Articles
Should You Be Importing?
While attending a gardening show in Cologne, Germany, I collided with merchants of three catalog companies, all of whom, quite embarrassingly, arrived at a vendor's booth at the same time. On another occasion, in Asia, my agent had to coordinate my visits to factories to avoid conflicts with other retail merchants. Such experiences make it clear that while importing was once the province of wholesalers, many store and catalog retailers, large and small, are going abroad to improve margins and offer unique product.
I’ve always adopted the direct importing of product as a key profit strategy. When we started The San Francisco Music Box Company in 1978, my wife and I scoured Europe for small manufacturers of unique exclusive products. We started modestly. The postman delivered most of the imports to our home, where we paid the duty in cash. But eventually we were buying large quantities of exclusive product from Europe and Asia, with very favorable margins. It was the margin and the exclusivity that made our company a success. Yet many catalog companies hesitate to import or, even worse, import without knowing what they’re getting into. Nearly every cataloger that has started an import program can entertain you with horror stories of container loads of defective, useless product.
So when should you consider starting an import program?
- When you
are buying enough products through a domestic importer to meet
overseas manufacturers’ minimum volume requirements.
- When your
sales would benefit from exclusive, unique products that are
more likely found overseas.
- When cost
increases of domestic products jeopardize their financial success
in your catalog.
- When your
wholesalers are becoming unreliable or having trouble meeting
your demands.
- When your proprietary designs could best be manufactured overseas.
Before you jump on the plane, however, prepare for the challenges that importing will present.
Financial Capability
With limited exception, Asian suppliers require a letter of credit in place before they’ll begin producing goods. Suppliers usually receive payment from letters of credit when products clear customs. Your bank may require a deposit as collateral, reducing your fluidity. If you are credit constrained or dependent on "vendor financing," carefully weigh the benefits of higher margin against the loss of available funds for other purposes.
Unlike their Asian counterparts, European vendors frequently extend credit terms much as domestic suppliers do. Product from Europe will not always provide superior margin to domestic goods, but it may be unique and appealing, since much of it is no longer imported by wholesalers.
Minimums
Many merchants believe that they’re not large enough to support an overseas manufacturer’s minimum production quantities. In fact, in Europe, where items are more likely to be part of the regular line of a factory, there may be no minimums.
In Asia, minimums depend on many factors, including the material, the factory, the country, the price of goods and your willingness to pay development or mold costs. An item made of wood may have no minimums, whereas a ceramic item may have a minimum of 400 pieces. And you can often buy relatively small quantities by paying a higher unit cost or finding the right factory.
Inventory Management
Imported inventory is more difficult to manage than domestic inventory due to the longer lead time, quantity commitments and potential delivery snags. From Europe, a shipment may take five weeks door-to-door; from India, the same shipment may require 12 weeks, and that’s provided there’s no dock strike or typhoon. As you can see, then, you must place orders well in advance, and you have less flexibility when it comes to reorders.
By the same token, ordering new items with no sales history very often results in backorders or overstocks. To swing the odds in your favor, start out with high-confidence products from relatively safe factories and countries, assume that you’ll need to selectively air-freight reorders, and set up a liquidation program.
Indeed, when a slow-selling item has a high margin, you can often reduce its price, thereby increasing its sales rate, and still end up with the margin equal to that of a domestic product. Sale sections, package stuffers and other liquidation programs can actually make a profit. And if you are a "C" corporation and profitable, you may be able to donate the merchandise to charity and recover your full investment.
Quality Assurance and Legal Issues
As the direct importer, you assume responsibilities normally held by a domestic wholesaler. A major task is developing a quality assurance program that includes detailed product and packaging specifications; staff testing; an agent or a third party at the factory; and rigorous review of goods upon arrival in your distribution center. Expect initial problems, but realize they’ll diminish as you gain experience.
Legal issues arise in two primary areas. First, you must take care to avoid copyright violations. On numerous occasions, I’ve been assured that an item in an agent’s showroom is "open market," only to find that it’s actually another importer’s design. Even your most diligent investigation will not prevent some of these items from making it into your catalog, after which you’ll usually receive a call from a wholesaler or its lawyer. In almost all cases, negotiation leads to a reasonable settlement with minimal legal fees.
Second, you’re responsible for compliance with various regulations, primarily those of the Consumer Product Safety Commission. For instance, food service ceramics must be tested for lead, and toys must meet labeling and safety standards.
Product Design
In Europe, manufacturers present product designs at shows much like those in the U. S., and you can buy the goods "off the shelf." Asian factories, though, primarily make products according to your design. Initially, you can cherry pick or modify a limited number of open-market products. But your long-term success depends on developing a design program.
Designing product is a special talent. Most buyers have been schooled in "reacting," not creating. While your program may initially consist of a buyer with some design talents, a mature program will include licensed or staff product designers, product managers and production supervisors.
Compromised Selection
Perhaps the most subtle challenge of importing and manufacturing your own product is compromise of product integrity. Buyers on an overseas trip, for instance, may purchase goods that they’d find inferior at a domestic show, simply because they’re cheaper or to justify their trip. Or once you’ve sunk design energy into developing a product, you may find yourself unable to walk away from it, even if it no longer meets your needs.
To avoid these problems, you must always be able to step back away from the process, view products objectively, and affirm that the items are at least equal to domestic merchandise.
Importing may seem daunting, but don’t let it overwhelm you. Start out slowly, and build experience. The introduction of even a few successful high-margin products can substantially improve your bottom line.
To meet the challenges, you may need to develop your expertise or hire staff with special skills. You can skirt many problems by networking with other merchants, or by retaining consultants who can help you develop policies and connect you to appropriate designers, agents and factories.
But these investments of time, energy and funds should pay off. Only those catalogers who view the world as their marketplace for both selling and buying will maximize their success in the years ahead.
Hiring an Overseas Buyer
Once I took a merchant to Asia for the first time only to discover that he hated long airplane trips, couldn’t tolerate unusual food and didn’t like to read. The trip was misery -- for both of us. Successful overseas buying requires an adventurous spirit and a strong stomach. I’ve been stuck in a Taipei apartment for days as a typhoon blew over and eaten strange morsels during obligatory late-night dinners with factory owners. In addition to asking candidates for overseas buying positions about their negotiating skills, product knowledge and creative ability, I now add the following questions:
- What kind
of food do you enjoy? The more adventurous the better.
- How many
books have you read in the past year? (You’re looking for a person
who enjoys reading and can entertain herself.)
- Do you enjoy
foreign cultures?
- Can you be
away from home for four weeks at a stretch? Up to six times a
year? (As your program develops, this will become the norm.)
- Do you enjoy socializing with vendors in the evening? (Relationships and business are frequently developed over the dinner table.)