Would this business model work?

[SAY MY NAME]

I was discussing with a friend of mine about an idea for a business model. I was wondering if this would work, if it would be legal, potential issues with it, etc.

Say that I own a product in bulk, and that I get an independent (i.e. non-chain) shop to sell my product without the shop actually owning the product (I would retain ownership of the product at all times, until the consumer walks into the store and buys the product; at this point, the consumer gains the sole ownership of the product). The shop simply acts as a 'broker' for the product (like a drop shipper, but with a physical store), and reports to the supplier the number of products sold per month. The shop pays the supplier the total revenue for those products. The supplier then pays a commission to the store for each product sold. What would be the potential issues with this model? Is this even a 'thing' in common practice?

The main benefit for the supplier would be that shops should be more likely to stock the product, since there is no upfront cost to the shop; if the product was new to the market and without proven sales, I'd have thought this could be a good way to sell the product without any empirical sales data (as less risk to the shop); I'd also imagine that this model would allow for lower storage costs for the supplier;

The benefits for the shop owner would be the following:
i) No up front cost (and therefore less risk);
ii) Possibly less liability? E.g. if the product was faulty or otherwise returned, the shop would only lose out on the commission;
iii) Less marketing/promotional cost since the supplier does this.

Would this idea work?

 

[Mark T Jones]

The model you are talking about is sale or return and is well established in certain segments, one of which is greeting cards

Challenges from your perspective include:

Cashflow - you will need to pay upfront (or 30 days if you are lucky), with absolutely no certainty when you will be paid

Prioritisation - even naive independents are aware of the relative value of space in different parts of the shop. Sor is generally low margin so struggles to get top spot

Management - you need exceptionally good control over location of all srltock,vsales etc.

Plus of course, retailers disappearing over night

 

[Deleted member 335660]

I was discussing with a friend of mine about an idea for a business model. I was wondering if this would work, if it would be legal, potential issues with it, etc.

Say that I own a product in bulk, and that I get an independent (i.e. non-chain) shop to sell my product without the shop actually owning the product (I would retain ownership of the product at all times, until the consumer walks into the store and buys the product; at this point, the consumer gains the sole ownership of the product). The shop simply acts as a 'broker' for the product (like a drop shipper, but with a physical store), and reports to the supplier the number of products sold per month. The shop pays the supplier the total revenue for those products. The supplier then pays a commission to the store for each product sold. What would be the potential issues with this model? Is this even a 'thing' in common practice?

The main benefit for the supplier would be that shops should be more likely to stock the product, since there is no upfront cost to the shop; if the product was new to the market and without proven sales, I'd have thought this could be a good way to sell the product without any empirical sales data (as less risk to the shop); I'd also imagine that this model would allow for lower storage costs for the supplier;

The benefits for the shop owner would be the following:
i) No up front cost (and therefore less risk);
ii) Possibly less liability? E.g. if the product was faulty or otherwise returned, the shop would only lose out on the commission;
iii) Less marketing/promotional cost since the supplier does this.

Would this idea work?

Hi Mark,

We operate this business model with local artisans.

They bring their artwork (paintings, doorstops, jewellery) to the shop and we take commissions. I give them a monthly statement, they invoice me for the balance and I pay on invoice.

The only potential problem is who covers theft and breakage. We have been going 18 months and so far no problems, but if you were to do it with lots of retailers it is bound to occur.

We are careful with who we choose. Jewelry is good because it is so subjective and we are not experts so our supplier chooses what to display and we don’t have lots of money tied up in valuable stock that might not sell.

However we were buying wax melts from one and getting 20% commission on a €1 product. One of our main suppliers could provide a competitive product at 50% margin so we changed as it was a regular low cost seller.

So it will depend on the nature of the product too.

 

[fisicx]

Most antique places we visit seem to work like this. Also seen this in art galleries and shops.

 

[Deleted member 59730]

Lots of my potential outlets tried to push me into sale or return. I told them that I supplied them with the stock and they returned a cheque for the full amount. SOR is a mugs game.

 

[Gecko001]

I know someone who used do SOR craft jewelry supplying. He was constantly on the road visiting the shops he supplied. That seems to be the way this type of selling works. It needs regular monitoring by the supplier by actual visits to the shops. I assume he had to check how prominent his products were being displayed etc.

 

[fisicx]

I think greeting and birthday cards in the supermarkets work like this.

 

[Lucan Unlordly]

What is the product and is it easily displayed? In supermarkets there used to be multiple 'Merchandisers', specifically employed to go around the shops, tidying the bespoke stands, updating POS etc., If they ever stopped calling they'd become a mess and sales would plummet.

In recent years we've been asked to give some online space and promotion for new and innovative sports products, trackers etc., No cost to us etc., but psychologically and to help things progress we felt that we should help drive the marketing, answer questions from potential customers etc., Doing so had a cost that we seldom recouped.

 

[SAY MY NAME]

Thanks for the replies. I didn’t know that there was such a thing as ‘sale or return’ but suspected there was a something like it that existed.

The product would be high value (£200-£300) with relatively high margin (possibly around £50 in commission to the store per unit sold). The product would be sold in relatively low volume though. As it would be low volume it should be easy to track units sold. Would this type of product work with the SoR model?

I was thinking that the supplier could also provide a nice product stand to the store at the cost of the supplier, depending on the store of course.

 

[Scubadog]

Isn't this what's called Vendor Managed Inventory?

 

[MarkOnline]

Thanks for the replies. I didn’t know that there was such a thing as ‘sale or return’ but suspected there was a something like it that existed.

The product would be high value (£200-£300) with relatively high margin (possibly around £50 in commission to the store per unit sold). The product would be sold in relatively low volume though. As it would be low volume it should be easy to track units sold. Would this type of product work with the SoR model?

I was thinking that the supplier could also provide a nice product stand to the store at the cost of the supplier, depending on the store of course.

I dont think there is enough margin for a retailer to bother with. A combination of a slow moving line with a small margin doesnt sound too good to me.

 

[Mark T Jones]

Thanks for the replies. I didn’t know that there was such a thing as ‘sale or return’ but suspected there was a something like it that existed.

The product would be high value (£200-£300) with relatively high margin (possibly around £50 in commission to the store per unit sold). The product would be sold in relatively low volume though. As it would be low volume it should be easy to track units sold. Would this type of product work with the SoR model?

I was thinking that the supplier could also provide a nice product stand to the store at the cost of the supplier, depending on the store of course.

In percentage terms that's low margin. Big, slick retailers are unlikely to be interested, smaller, niched ones might if it fits in with their brand.

Have you considered the cashflow challenges?

 

[Deleted member 59730]

The product would be high value (£200-£300) with relatively high margin (possibly around £50 in commission to the store per unit sold). The product would be sold in relatively low volume though.

What shops want is 50% plus VAT. So to sell at £300 the shop would take £150 and add VAT on top. I haven't come across a shop yet who wanted low volume.

 

[Gecko001]

How many items are you willing to leave with the retailer at a time. With £200 an item, you cannot afford to leave many. The antique shops are able to take as low as one at a time as it helps to fill their shop without any investment in stock if they have several suppliers who only leave one or two items with them each. However for new merchandice the value of each item is a lot lower usually for this model.