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Thread: Margins

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    Margins

    Well hoping i can get some advice on what % online retailers and standard retail shops are looking to make?

    I have a ladies fashion accessories product that I have just started to manufacture. Now my selling price on my website would be about R600. What would an online retailer be looking to purchase these items for, and what would a standard mall shop be wanting to pay. This assuming they also sell for R600.

    Any advice greatly appreciated.

    K

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    Diamond Member adrianh's Avatar
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    I do laser cutting for a lady who manufactures earrings and pendants. The mark ups are anything between 100% - 300% Mark up are the highest in tourist traps like the V&A
    How easily someone is offended is directly proportional to how stupid they are.
    ~GS Elevator

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    Platinum Member pmbguy's Avatar
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    Hi there onlineK – Welcome to TFSA . Can you tell us what the product is? or what type of ladies product? Then people will have more info to provide... (it’s ok if it’s secret)

    It will be advisable to find out what your competitions’ mark-up is to the retailers. Find out what the retailers sell it for (A long list). Also consider type retailer and location, as Adrian pointed out. This info is key for being picked up by retailers, and so you don’t sell too cheap, assisting negotiation etc.

    The above combined with the product quality and your production costs are crucial to determine mark-up.

    Good luck K
    It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. Charles Darwin

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    Diamond Member adrianh's Avatar
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    The problem is this: If you are going to be selling online yourself, have a retailer sell online and then retailers in shops as well then you will have to set a suggested selling price. Once that price is set you will take off the discount that you offer them as their mark-up.

    The problem is that the online retailer has lower overheads than the brick and mortar retailer. So, if you are to make a profit then you have to be sure that your wholesale price still makes you enough cash when the guy who puts on the highest mark-up sets the price. Of course you will make more from the guy who sells online.

    The quickest way to piss a retailer off is by you competing with them on price. As soon as they find out that you are selling below the recommended selling price then they nail you. Of course it is ok for them to charge whatever they want but you should never deviate from your recommended selling price if you are selling online.

    Retailers are bastards of note. You have to be careful that they don't push their margin so high that you end up making no money. You also need to keep in mind that you are not manufacturing for the mass market and therefore not competing on price. You are selling a hand made quality product to a small market. Don't let them position your product in such a way that it looks cheap and mass produced.

    Your entry into retail would depend on your ability to produce. What will you do if you suddenly get orders for 50 items...will you manage...you see, getting too many orders is worse than getting too few...you end up looking like a tit when you are unable to produce. Another thing is to be very careful of retailers and their payment terms...They may want to pay you on 30 day terms which will kill you if they sell too many of your products and you don't have money in the bank to buffer the cashflow.

    I don't know what it is that you make but we are in a very similar situation. Our products sell for between R400 an R9,000. Retailers want 33%. The problem for us is that because the products are hand made and take a long time to make we simply cannot give 33% away. The decision I've come to is to give them 50% on products that we mass produce on the laser and only 15% on the handmade products. That way they score on the one side and us on the other.

    I do work for numerous ladies who are in the arts/craft, sewing/quilting and earring/pendant business. There are markets for the products and one simply has to be very careful when making deals with retailers. The one lady left R7,000 worth of stuff on consignment with shop in Willow Bridge the Friday Morning. The shop shut its doors on the following Tuesday and went into liquidation. She tried to get her stock back but the lawyers said that she had no hope of proving the stock belongs to her because their record keeping was so poor....be careful!
    Last edited by adrianh; 24-Jan-14 at 10:02 PM. Reason: Spelling...
    How easily someone is offended is directly proportional to how stupid they are.
    ~GS Elevator

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    Diamond Member Justloadit's Avatar
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    From Adrian's post I surmise, being in a similar situation, you either want to be a manufacturer or you want to be a retailer.

    You can not be both.
    1. As soon as retailers find out you are selling directly, you lose them as clients. The story goes that they spend the money to market your product, and there for want to have exclusive sales of your product. They own the supply chain, which takes big bucks to grow along with years, and thereby defend it with tooth and nail. Anyone done a bit of selling will want to get into this existing supply chain.
    2. If you are a small organization, you can also not afford to spend the required time required to do selling while manufacturing, and vice versa, if you are manufacturing, you can not afford the time to sell. To do both, you require dedicated managers, which in turn requires capital, and when you are small you may not have it.

    I always use successful organizations as examples. Let's take Tiger Brands, they are manufacturers of a limited number of products, and by this virtue concentrate on manufacturing and researching new products, verses say Pick n Pay, who concentrate solely on sales and stock a variety of products which makes a one stop shopping for customers .
    Each one needs the other, and each one is always attempting to get the best deal. The day that Tiger Brands decides to sell directly to the public is the day that Pick n Pay will stop selling their products and find an alternative manufacturer/supplier. Tiger Brands to cover the market Pick n Pay has, will cost an enormous amount of capital to place stores, staff advertising, and will fail, as the cost of maintaining the network for a handful of products is just too expensive. Customers will not stop going to Pick n Pay to buy from Tiger Brands, when they can get similar products while doing their main shopping.

    As a manufacturer, decide what is the price you want for your product, and that's what you offer. DO NOT get involved in what price the retailer sells at. You can not dictate the selling price, as you have no idea the cost to run a store. In some of these shopping centres, maintaining a footprint, costs 2 arms and one leg, over and above the rules and regs imposed by the centre management. Simply close your eyes to the sales price charged by the retailer, and hope for the best in getting orders for your manufacturing concern.

    Products which I manufacture in certain cases sell 5 times my selling price, upon investigation you realise that it has gone through 2 or 3 hands during it's journey to the final customer.
    If the customer felt he was not getting value for his money, believe me he would not buy it.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
    Solar and LED lighting solutions - www.microsolve.co.za

  6. Thank given for this post:

    adrianh (25-Jan-14), CLIVE-TRIANGLE (25-Jan-14), Dave A (01-Feb-14)

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    Platinum Member sterne.law@gmail.com's Avatar
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    Re Adrian's post about the consignment stock and the company closing.

    Landlords always have a tacit hypothec, this means that ANYTHING on the property can be taken by them and sold to recover rent owed. Anything means anything, stock paid or not paid, display equipment, e.g. branded fridges. Therefore, if you enter such transactions, the contract must include a clause that it the landlord can't attach, more importantly, inform the landlord as well.

    The thought process behind allowing the landlord to seize everything, is to prevent where suddenly all the assets belong to the tenants grandma, aunt, unborn daughter and jack Russell.

    If you sold on credit, or consignment etc, you are still the owner of goods, but you are also a creditor, and now you fall in line, depending on the strength of your claim. Hypothesis, liens, pledges are up top.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    adrianh (25-Jan-14)

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    Diamond Member adrianh's Avatar
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    @Jistloadit - I think that trying to be both is probably the biggest mistake that I am making. What you say makes a lot of sense and I am going to rethink the way that I operate. Retailers and I have always been at each over margins and this is the reason why.

    Food for thought to mull over....
    How easily someone is offended is directly proportional to how stupid they are.
    ~GS Elevator

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    Platinum Member sterne.law@gmail.com's Avatar
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    Selling to a retailer may mean lower margin but possibly higher unit sales. Also inevitably less capex and infra structure.
    As above, then your selling is to find retailers and not individuals.
    Product dependent, it may occur that you sell to retailers that are geographically limited, then you might use online to cover the other areas.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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