Distribution - Need Some Help with the Basics

[Indietrader]

Hi all,
I have a small shop in the UK which is doing well and have been in business for over a decade. By chance, an opportunity has come to me to be able to distribute an American brand. This brand are 100% legit and reputable. I have been selling this brand for years and know it is popular - there are a few big chains I know who sell it too. It's a quirky gift product range. Basically, because of Brexit the American company has decided they need a UK-based distributor. I had a video call with them today and they went through the details. They told me I would be expected to make an initial purchase of $10,000 worth of goods which would be shipped by container at my cost. I would receive a 15% discount on the wholesale price. They already have six agents in place in parts of the UK who receive 12.5% on sales. I could keep these or not, my choice. There are 2 areas with no agent which I would take over or could appoint agents. I would be the exclusive distributor for the entire UK sales excluding Amazon which they handle themselves.
They like me because they know me; I know their customer demographic and I have done trade fairs wholesaling my own products so all that side I am comfortable with. But I am a complete novice re distributing other people's product. I have a shop premises where I could store goods initially and then I might need a storage unit or bigger shop at some point.
I asked a lot of questions but I didn't want to sound too dumb as I know they are also considering one other person for this. The thing is, I am finding it hard to understand where the money is to be made in this, although I know what they are offering are the same standard terms they offer to distributors in other countries as well so there must be! The margin seems really small to me as I am used to retail. So I would make 15% but this would be minus all shipping costs and import duties? And minus any stock which did not sell? And breakages? And eventually warehouse space? That seems awfully low to me. Also I wasn't able to exactly understand the situation re the agents. If they made the sale and got 12.5%, would this mean I was getting 2.5% per item?
I've always wanted to get into distribution but I'm struggling to see where the profit is here! Any advice gratefully accepted! I can't decide whether this could be an absolute goldmine or alternatively a nightmare amount of work for very little reward.

 

[Mark T Jones]

This is a classic case where you really need to sit down with a cashflow template and run the numbers with multiple variables


You also need to either ask direct questions or potentially ask for a copy of their intended contract which may well contain the answers

 

[Indietrader]

This is a classic case where you really need to sit down with a cashflow template and run the numbers with multiple variables


You also need to either ask direct questions or potentially ask for a copy of their intended contract which may well contain the answers

Thanks Mark!
Any suggestions on what I should ask. You are right, the figures are the key. They were saying about the increases in costs for containers recently though and how it is so unpredictable how much shipping will cost. So I fell as though I am fumbling in the dark even making a stab at estimating profit margins, especially when those margins seem so slim.
Would you say these margins seem typical?

 

[Mark T Jones]

You need to ask anything and everything on which you are unclear - though as I say, the contract might clarify it

Don't even think about basing a decision on random assumption - get clear, concise, written answers

I've no idea what normal margins are (I guess it depends on the product) - I do know a lot about cashflow, and this deal looks like it might be very cash- negative

 

[Indietrader]

Thank you Mark.

 

[MBE2017]

Something worth considering, I can tell you USA companies back their distributors, but expect YOU to do everything for your discount. So unless the contract states differently, all costs from the moment of leaving the factory will be on you.

Hard to comment on the deal, since giftware is always a tough one, but the figure seems very low to myself. This looks like an opportunity that could prove very costly to yourself. Ask for a full copy of the distribution agreement, don’t be afraid to ask questions. Better to ask than lose money.

If the agents are getting 12.5% off the wholesale rate, but without having to commit sizeable amounts of money, then it sounds an awful deal.

 

[Socio South West]

Certainly a case for examination by cash flow budget: With container shipping prices extremely high at present owing to COVID it would be a good time to get a price to get it shipped.

Make sure you understand the Incoterms of the deal as well - There can be quite a difference in cost between EXW (ex works) and FOB (Free on Board)

You are mentioning a lot of areas that also need in depth consideration - cost of stock holding, unsold stock etc.

Is $10,000 a whole container or a part container? If its part, can you fund getting it up to a full container to get the unit shipping rate as low as possible?

Is there scope to broaden the market you would service into the EEC?

You certainly have a challenge on to make 12.5% discount work for you, especially if they are going to continue servicing the Amazon account - thereby nicking a substantial percentage of your potential market through the other agents.

 

[Indietrader]

Something worth considering, I can tell you USA companies back their distributors, but expect YOU to do everything for your discount. So unless the contract states differently, all costs from the moment of leaving the factory will be on you.

Hard to comment on the deal, since giftware is always a tough one, but the figure seems very low to myself. This looks like an opportunity that could prove very costly to yourself. Ask for a full copy of the distribution agreement, don’t be afraid to ask questions. Better to ask than lose money.

If the agents are getting 12.5% off the wholesale rate, but without having to commit sizeable amounts of money, then it sounds an awful deal.

Thank you; I am going to ask for much more detail on the financials. I also think the percentage discount seems very low. It's frustrating because I have always wanted an opportunity like this to come along and the brand is perfect for me but I don't think the figures are going to add up.

 

[Indietrader]

Certainly a case for examination by cash flow budget: With container shipping prices extremely high at present owing to COVID it would be a good time to get a price to get it shipped.

Make sure you understand the Incoterms of the deal as well - There can be quite a difference in cost between EXW (ex works) and FOB (Free on Board)

You are mentioning a lot of areas that also need in depth consideration - cost of stock holding, unsold stock etc.

Is $10,000 a whole container or a part container? If its part, can you fund getting it up to a full container to get the unit shipping rate as low as possible?

Is there scope to broaden the market you would service into the EEC?

You certainly have a challenge on to make 12.5% discount work for you, especially if they are going to continue servicing the Amazon account - thereby nicking a substantial percentage of your potential market through the other agents.

Thanks so much for the reply. I did not even know what the term "Incoterms" meant so had to look it up! I have no knowledge whatsoever of importing by container but the company has told me they can guide me through this. They are after my specialised knowledge of the market in which they sell. I am willing to put the work in to learn how to do this side of things - hard work doesn't bother me and I learn quickly but I want to make sure I am going to make a decent profit! I already have a business to run that I can turn my attention to if this isn't going to be worth my while. As far as holding stock, I have shop premises where I can store a $10,000 order but I agree with you on holding unsold stock. That worries me.
They have said they will let me have a list of all of their current stockists in the UK. I was wondering whether they might agree to me collecting orders from these clients before making my order with them so I know what I should order in. Their products don't suit every shop but there will be one or two in any town which might be interested in them and I know some high street names stock them which I have been told would also be part of my domain so this is really why I'm interested; if the margin is small but I am going to sell tens of thousands of items it may still be worthwhile. I will also have the stock at discount to sell in my own shop.
I was thinking of asking how much they turned over in previous years in the UK?
Also I just can't get my head around the issue of the agents; I thought I misheard when they said the agents receive 12.5% So, if they take orders, they receive 12.5% and I receive 2.5% I didn't understand how that could be right. They said they have a guy in London who does really well and I thought I bet he does. I think his deal sounds a lot better than being a distributor! They have told me I can dismiss all of the agents if I want to which would make me more money but seems a bit harsh.
No, I don't think the $10,000 will fill a whole container. I could look into increasing that as you say - it's a good idea - but it's a bit nerve-wracking making such a big investment. I need more facts.
I wouldn't be able to broaden into the EU; they already have representation there and it is Brexit that has caused them issues hence them asking me. I am very disappointed about the Amazon side; I'm guessing they are just shipping direct to Amazon for FBA. It means I couldn't really bump up the price to cover shipping increases as I would need to match their online prices as I have found in my own shop.
I think I just have to ask them some difficult questions straight out and ask for some data from them as well as getting some shipping quotes. I have found it difficult getting shipping quotes in the past; they ask what the volume of the shipment is but I have no idea until it is packed - is there a way round this?
Sorry for the long ramble and thanks again.

 

[MBE2017]

You need to research this a lot, your American manufacturer might claim 50,000 gift shops on their books, but of those what if only 5000 are current users? What if their average order value is £50?

£250k sounds nice, until it is reduced to £37.5k overall commission. If 80% of those orders are through current agents now your money has reduced to £12.5k, not much to risk £10k. This is not even allowing for more staff to service these accounts.

 

[JEREMY HAWKE]

I think you have answered your own questions
The percentage of profits appears very low to me

I'm speaking as somebody that reached the size of the business I wanted in the past only to discover the rewards were not worth the hassle.

 

[Deleted member 335660]

Hi all,
I have a small shop in the UK which is doing well and have been in business for over a decade. By chance, an opportunity has come to me to be able to distribute an American brand. This brand are 100% legit and reputable. I have been selling this brand for years and know it is popular - there are a few big chains I know who sell it too. It's a quirky gift product range. Basically, because of Brexit the American company has decided they need a UK-based distributor. I had a video call with them today and they went through the details. They told me I would be expected to make an initial purchase of $10,000 worth of goods which would be shipped by container at my cost. I would receive a 15% discount on the wholesale price. They already have six agents in place in parts of the UK who receive 12.5% on sales. I could keep these or not, my choice. There are 2 areas with no agent which I would take over or could appoint agents. I would be the exclusive distributor for the entire UK sales excluding Amazon which they handle themselves.
They like me because they know me; I know their customer demographic and I have done trade fairs wholesaling my own products so all that side I am comfortable with. But I am a complete novice re distributing other people's product. I have a shop premises where I could store goods initially and then I might need a storage unit or bigger shop at some point.
I asked a lot of questions but I didn't want to sound too dumb as I know they are also considering one other person for this. The thing is, I am finding it hard to understand where the money is to be made in this, although I know what they are offering are the same standard terms they offer to distributors in other countries as well so there must be! The margin seems really small to me as I am used to retail. So I would make 15% but this would be minus all shipping costs and import duties? And minus any stock which did not sell? And breakages? And eventually warehouse space? That seems awfully low to me. Also I wasn't able to exactly understand the situation re the agents. If they made the sale and got 12.5%, would this mean I was getting 2.5% per item?
I've always wanted to get into distribution but I'm struggling to see where the profit is here! Any advice gratefully accepted! I can't decide whether this could be an absolute goldmine or alternatively a nightmare amount of work for very little reward.

Interesting, we have a Gift shop in Spain and wondered about having distribution set up s for UK suppliers post Brexit.

Have you made some error regarding the agents. Are they getting 12.5% off retail sales, not wholesale. If they are then you might want to go back to them and ask how do they expect you to fund all this on a 2.5% margin.

Undoubtedly wholesale is all about volumes. I would be concerned that you are stepping into a new area of business and I would set up a new company with separate funding to make sure any losses do not impact on your successful retail enterprise.

Are you friends with any of your wholesalers that you could talk to and ask their advice?

The $10k and paying for delivery, warehousing and non sold stock is standard and you do this in retail. Breakages are down to the courier and when we have had them the supplier made recompense.

So clearly it’s a question of margins and cash flow. You need to work out annual sales and see if it works out well enough.

 

[Indietrader]

Interesting, we have a Gift shop in Spain and wondered about having distribution set up s for UK suppliers post Brexit.

Have you made some error regarding the agents. Are they getting 12.5% off retail sales, not wholesale. If they are then you might want to go back to them and ask how do they expect you to fund all this on a 2.5% margin.

Undoubtedly wholesale is all about volumes. I would be concerned that you are stepping into a new area of business and I would set up a new company with separate funding to make sure any losses do not impact on your successful retail enterprise.

Are you friends with any of your wholesalers that you could talk to and ask their advice?

The $10k and paying for delivery, warehousing and non sold stock is standard and you do this in retail. Breakages are down to the courier and when we have had them the supplier made recompense.

So clearly it’s a question of margins and cash flow. You need to work out annual sales and see if it works out well enough.

Thank you all for the really helpful replies. Yes, I agree that it does not seem credible that we would be expected to do this through agents with a 2.5% margin. I have no experience of how agents are paid and I think I may have misunderstood when they mentioned this part. I am compiling a big list of questions to go back to them with thanks to all of your comments!
I agree re setting up a second company. As Jeremy said, I need to know that this is all going to be worth the effort involved to get up and running. I make an ok living as it is so don't need this but obviously if this could turn out to be immensely profitable once established it would be worth it.
I have a friend who is an agent who I haven't seen for a while; I will drop them an email as they maybe can enlighten me more. I frequently import goods myself by air mail but I have only ever made one attempt before to import by container and it went horribly wrong when I was charged for all sorts of extras I hadn't anticipated. At that time I approached a supplier I considered a friend and asked for advice and they just clammed up and refused to discuss it with me. I think they felt threatened I was encroaching on them. This is why I am so happy to have found this forum and all of your advice is gold to me so thanks.

 

[Mr D]

This deal seems to be somewhat risky for you.
OK ordering stock - you know how much you can make on the sales anyway and are happy with the prices you have been paying and the profit you make.
A bigger discount means more profit for you with the same retail price of course....

However cost of shipping plus taxes etc - can be considerable. Plus of course storing the stuff.
Then wholesale - you are already used to trade shows and shipping to others so this could simply be expansion of that side of things.

Compare your potential unit cost for individual items by way of your current method of supply versus doing large order and being Uk distributor unit cost for those same items.

If cheaper, will it be enough cheaper to cover the extra work? If not cheaper, run.

 

[BusterBloodvessel]

Surely if they are supplying these customers in the UK now, they can give you a much more detailed breakdown of the potential, and the figures? The $10k order seems a bit of a finger in the air job - is this going to cover a weeks worth of sales or a year?

Another question - is this an exclusive deal and the manufacturer going to insist that all sales go through you, or will they still allow other stockists to buy direct if they wish to? Can other stockists also place a $10k order and get the same discount? If so you may miss out on the high value business and be left with the dregs.

Also, even if they do make you exclusive, in my industry (it may differ in yours) there is a bit of an "ego" issue with people wanting to buy direct from the manufacturer, and they can really get pee'd off with you if they can't do so - even if it's a benefit for them to buy off a distributor! We have experience of people buying through one of our distributors quite happily with single pick items, £100 carriage paid, and next day delivery for orders up to 4pm. They have approached us to buy directly and we have explained that it is actually not in their benefit - we have a 3-5 day turnaround, supply full carton quantities only, £2000 MOV shipping on pallets.....they can get a much better service buying off our distributor. But NOPE! They don't like that and have gone off to deal with an alternative manufacturer just because they can have a direct account.

Similarly (and this might be more the issue you have) we have had existing distributors buying directly from us, who we have then told need to buy from an appointed exclusive local distributor instead. We have engineered it so that they maintain exactly the same pricing and credit terms and, again, it's actually better for them as they can order locally and receive it more quickly and with more flexible deliveries. But again - not good enough! They have seen it as an insult to them closing their account and instead of just buying from the distributor they have switched brands entirely on a point of principle.

 

[Indietrader]

This deal seems to be somewhat risky for you.
OK ordering stock - you know how much you can make on the sales anyway and are happy with the prices you have been paying and the profit you make.
A bigger discount means more profit for you with the same retail price of course....

However cost of shipping plus taxes etc - can be considerable. Plus of course storing the stuff.
Then wholesale - you are already used to trade shows and shipping to others so this could simply be expansion of that side of things.

Compare your potential unit cost for individual items by way of your current method of supply versus doing large order and being Uk distributor unit cost for those same items.

If cheaper, will it be enough cheaper to cover the extra work? If not cheaper, run.

Thanks for the reply. Yes, the shipping worries me. I was reading in the news that containers are currently scarce. The brand have told me that a container was previously costing $1000 but now has gone up to $3000. I have read in the news though that containers are currently going for up to $10,000. However, if this is a temporary issue due to covid etc. I wouldn't want to lose the whole deal over it and would try to arrange to delay taking this on until prices calm down.

 

[Indietrader]

Surely if they are supplying these customers in the UK now, they can give you a much more detailed breakdown of the potential, and the figures? The $10k order seems a bit of a finger in the air job - is this going to cover a weeks worth of sales or a year?

Another question - is this an exclusive deal and the manufacturer going to insist that all sales go through you, or will they still allow other stockists to buy direct if they wish to? Can other stockists also place a $10k order and get the same discount? If so you may miss out on the high value business and be left with the dregs.

Also, even if they do make you exclusive, in my industry (it may differ in yours) there is a bit of an "ego" issue with people wanting to buy direct from the manufacturer, and they can really get pee'd off with you if they can't do so - even if it's a benefit for them to buy off a distributor! We have experience of people buying through one of our distributors quite happily with single pick items, £100 carriage paid, and next day delivery for orders up to 4pm. They have approached us to buy directly and we have explained that it is actually not in their benefit - we have a 3-5 day turnaround, supply full carton quantities only, £2000 MOV shipping on pallets.....they can get a much better service buying off our distributor. But NOPE! They don't like that and have gone off to deal with an alternative manufacturer just because they can have a direct account.

Similarly (and this might be more the issue you have) we have had existing distributors buying directly from us, who we have then told need to buy from an appointed exclusive local distributor instead. We have engineered it so that they maintain exactly the same pricing and credit terms and, again, it's actually better for them as they can order locally and receive it more quickly and with more flexible deliveries. But again - not good enough! They have seen it as an insult to them closing their account and instead of just buying from the distributor they have switched brands entirely on a point of principle.

Thanks for the reply. This is one of the questions I'm going to have to ask - what their turnover in the UK has been so far. I mean if you are making 50p an item and selling a thousand items per annum it's a waste of time. If you're selling 100,000 items however....
They were shipping to a centre in the EU then out to various countries including the UK but Brexit has been causing them a lot of problems - their shipments to the UK keep being returned and delayed. I have been one of their customers and experienced the frustration of not being able to get regular stock over the last few years so I think there will be more potential once the stock is coming direct to the UK.
I would have total exclusivity in the UK apart from Amazon. I know from previous experience as their customer that they will not supply direct to the customer so everything would go through me. I know exactly what you are saying about this - sometimes I have been that customer trying to order direct as the distributor didn't have every line I wanted!
They have some very big name high street customers as well as smaller independents and their products are unique. This is the appeal for me. I know I will be able to sell the product; it's just whether the figures pan out.
I'm going to be really disappointed after all this if they don't!

 

[cjd]

It's not in their interests to make it impossible for their customers to not make a living - it has to work for both of you or it works for neither.

The first thing you need from them is their contract, without that you have no real clue what commitment they are asking you to make. The contract will include terms so your questions about margins etc should be answered. From that you can build your own business model. Luckily, you know the price you can sell at.

You'll need to know the volumes that they were selling in the UK so you can add that into your spreadsheet. I would also ask them what modelling they've done on this new business model of theirs and ask if you can see the retail side of it - if they have one.

As for container costs, everyone assumes that things will revert to normal but what if they don't? What if, like petrol prices, they're fast to go up but slow to come down?

You'll also be buying in dollars but paying in pounds, what are the currency risks and transfer costs?

it's probably a real opportunity for you but you need to fully understand the numbers before deciding.

 

[Indietrader]

It's not in their interests to make it impossible for their customers to not make a living - it has to work for both of you or it works for neither.

The first thing you need from them is their contract, without that you have no real clue what commitment they are asking you to make. The contract will include terms so your questions about margins etc should be answered. From that you can build your own business model. Luckily, you know the price you can sell at.

You'll need to know the volumes that they were selling in the UK so you can add that into your spreadsheet. I would also ask them what modelling they've done on this new business model of theirs and ask if you can see the retail side of it - if they have one.

As for container costs, everyone assumes that things will revert to normal but what if they don't? What if, like petrol prices, they're fast to go up but slow to come down?

You'll also be buying in dollars but paying in pounds, what are the currency risks and transfer costs?

it's probably a real opportunity for you but you need to fully understand the numbers before deciding.

Thanks cjd! Yes, I am going to arrange another video call and ask about contract/volume of sales and so on and also I will establish currency transfer costs etc.
I am with you that they must be expecting this to work out and so would anticipate I would make a profit otherwise why would they think I would be doing it! I am a cautious operator, maybe too cautious at times; I've turned down things in the past which could have gone one way or another and stayed in my comfort zone. I could easily just decide not to bother and I'd be back to my normal routine but a part of me is telling me that I am being offered something which, if it went well, could have a significant positive impact on my life.
I feel awkward asking them all of these intense financial questions about their own business but I can see that without these facts and figures I can't make a decision.
Unfortunately I think all of the relevant factors such as shipping costs/exchange rate are negatively-inclined at the moment and this is what makes the positives hard to see. I've decided to ask for figures, run some models to see what I might expect to make and then if the figures don't add up go back to them and say I want to do this but you're going to have to work with me as it's not feasible under these terms; things have changed post-pandemic and we need to look at this together to see how we can make it viable for everyone. If they then cut me off or go to the other guy then so be it; it's not worth my while doing if I can't make a decent return.

 

[Mark T Jones]

Thanks cjd! Yes, I am going to arrange another video call and ask about contract/volume of sales and so on and also I will establish currency transfer costs etc.
I am with you that they must be expecting this to work out and so would anticipate I would make a profit otherwise why would they think I would be doing it! I am a cautious operator, maybe too cautious at times; I've turned down things in the past which could have gone one way or another and stayed in my comfort zone. I could easily just decide not to bother and I'd be back to my normal routine but a part of me is telling me that I am being offered something which, if it went well, could have a significant positive impact on my life.
I feel awkward asking them all of these intense financial questions about their own business but I can see that without these facts and figures I can't make a decision.
Unfortunately I think all of the relevant factors such as shipping costs/exchange rate are negatively-inclined at the moment and this is what makes the positives hard to see. I've decided to ask for figures, run some models to see what I might expect to make and then if the figures don't add up go back to them and say I want to do this but you're going to have to work with me as it's not feasible under these terms; things have changed post-pandemic and we need to look at this together to see how we can make it viable for everyone. If they then cut me off or go to the other guy then so be it; it's not worth my while doing if I can't make a decent return.

Asking good, concise questions marks you as a professional.

If they are looking for someone who just wants to take a punt, they are to be avoided

 

[Indietrader]

Agreed Mark!

 

[MBE2017]

One thing to bear in mind, if their old clients have experienced supply problems over the last year, maybe two, do not make the assumption that the orders will return to the former levels.

Many of those small gift shops might no longer be operating after the various lockdowns, some might have decided to use different products from other suppliers or change direction completely.

Just because you love the products try to remember others might not be so taken. Some of my best selling products over the years I personally hated, you do not have to like what you are selling.

 

[Indietrader]

One thing to bear in mind, if their old clients have experienced supply problems over the last year, maybe two, do not make the assumption that the orders will return to the former levels.

Many of those small gift shops might no longer be operating after the various lockdowns, some might have decided to use different products from other suppliers or change direction completely.

Just because you love the products try to remember others might not be so taken. Some of my best selling products over the years I personally hated, you do not have to like what you are selling.

Very true. Everything is in flux at the moment which is both the reason I have the opportunity and a major headache in deciding if it is worth it!

 

[cjd]

Thanks cjd! Yes, I am going to arrange another video call and ask about contract/volume of sales and so on and also I will establish currency transfer costs etc.
I am with you that they must be expecting this to work out and so would anticipate I would make a profit otherwise why would they think I would be doing it! I am a cautious operator, maybe too cautious at times; I've turned down things in the past which could have gone one way or another and stayed in my comfort zone. I could easily just decide not to bother and I'd be back to my normal routine but a part of me is telling me that I am being offered something which, if it went well, could have a significant positive impact on my life.
I feel awkward asking them all of these intense financial questions about their own business but I can see that without these facts and figures I can't make a decision.
Unfortunately I think all of the relevant factors such as shipping costs/exchange rate are negatively-inclined at the moment and this is what makes the positives hard to see. I've decided to ask for figures, run some models to see what I might expect to make and then if the figures don't add up go back to them and say I want to do this but you're going to have to work with me as it's not feasible under these terms; things have changed post-pandemic and we need to look at this together to see how we can make it viable for everyone. If they then cut me off or go to the other guy then so be it; it's not worth my while doing if I can't make a decent return.

Get the contract THEN ask your questions ;-)

 

[Indietrader]

Get the contract THEN ask your questions ;-)

OK!

 

[AlanJ1]

Get the contract THEN ask your questions ;-)

Contracts can be negotiated - If the margin is 15% off wholesale and the agents want 12.5% I am not spending 2 seconds looking at a contract I am asking cold hard facts first or I won't waste my time.

 

[Indietrader]

Contracts can be negotiated - If the margin is 15% off wholesale and the agents want 12.5% I am not spending 2 seconds looking at a contract I am asking cold hard facts first or I won't waste my time.

I think from what I have seen so far, the only viable way this is going to work is if I lose the agents and take the orders myself. The brand have said I could do this; it would be up to me. I already have a good idea of the type of shop in each town that would be interested and they will be giving me a list of current customers. The larger chains I would be dealing with myself anyway. Speaking as a shopkeeper, I do most of my ordering online now and find it a bit irritating when agents come in. I look at products and I know immediately if I am interested or not; I don't need someone to visit me with them. I was thinking I could offer a courtesy visit to new customers to introduce myself and show a few samples so people can see the quality of the items but otherwise could do all of it remotely hence making 15% and not 2.5% I have reliable staff who could help.
I am going to schedule another video call at which I ask about the contract and also put some other questions like this to them. The key things that have come from these very helpful posts seem to be:
Can I see the contract.
Can I have information on volumes from previous years etc.
Costs need to be worked out for shipping and all extras.
Margins need to be adequate.
Exchange rate fluctuations need to be considered.
Discussion on agents and the way the distribution will work.

 

[Mark T Jones]

I think from what I have seen so far, the only viable way this is going to work is if I lose the agents and take the orders myself. The brand have said I could do this; it would be up to me. I already have a good idea of the type of shop in each town that would be interested and they will be giving me a list of current customers. The larger chains I would be dealing with myself anyway. Speaking as a shopkeeper, I do most of my ordering online now and find it a bit irritating when agents come in. I look at products and I know immediately if I am interested or not; I don't need someone to visit me with them. I was thinking I could offer a courtesy visit to new customers to introduce myself and show a few samples so people can see the quality of the items but otherwise could do all of it remotely hence making 15% and not 2.5% I have reliable staff who could help.
I am going to schedule another video call at which I ask about the contract and also put some other questions like this to them. The key things that have come from these very helpful posts seem to be:
Can I see the contract.
Can I have information on volumes from previous years etc.
Costs need to be worked out for shipping and all extras.
Margins need to be adequate.
Exchange rate fluctuations need to be considered.
Discussion on agents and the way the distribution will work.

To reiterate my previous point, pay close attention to the cashflow

Most indies should be on cash with order or COD, large retailers will deal on their own terms, which is likely to be 90 days.

That's 90 days from the end of the month in which they are delivered = potentially 120 days

 

[Indietrader]

To reiterate my previous point, pay close attention to the cashflow

Most indies should be on cash with order or COD, large retailers will deal on their own terms, which is likely to be 90 days.

That's 90 days from the end of the month in which they are delivered = potentially 120 days

Thanks Mark I will mention this also. So long as they pay within the 120 days this should be ok.

 

[The Byre]

So I would make 15% but this would be minus all shipping costs and import duties? And minus any stock which did not sell? And breakages? And eventually warehouse space? That seems awfully low to me. Also I wasn't able to exactly understand the situation re the agents. If they made the sale and got 12.5%, would this mean I was getting 2.5% per item?

Rock bottom! AND they want to keep the sugar-end of the market - Amazon!

I would ask for more margin and no inherited reps and ALL online sales to be included with total market exclusivity.

Those rubbish figures were just their opening offer - they'll move!

 

[Indietrader]

Rock bottom! AND they want to keep the sugar-end of the market - Amazon!

I would ask for more margin and no inherited reps and ALL online sales to be included with total market exclusivity.

Those rubbish figures were just their opening offer - they'll move!

Hmmm.....I wondered this..... Interesting you think they will! That's encouraging!
They are saying they have another person interested which is why I'm hesitant to be too forceful but I will definitely push a bit.
Totally agree with you about Amazon. I've been told they won't move on that.

 

[cjd]

Hmmm.....I wondered this..... Interesting you think they will! That's encouraging!

Most things are negotiable - but get all their terms on the table and fully understand them before you start haggling about anything.

They are saying they have another person interested

They would wouldn't they? Don't be rushed and get ALL the information.

 

[Indietrader]

Most things are negotiable - but get all their terms on the table and fully understand them before you start haggling about anything.



They would wouldn't they? Don't be rushed and get ALL the information.

Thank you.

 

[The Byre]

Interesting you think they will! That's encouraging!

It's not encouraging at all! They'll move but not to a position that makes sense for you. Bear that in mind, please!

Either you are the UK rep, or you are not the UK rep - Amazon and eBay must remain totally non-negotiable for you. Anything less and you are heading down the road to disaster! They ration deliveries to you and push Amazon and you are royally stuffed!

And THEY (and not you by any means!) should be carrying the transport and processing costs. They want to sell their tat, OK, bring it here!

Remember that the US economy is more or less a busted flush in the long run - they act as if they are IT, but reality is no longer on their side! i.e. a long-term relationship is pointless!

I would be concentrating on China, India, Vietnam as a supplier and not on the US. US companies offer contracts termed in dollars and in a few years, nobody will want them.

 

[SillyBill]

Various distribution businesses I have worked for in past lives or been familiar with operated on c. 25%-35% gross overall. Of course there was high margin business in amongst that and lower margin business (as low as 5% for low aggro, pass the parcel type business) and all averaged out. But in essence it was really not much different to manufacturing margins I found which is what I am familiar with. You need to make a decent gross otherwise you have no tolerance for something going wrong and having to pay for it and what the heck is paying the overheads if everything you do is really low margin? IMO low gross margin business should only be taken on when you have a few other accounts who are making the numbers up on the other end and it averaging out.

 

[Financial-Modeller]

Given the information available atm it seems like it would be preferable to continue to retail the goods as an agent, than to act as distributor, but as @cjd has suggested you need to establish all the relevant facts before considering negotiating or deciding whether to proceed.

Building on @Mark T Jones point, they will expect you to conduct some due diligence and should be ready to provide all the info you will need to make an informed decision.

But on this point...

...They are saying they have another person interested which is why I'm hesitant to be too forceful but I will definitely push a bit....

...if you do this, you need to do so on terms that suit you, not terms that didn't suit your competitor.

 

[AlanJ1]

Either you are the UK rep, or you are not the UK rep - Amazon and eBay must remain totally non-negotiable for you. Anything less and you are heading down the road to disaster! They ration deliveries to you and push Amazon and you are royally stuffed!

And THEY (and not you by any means!) should be carrying the transport and processing costs. They want to sell their tat, OK, bring it here!

No manufacturer supplying a distributor will cover the transport or processing costs, it makes no sense for them to do this.

I fully agree on trying to get Amazon however from my past job (7 years as Sales Manager in a distribution company), you will struggle to get Amazon from them. It can be annoying but it doesn't make it a game over, it depends how strong across the whole of the UK market they are. However quoting $10k for a first order is pretty tiny for distribution levels.

 

[AlanJ1]

I think from what I have seen so far, the only viable way this is going to work is if I lose the agents and take the orders myself. The brand have said I could do this; it would be up to me. I already have a good idea of the type of shop in each town that would be interested and they will be giving me a list of current customers. The larger chains I would be dealing with myself anyway. Speaking as a shopkeeper, I do most of my ordering online now and find it a bit irritating when agents come in. I look at products and I know immediately if I am interested or not; I don't need someone to visit me with them. I was thinking I could offer a courtesy visit to new customers to introduce myself and show a few samples so people can see the quality of the items but otherwise could do all of it remotely hence making 15% and not 2.5% I have reliable staff who could help.
I am going to schedule another video call at which I ask about the contract and also put some other questions like this to them. The key things that have come from these very helpful posts seem to be:
Can I see the contract.
Can I have information on volumes from previous years etc.
Costs need to be worked out for shipping and all extras.
Margins need to be adequate.
Exchange rate fluctuations need to be considered.
Discussion on agents and the way the distribution will work.

I wouldn't count on this. Losing the agents may lose all the customers, remember a customer may buy from an agent and not because of the product.

To me it looks like they have said "well we give agents 12.5% so let's add 2.5% on to the margin and give that to them to look after" total lazy approach and they know it wouldn't work.

You also say you don't need someone to come visit you, this is your way of working, I can tell you for a fact that thousands of shops still like this (industry dependent), and as a manufacturer/distributor you will always get more being face to face to push further sales.

Larger chains you will need to make room for negotiating with. Big boys will want more margin as well as marketing and all the other rebates they put in place.

Shipping is an interesting one, you should be the one dealing with this or they deal with it and bill you accordingly. Pricing will change based on time of year (and with current problems IE no containers/no space).

Have you thought / factored in about returns? You will need to deal with this.

I don't mean to sound rude at all on this as you are obviously successful with your shop but distributing products is a totally different game and one you can get stung so quickly on - you will also need considerable capital and a lot of time especially if you are getting rid of agents - Cold calling (essentially what you will be doing) to stores who have bought / stores you want to sell too is tough work and it's hard to get past "gate keepers."

It would be good to know which industry you are in though because margin dictates based on industry. The one I am in now is 5x higher than the industry I was in before (tech).

Thanks
Alan

 

[Washington]

Hi all,
I have a small shop in the UK which is doing well and have been in business for over a decade. By chance, an opportunity has come to me to be able to distribute an American brand. This brand are 100% legit and reputable. I have been selling this brand for years and know it is popular - there are a few big chains I know who sell it too. It's a quirky gift product range. Basically, because of Brexit the American company has decided they need a UK-based distributor. I had a video call with them today and they went through the details. They told me I would be expected to make an initial purchase of $10,000 worth of goods which would be shipped by container at my cost. I would receive a 15% discount on the wholesale price. They already have six agents in place in parts of the UK who receive 12.5% on sales. I could keep these or not, my choice. There are 2 areas with no agent which I would take over or could appoint agents. I would be the exclusive distributor for the entire UK sales excluding Amazon which they handle themselves.
They like me because they know me; I know their customer demographic and I have done trade fairs wholesaling my own products so all that side I am comfortable with. But I am a complete novice re distributing other people's product. I have a shop premises where I could store goods initially and then I might need a storage unit or bigger shop at some point.
I asked a lot of questions but I didn't want to sound too dumb as I know they are also considering one other person for this. The thing is, I am finding it hard to understand where the money is to be made in this, although I know what they are offering are the same standard terms they offer to distributors in other countries as well so there must be! The margin seems really small to me as I am used to retail. So I would make 15% but this would be minus all shipping costs and import duties? And minus any stock which did not sell? And breakages? And eventually warehouse space? That seems awfully low to me. Also I wasn't able to exactly understand the situation re the agents. If they made the sale and got 12.5%, would this mean I was getting 2.5% per item?
I've always wanted to get into distribution but I'm struggling to see where the profit is here! Any advice gratefully accepted! I can't decide whether this could be an absolute goldmine or alternatively a nightmare amount of work for very little reward.

I appreciate you said $10,000 was a minimum order, however $10,000 worth of stock is not a huge amount relative to the size of the UK. What is the potential turnover in the UK ?

If there are six agents already and you need another two agents, that is a lot of people to keep in touch with. They average $1250 in sales each and you get $250 for all your efforts. If that is the deal, why are you even thinking about it. Don’t do it ! If you are being expected to recruit and manage 8 agents who by nature are self employed so quite unmanageable, (plus they will not be too interested in selling product if they are only earning $156 out of it). You have to buy and import the stock paying in advance and be responsible for breakdown and distribution costs, invoicing, potential bad debt, for $250 profit. It doesn’t sound like good business and will be a massive distraction to your existing business.

Are you a retailer or are you a wholesaler ? Whilst these skills seem very similar, sometimes they do not mix. I know retailers who want to buy as direct as possible, and when they get to the factory source they think they can wholesale, generally they have got out of wholesaling within a few years when they realise it is not as easy as it first seems. Proper wholesalers usually negotiate and buy better than retailers as to survive as a wholesaler you need to be clear where your margin is….retailers generally have a much larger margin opportunity.

I am assuming if you are the distributor, all UK product must come through you and that you set the selling price so there could be room to increase the UK trade prices. The Amazon sales are disruptive and could stop you earning a margin, maybe you should ask for a percentage of this business as it is in competition with you, your agents, and your customers

If you still think there could be an opportunity, maybe you should ask the brand to put you in touch with a distributor from another country who is successful and could guide you through the process.

Maybe you should also ask them why they are not looking at an established wholesale/distributor network

 

[Washington]

Surely if they are supplying these customers in the UK now, they can give you a much more detailed breakdown of the potential, and the figures? The $10k order seems a bit of a finger in the air job - is this going to cover a weeks worth of sales or a year?

Another question - is this an exclusive deal and the manufacturer going to insist that all sales go through you, or will they still allow other stockists to buy direct if they wish to? Can other stockists also place a $10k order and get the same discount? If so you may miss out on the high value business and be left with the dregs.

Also, even if they do make you exclusive, in my industry (it may differ in yours) there is a bit of an "ego" issue with people wanting to buy direct from the manufacturer, and they can really get pee'd off with you if they can't do so - even if it's a benefit for them to buy off a distributor! We have experience of people buying through one of our distributors quite happily with single pick items, £100 carriage paid, and next day delivery for orders up to 4pm. They have approached us to buy directly and we have explained that it is actually not in their benefit - we have a 3-5 day turnaround, supply full carton quantities only, £2000 MOV shipping on pallets.....they can get a much better service buying off our distributor. But NOPE! They don't like that and have gone off to deal with an alternative manufacturer just because they can have a direct account.

Similarly (and this might be more the issue you have) we have had existing distributors buying directly from us, who we have then told need to buy from an appointed exclusive local distributor instead. We have engineered it so that they maintain exactly the same pricing and credit terms and, again, it's actually better for them as they can order locally and receive it more quickly and with more flexible deliveries. But again - not good enough! They have seen it as an insult to them closing their account and instead of just buying from the distributor they have switched brands entirely on a point of principle.

At first, I thought we could be in the same business ! But I think many of the above comments of Ego are just human nature, and another reason why the OP should seriously consider why they want to saddle themselves with all this potential grief for so little reward

If the American company needs a UK business to help it, maybe the OP should think of suggesting offering a fulfilment service for a fee and let the US manage agents and orders by email. The US could also look at shipping on CIF terms to save the OP having to get too involved in shipping detail and cost variables