Tuesday, November 29, 2011

Case study for Importers - Timing and distribution

The process of distribution can eat into what seems to be a healthy profit margin. For example, two naive importers located some cheap gift lines in a trade catalogue from Taiwan. Preliminary market research indicated the items could be sold in Australia at a price which would return considerable profits. The importers requested some samples to test the market in Australia, but were advised that the minimum order quantity was 1000 items. They agreed to purchase that quantity believing that they could sell them in the lead up to Mothers Day. As airfreight was too expensive, they arranged for the cartons to be shipped as a part container load. Unfortunately, the container sat on the Melbourne docks for two months while the importers fumed in Adelaide.

Breaking into the retailing chain was not easy. They were not recognised wholesalers/importers and retailers were suspicious when they approached them. It was a physical impossibility for two people to get around to all the small gift shops who rarely ordered more than 10 items each. The larger stores already had completed their purchases for that season and were linked to major wholesalers for their supplies. Some of the retail chains even imported goods themselves and saw no reason for a middle man. There were distribution companies who were happy to carry their products on their regular calls on small businesses. However, the commissions they charged would have eroded the profits to the extent that the venture was no longer viable. As a consequence, the would-be importers were left with a quantity of goods which they quit at a loss.

The moral of the story is to investigate the proposed distribution channels before launching into a new venture. 'Quickly and efficiently' does not necessarily mean buying direct from a manufacturer and selling direct to the consumer. While you may be reluctant to use a distributor because of the additional costs involved, the alternative in many cases may be no sales at all.