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That sounds crazy! I’ve jumped through all the hoops to get my product onto a major retailer’s shelves and then, once there, my product sold better than my competition, why wouldn’t I get reorders?

Welcome to the real world….

Let’s say you’ve survived the gauntlet and actually got a vendor number from a top 3 retailer. They bought your product, stocked it on their shelves, and your product sold out faster and for more profit that your competitors. . .

Why wouldn’t the retailer pick you to buy from again?

Here are some real examples that happened to me – names not disclosed to avoid getting sued.

Example # 1:

I got my school supply product line into one of the largest retailers in the world. At the end of the school supply season, my product was all gone and my competitor’s product was still there. . .

So they should order from me the next season, right?

Not necessarily.

The retailer in question, whose name starts with a letter towards the end of the alphabet, asked my billion dollar competitor to take all the unsold product back for a credit. We’re talking about multi-millions of dollars.

The competitor told the major retailer, OK, as long as you kick out that upstart small company whose product sold better than ours and don’t buy from them again.

Big retailer does the math and says “OK”.

This entire exchange probably violates any number of laws, which is why we won’t name names, but the bottom line was my product, the best seller, was out.

Example # 2:

I took my everyday sticker product line to the same major retailer and suggested they buy my product instead of another multi-billion dollar competitor’s line.

For a reason, my product sold for $1.00 per package instead of the $2.00 per package my competitor’s product sold for.

I got in all their stores – Yea!

But I had kicked the elephant (another multi-billion dollar competitor) in the shins. It took the elephant a while, but once they noticed what I did they squashed me like a bug.

How did they do it. Differently than the last example, but the same result.

They offered the big retailer weekly in store service at every one of their many thousand stores (their service people were there anyway every week servicing some of their many other product lines).

Buyer calls and asks if we can provide weekly service in many thousand stores every week for free.

Oops. We’re gone.

Example # 3:

Example from a single gift shop – not a chain, but a single store.

The owner bought our kids sticker display with hundreds of packages on it. It sold out right away.

When our rep called on the store owner for a reorder, the owner doesn’t reorder because he says: “that product line was great! It sold out right away, what’s new?”

He figured that most things he buys are still there and don’t sell out so he got lucky, what’s next?

You would think that a product line that sells out would be reordered so they can do it again, but not everyone understands that. . .

The Bottom Line:

The purpose of this post is not in any way to discourage you, but to point out that as a small business, you can still make millions, but just plan on being quick and responsive and when your competitors figure out what you did to them, let them copy last year’s product…..

Even though these are all true stories, remember, I did sell $45 Million worth of product, so I was good with that.

I had an excellent question today from a reader and, since I’m sure many people have the same question, I’m answering it here. The question was:

“Assuming a product is broadly retail ready on a national level, how much inventory would a new vendor need. What is an overall adequate funding ratio?”

To calculate this, you need to know four things:

1. How many units of your product would need to sell per week in one store to make the retailer enough profit to justify keeping it in stock?

Different products have different sell through rates, so find out what that should be for your category.

2. How many stores do you expect to sell?

Keep in mind large retailers will typically test a product in a limited number of stores to make sure it sells before stocking it in all stores and some products have a regional appeal and would not be stocked in every store.

3. How long does it take you to make your product?

If you manufacture it yourself locally and can have more product ready to ship in 7 days, you will need a lot less inventory than if you need to bring it in from China by the container load and there is a 90 day lead time from placing the order to getting it to your warehouse.

4. Will your product be stocked in retailer warehouses and given a “warehouse slot” or will it be a one time promotional/seasonal buy?

As for financing, once you know your inventory levels, you know how much it will cost to make that much product.

To be conservative, if it takes you 90 days to get the product to your warehouse, if your inventory turns every 60 days and then it takes 90 days to get paid by the retailer, you need to have the working capital to fund that inventory for that time.

By negotiating with your suppliers and your retailer customers, you may be able to substantially reduce the amount of financing you need, but be careful. You certainly don’t want a success at retail and then orders from retailers that you cannot fill on time because you cut it too close.