Wise Cat Fashion Series: The Laws of Fashion: Online Distribution

Apr. 03, 2018

You’ve started a fashion brand of your own. You’ve designed the garments, contracted with manufacturers, and created a marketing plan. But now you need to tackle the distribution question: how will you get your clothing into customers’ hands?

 

There are several options for distributing your merchandise; you can chose which to use based on your company’s individualized needs.

 

Direct-to-Consumer Distribution

 

Using a DTC distribution channel means your company will take orders from customers and fulfill them on your own. Usually, consumers will browse your website then place an order. Then you will package the ordered merchandise and ship it to the consumer.

 

Pros of DTC Distribution

Cons of DTC Distribution

 

By working directly with your customers, you can build a relationship with them and strengthen your brand’s story

 

Rather than sell your merchandise at a discount to a wholesaler, you can sell the full-priced merchandise directly to your customers and make a larger profit margin 

 

You can also choose to sell your product at a lower price than a retailer or wholesaler would sell it to consumers, because there is no retail mark-up (a perk for consumers)

 

Selling DTC allows your company to collect data about your customers, thereby allowing you to better understanding their purchasing habits and product preferences

 

 

Setting up and maintaining a website can be time consuming and costly

 

A retailer displays your merchandise to consumers, and by distributing DTC, you lose out on that marketing exposure

 

It is expensive to ship merchandise to consumers, and if you cannot find a cost-effective shipping method, you can sink your entire business

 

You may be great at designing and making your merchandise, but you may not be equipped to physically sell the products to consumers (taking and fulfilling orders, processing payments, customer service, etc.)

 

You carry all the financial risk yourself

 

 

Distribution by Wholesale

 

A common method of distribution is selling wholesale. Your company will sell its goods to a retailer, distribution company, or e-commerce site, and then that company will turn around and sell the products to consumers at a marked-up price. For example, if the cost to make your product (cost of goods) is $3 and you sell it to the wholesaler at $4, you make a 33% profit. The wholesaler also needs to make a profit, so it will mark up the price to $8, making a 50% profit.

 

Pros of Wholesale Distribution

Cons of Wholesale Distribution

 

By selling your merchandise wholesale, you mitigate some financial risk; the wholesaler is responsible for selling your products to the end consumer and if it fails, you are not exposed to any negative repercussions

 

If your company is a startup, you may not have the funds available to sell directly to consumers, and wholesale is a great option to get your products to consumers

 

You do not have to worry about marketing to consumers; the wholesale and retail outlets hold that responsibility

 

 

You make a smaller margin on each piece of merchandise, because you are selling it for a lower price to the wholesaler than if you were selling to directly to a consumer

 

Often, if you are selling to a wholesaler,

 

You do not have control over how your merchandise is displayed in the store, nor are able to protect your product from damage

 

You do not learn much about your customers’ preferences and habits, nor do you build a relationship with your consumers

 

Distribution by Consignment

 

Selling by consignment is a form of selling direct-to-consumer, while obtaining some of the benefits of using a retailer. You ship your merchandise to a retailer, but your company continues to own those goods until they have been sold to customers. The retailer only pays you for those goods that are actually sold and can return unsold items.

 

Pros of Consignment Distribution

Cons of Consignment Distribution

 

Your company gets the perks of using a retailer or wholesaler, including bricks and mortar exposure to consumers

 

Wholesale and retail outlets are incentivized to stock your merchandise because they do not have to pay for the items until they are sold

 

It’s a great option for seasonal or new products, because retailers and wholesalers won’t be afraid of a lack of demand for that merchandise.

 

 

You do not get any money until your merchandise sells, and if it does not sell, then all costs fall on you

 

Retailers and wholesalers have an incentive to sell the products that they own outright, but do not have a large incentive to sell your products because they have not already invested in them

 

You do not have control over how your merchandise is displayed in the store, nor are able to protect your product from damage

 

Because you don’t get paid until products have sold, you need to have enough cash on hand to continue making your merchandise while waiting for those payments

 

 

Distribution by Dropshipping

 

A final option for your company is called “dropshipping.” This unique distribution platform entails partnering with an online retail outlet to sell your merchandise. The retailer will post your merchandise on its website, but when customers purchase your products, you ship them. The retailer doesn’t keep your products in stock, but uses its website as a display platform for your merchandise. A widely known example of dropshipping is Etsy, an online selling community focused on selling unique, handmade items.

 

Pros of Dropshipping

Cons of Dropshipping

 

Usually, the retailer is in charge of providing customer service, so you do not have to handle difficult customer situations

 

The retailer also incurs the cost of marketing to consumers

 

You are able to package and ship your merchandise, ensuring the quality and presentation to consumers

 

You can enter dropshipping agreements with a range of retailers simultaneously, as your merchandise sells a piece at a time

 

 

Similar to consignment, you do not get any money until your merchandise has been sold to the consumer

 

You have to store the merchandise until it is sold, which comes with warehouse maintenance and costs and tracking inventory

 

You have to pay for the costs of shipping your goods

 

 

 


Written By:
Kimberly Lowe

For almost 20 years Kim Lowe has lawyered from the trenches. Kim lawyers from experience, using her knowledge of the law and understanding of how both for-profit and nonprofit business enterprises operate.

Emilee Walters is a second year law student at the St. Thomas School of Law. Emilee is an Avisen Fellow exploring a legal career in business law.

E-mail Kimberly

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