control over inventory and shipping
- Opportunity to develop marketing strategy around product line
- Requires cash flow
- Higher risk
High Volume: Manufacturers and Importing from Overseas
One of the best ways to increase profit margin is to purchase directly from manufacturers and to import goods from overseas factories and distributors. Many international suppliers can offer low priced, high quality goods that can help you increase profitability. However, importing requires a good understanding of managing suppliers, shipping issues and importation fees. However, once you have established a system for importing, it is easy to continue accessing goods at a much lower cost.
Importers are not typically willing to deal with small amounts because of the cost of transportation. So, importing is an option once you are fairly certain that you will be able to turn over your inventory quickly.
- Better profit margin
- Many more unique products
- Costs of importation
- Quality control
- Cash flow required
Liquidation sales are usually bulk lots of merchandise that are being sold in an attempt to recoup some of the loss when a retail company goes out of business. Most liquidation sales in the UK are held at an accredited UK auction house. Buying at liquidation can be a wonderful way of getting very low priced merchandise for sale. However, this approach, like other local sourcing, does not create an ongoing supply of product, therefore it carries the same problems as other local sourcing options.
- Very low cost; higher profitability
- Immediate availability
- Usually must buy in bulk
- Cash flow issues
- Storage issues
- May be available because it is an inherently poor seller
How to choose
Choose drop shipping and local sourcing to get a feel for products, for your ability to run a business and for the market. Add or switch to low volume wholesale to gain consistency and long term advantage. Include liquidation when a good opportunity emerges. Start importing and buying directly from manufacturers once you are fully trained to the risks associated with trading in large volumes, have the customer base to turn around stock quickly, understand market trends and the importance of market research.