Fashion Designer and Content Creator. Daniela leads the social media operations at GAT Fashion Lab
Empowering Fashion Entrepreneurs #001, by GAT Fashion Lab
In the fashion industry, there are various sales models or channels. Today, we will explore the details of wholesale and what elements and strategies you should consider to be successful in this channel.
It is a sales model or channel rigidly focused on the wholesale market. It typically can be B2B (business to business), such as large department stores or multi-brand marketplaces, or B2C (business to consumer), for instance, independent wholesale buyers who resell or owners of multi-brand stores looking to stock their businesses.
Now, from the perspective of the brand or manufacturer, which we'll call the Wholesaler, and this could be you, the wholesale business involves higher production volumes, primarily with the aim of reducing production costs and offering lower prices to distributors or wholesale buyers who will then resell your garments.
Wholesale is a very common strategy among independent designers or emerging brands because having high production volumes allows them to negotiate more easily with manufacturers, thus ensuring a better production price, not only for the products sold wholesale but also for their own production.
In fashion, there are several sales channels and models, but the most popular ones are Retail (selling to end consumers) and Wholesale (selling in bulk). We will first delve into the former to discuss the advantages and disadvantages of each.
Retail refers to the direct sale of the brand to its customers, which is essentially a B2C or D2C (direct-to-consumer) model. The most popular channels in this format are E-commerce, physical stores, and sales through social media.
The crucial aspect here is the absence of intermediaries between the brand/designer and the end buyer. This is the fundamental format of fashion sales and often generates higher profits because, with no intermediaries, all the earnings go to the brand.
However, as the business scales, direct sales come with high costs, such as rent and advertising expenses (like ads and commercials). Therefore, it's crucial to pay close attention to the company's finances and have a clear understanding of profit margins.
In retail, the gross profit margins should ideally be above 60% to cover selling expenses. In some cases, luxury brands can have margins exceeding 80% or even more. The decision of how much to earn in a sale is a unique choice of the brand owner, but the recommendation is for it to be more than 60%.
Another critical aspect of retail is having total control over communication and the shopping experience. Directly knowing your customers is essential for understanding their needs and creating products that truly meet their expectations.
If you're just starting your brand, it's highly recommended to project your sales and include all potential business costs, such as your salary, rent, etc. This will give you a clearer idea of how much you need to sell to be profitable and have enough profitability to grow when the time comes.
This is a common mistake among entrepreneurs who don't calculate their cost structure correctly, which can make them unprofitable as they grow. Avoid this problem by planning ahead.
The primary difference from retail is the presence of an intermediary in the sale, which, as mentioned earlier, can be an individual or a business.
This intermediary often leads to lower gross profit margins than in retail. While this may initially sound like a disadvantage, it also offers a significant benefit: substantial savings in selling expenses, as intermediaries handle these costs.
This strategy is particularly beneficial for emerging businesses because it allows them to have higher production volumes and cash flow.
However, it's essential to be cautious with payment terms and aim to sell on-demand or by order to avoid excess inventory.
Although profit margins are usually lower, if you optimize for wholesale, the earnings can be just as high or even higher than in a retail model. However, careful financial management is crucial.
In the world of wholesale, several entities are dedicated to helping you connect with wholesale buyers. However, this can be costly, and there are several options to explore independently to reach these desired wholesale buyers. Here are some options:
Participating in trade shows may seem like a significant expense, but these events bring together all the players in the fashion industry, especially wholesale buyers from small multi-brand stores to large department stores and online resellers.
It's a good option for finding buyers, but it's essential to plan your participation thoroughly, research the attendees, and evaluate the options to make the most of it.
Just as physical trade shows attract hundreds of buyers to stock their businesses, online platforms like FAIRE connect emerging brands with buyers through technology.
It's a perfect place to showcase your creations, and it's highly valued for its artisanal aspect. The primary advantage over physical trade shows is reduced costs, and you can create your account for free.
FAIRE is a B2B wholesale marketplace, so you need to be organized to sell in minimum packs of 6 units. Be sure to consider this and plan your operations carefully.
This platform typically displays products and their suggested retail prices, offering a discount of 20-50% to wholesale buyers. Pay close attention to the numbers.
FAIRE is one of the fastest-growing tech-based companies in recent years, connecting more than 850,000 entrepreneurs and buyers.
This model is especially popular for luxury products. These can be physical stores or online platforms that buy from designers and brands, display them on their websites and stores, and handle traffic and everything related to sales.
Typically, these companies have teams of hunters who visit trade shows and search for brands online to do business with.
Initially, they place test orders to assess products and start with small purchases of 20-40 units per design. Depending on the brand's reception in their channels, they can help you scale to higher volumes.
This is a B2B2C model, meaning one business buys from another, ultimately selling to the end consumer. This model is highly appealing for emerging brands because appearing in a retailer of this caliber adds significant prestige to the brand or designer, increasing their perceived value in the market.
An example of such a retailer is Shopbop.
These platforms are quite distinct from digital trade shows. They essentially serve as software to help you manage the entire wholesale operation of your business.
One of their main advantages is the rigorous registration processes, especially for buyers.
These platforms often have certified buyers from large retail chains and luxury retailers. The primary drawback is that they charge a monthly or annual fee for software usage.
However, this should be seen as an investment and a cost-saving measure because they facilitate connections with potential buyers and manage all business information, resulting in efficiency and cost savings for your business.
For instance, a platform like Joor helps you manage your inventory and sales on a channel like FAIRE, allowing you to have your own wholesale online store and manage direct wholesale sales to your customers while consuming a single inventory and calculating all expenses in one place. It's definitely an investment worth considering.
-Selling wholesale increases production and volume. Higher production volume reduces the unit price. While a wholesale business yields higher production volume but lower margins, in the case of retail, production, especially when starting, tends to be lower, increasing the unit cost of each garment. However, retail margins can be higher.
-Selling wholesale allows for a more straightforward made-to-order or pre-order sales model compared to retail.
-Wholesale sales provide more visibility to the brand, allowing for faster growth, and, in some cases, displaying in luxury retailers adds significant perceived value to the brand.
-Selling wholesale saves many selling expenses, especially advertising costs, store rent, and salespeople's payments.
-Producing in volume requires more working capital, and there are more significant risks, particularly financial ones, if stuck with excessive production, which is more likely with small production runs.
-Gross profit margins are usually lower than in retail. However, as seen earlier, with proper structuring, you can achieve better margins.
-You don't control the sales experience and contact with the end customer.
Regardless of the chosen sales model, production is essential, and for that, finding a reliable manufacturer is crucial. At GAT Fashion Lab, we have a blog on finding the ideal supplier/manufacturer; you can read it by clicking here.
Certain factors should be considered when choosing the ideal manufacturer:
-They should have good references from past customers.
-The minimum order quantity (MOQ) should be suitable for the quantities your brand desires and can produce.
-The brand should be clear about the manufacturer's specialization and verify that they can produce the necessary garments, such as a manufacturer specialized in blouses.
-Review their product catalogs in advance to have a clearer idea of their work.
-Delivery times are vital in this process to avoid inconvenience. Therefore, it's essential to inquire about the company's delivery times and see if they align with what the brand needs.
-Not all manufacturers create samples of the garment to be made. However, this step is essential for fine-tuning details and making necessary corrections before production begins. Therefore, it's recommended to choose a manufacturer who creates samples, whether physical or digital.
-The manufacturer you choose should ideally have technology integrated into their production process, as this streamlines the process and contributes to sustainability.
For more requirements that a clothing manufacturer should meet, click here.
At GAT Fashion Lab, we are a full-package manufacturer with the highest market standards and good delivery times. Learn more about us and our services here.
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