|
Rob: We’re speaking with Codi Hall of www.DropshipDirect.com about what a true wholesale price is.
Rob: And Chris, I think you had one extra question there that you wanted to talk about regarding volume.
Chris: Yeah, thanks Rob. Codi, we were talking about how wholesale is a volume business and how the price margins are actually very slim for the wholesaler. Now, because of that, introducing just one middleman into the equation between the wholesaler and the retailer is what just throws the whole thing off, isn’t it?
Codi: That’s correct. I think that’s the biggest challenge in the marketplace is for retailers who are doing the research who are trying to source as directly as they can it’s becoming more and more difficult because of the number of companies out there that really are not stocking any product whatsoever. In fact, pretty much they’re riding the product price points and marking them up accordingly with the thought that they have enough room to do so.
Chris: Yeah. Being realistic about it Codi, we might as well just say it, right, I mean, you’re in the drop ship business, DropshipDirect.com.
Codi: Mm-Hmm.
Chris: When you go to the drop ship keywords on the search engines what do you see?
Codi: It’s frightening (laughter).
Chris: It is frightening, isn’t it?
Codi: It is.
Chris: I mean, everything out there, Codi, I can’t find…obviously our company, Worldwide Brands, is in that space and what we do is we connect people with wholesalers through information. Actually we’ll list your company in our directories and people buy our directories and it just saves them a lot of time, they don’t have to do the research. But everything else that I see out there, there’s some kind of an angle.
Codi: Right.
Chris: It’s people who are claiming to be real wholesale suppliers when they’re not.
Codi: Right.
Chris: They don’t carry stock. They don’t have warehouses. They don’t do any of that. They just, in some cases, they pass orders on to, say, your company, without you even knowing it, they’re just signed up as a retailer.
Codi: Right.
Chris: And then other companies as well. But that’s what really scares me about those drop ship keywords and the wholesale keywords in general. Because when you get a middleman, okay, you have manufacturer, wholesaler, retailer, is the way things are supposed to work.
Codi: Mm-Hmm.
Chris: When you go manufacturer, wholesaler, middleman, retailer, the fact that this is just such a volume business and such a slim profit margin business for the wholesaler, driving up that price point another 10 or 15% like these companies who claim to be wholesalers do is just killing it for everybody. And that’s part of why people say drop shipping doesn’t work for me, the prices are too high.
Codi: Yeah, and also the fact that the word’s almost become stigmatic. It’s almost become a notorious phrase. And it’s not because of the functionality of the word itself, because in fact, drop shipping has been around for a number of years now, but the way that it’s been integrated within ecommerce is just a phenomenal concept and it’s quite viable as long as it’s a legitimate supply chain.
Chris: Right, as long as you’re looking at the real supplier. I mean, Montgomery Ward was doing drop shipping in the 1920’s as far as I know, and drop shipping is the same concept, but it’s used in several different areas in the industry. For example, K-Mart has large warehouses, they might actually drop ship a few pallets to one of their stores, and so forth. The concept of drop shipping is excellent and it works well on the net, but when you get the middleman involved that’s where you have problems and unfortunately the search engines are the place where the middlemen hang out.
Codi: Correct.
Chris: They know that’s the hot spot. They know that’s where they’re going to find people who are not familiar with this concept, or familiar enough with it, and they’re going to hang out there, they’re going to scoop people up, and that’s where the stigma comes in with drop shipping. And it’s been as long as I’ve been in this business, I’ve known of that stigma, and it’s wrong.
Codi: Right.
Chris: But it’s wrong because of the people who are causing the damage.
Codi: And I think there’s one very simple means to determine or make that distinction about who you’re talking to as a retailer looking to source product and I think, one very simple way would be to determine, are there actual fees to actually create a relationship with that wholesale distributor.
Chris: Yes.
Codi: And there are certainly some exceptions in the market, but those exceptions typically perceive that cost as an absorbed amount after a certain amount of transactions have occurred. But apart from that, really that’s a very good litmus test to determine who you’re working with.
Chris: Yeah, so for example, when there are fees, which it’s rare that there are account fees or whatever, but when there are, it’s for example, put $100 on deposit and then once you spend that $100 you move forward.
Codi: Correct.
Chris: It’s not it’s going to cost you $40 or $30 a month to maintain an account with us. That’s not a wholesale company.
Codi: That’s correct.
Chris: Right.
Rob: Retailers often have the misconception that wholesale means the rock bottom lowest price that you can get that product for anywhere at any time. And it’s of course, not true, but retailers can get discounts on top of wholesale when they purchase in different volumes. And this kind of gets out of the straight drop ship area there, but could you explain wholesale price structuring and what different levels of wholesale pricing do authorized wholesalers typically offer to retailers?
Codi: I’d be happy to Rob. Like you mentioned, when it comes to drop shipping individual quantities there typically tends to be kind of a base level wholesale dealer price which tends to be across the board for the majority of retailers that are coming into a relationship. But then you have something called tiered pricing and this oftentimes is considering, for example, if they’re a stocking retailer, or whether they’re a physical retailer, storefront or not, but whether they’re stocking inventory, obviously that’s going to recognize deeper discounts. So whether or not the item’s going to be available for individual drop ship there’s always the opportunity to request deeper discounting. And in fact, within the automotive industry, that one is well known for having a number of different tiers and the phrase for those different structures, for example, are suggested retail, which is going to be true for any market. You’ve got something called jobber which has kind of evolved over the years in terms of what that definition is, but that’s another price point. There’s standard non-stocking and then there’s stocking dealer. And stocking wholesale price structures are typically dependent on a minimum buy in associated with the inventory capital cost.
Chris: And those buy ins can be $5,000, $10,000, $25,000, $50,000. I mean, we’re talking about stocking retailers buying a lot of product all at once.
Codi: Correct.
Chris: Let’s talk about why the wholesale price on a drop shipped item is typically a little bit higher than bulk pricing.
Codi: Basically it’s really about supply and demand and coming back to the principle of volume. So if we have the ability within one transaction to distribute product for one of our retailers on a bulk transaction versus individual drop ship transaction, we’re talking about a small margin that we’re maintaining to begin with on our profit level and we can justify doing deeper discounts because the overall transaction is larger than a drop ship quantity which, in most cases, is going to be a quantity of one. So we still have the same overhead costs whether or not the retailer is shipping one item or 500, so that really does have an impact on the drop ship dealer cost versus a bulk inventory order.
Chris: And you know, really the whole process of drop shipping most people I don’t think understand the concept of time and shipping materials and things like that. Or, at least most people who complain about drop ship pricing. You don’t get a lot of people complaining about it, but there are a few people who say, oh, drop shipping doesn’t work, it’s too expensive, the item prices are too high. What you’re really looking at here is that when you as a company, say DropshipDirect, drop ships something, you’re not just bringing caseloads into your warehouse and turning them around and sending them back out. You actually have to have someone break open that case, take the product out, individually package it, address it, get it into the software system, and get it out the door. So you’re doing that for the retailer. And if the retailer was doing the same thing it would probably cost them more to do it than the slight increase in wholesale price that you see with drop shipping, right?
Codi: Right. I mean, the whole idea behind drop shipping inventory is it virtually eliminates, if not greatly reduces, the overall overhead associated with maintaining that inventory to begin with. So it has a lot of value and I think within any successful retailer business model it’s going to be inclusive of, at the very least, some kind of drop shipping inventory.
Chris: Oh yeah, absolutely.
Codi: But I think the most effective approach is going to be a combination of the two.
Rob: Yep.
Chris: Right, and we do talk about that on our website a lot. Obviously we’re big fans and big proponents of drop shipping. It’s a great business model. It’s virtually a zero-cost entry point into wholesale and that’s excellent. And you don’t have to just drop ship at first and then move into bulk. You can drop ship in your business forever the products that work for you for drop shipping and you can also begin to bring in some small or some light bulk loads of products that you handle yourself, right?
Codi: Right, exactly. Actually that’s a very good point, because we were just discussing that with our sales team here about really from a procurement point it doesn’t always make sense for a retailer to stock certain products because of the exorbitant shipping cost, so it makes more sense for them to get an aggregate discount on their overall volume on a monthly basis and recognizing it that way as opposed to committing a stocking inventory situation where let’s say, for example, it’s a larger item such as even furniture, that pretty much eats away whatever competitive they had as an advantage to stocking product.
Chris: Absolutely. And let’s talk about the larger items for a minute. Obviously items that are heavier than 70 pounds, you’re looking at motor freight shipping. So that’s obviously something that’s much better handled by a drop shipper, as so many things are. But how do you determine motor freight? Aren’t there a lot of situations where, say you can sell something that’s drop shipped, you’ve got the picture up on your website or eBay auction and you sell it, and then the actual motor freight has to be determined afterward or does your company use a flat rate for that kind of thing?
Codi: That’s a great question. It’s kind of a chronic issue with I think the drop ship marketplace and our approach has been to pretty much create an averaged out flat rate for that item simply because it’s not really efficient from a business standpoint to request quotes every time something’s that’s going to be associated with motor freight’s going to be involved.
Chris: Right, and especially from the retail side as well.
Codi: Exactly. So it makes more sense to just say here’s an average rate which we have determined by looking at the multiple zones across the country and determined what that average would be.
Chris: Right. So basically we’ve talked about wholesale pricing. We’ve talked about making sure that you don’t get a middleman into the mix. Wholesale pricing is a volume business, you have to be a little bit careful about who you’re working with. And obviously, as Worldwide Brands and as the hosts of this show, we love the drop shipping model and we’ve been working with it for many, many years and explaining it to people for many years, and we very much appreciate your time, Codi, talking about all this.
Codi: We appreciate the relationship with you.
Chris: It’s good to hear it right from the authorized wholesaler every once in a while, it’s just a reality check for most people, you know?
Codi: Sure.
Chris: We are coming up on a short break. If you want to stay up to date with the latest product sourcing news, check for upcoming tradeshows in your area, and find spotlighted suppliers you can use in your ebiz, then you’ll want to subscribe to our free product sourcing newsletter at ProductSourcingNews.com. We will continue with Codi Hall when we return. I’m Chris Malta.
Rob: And I’m Rob Cowie.
|
