In part 4, we looked at how stock get onto the shelves and considered the various methods by which stock is brought to market.
Generally the closer to the market the buyer purchases the product, and the further up the supply chain, the more profitable it is. But this has to be weighed against the disadvantages of commitment, higher risk and longer lead times.
|Direct imports||Highest margin||Commitment, higher risk,|
|Indirect imports , via a wholesaler||High margin||Lack of control on stock management|
|Own Brand direct Imports||Control of specification and production , good margin||Stock commitment , cost of staff and management time , requires expertise|
|Domestic purchase||Can buy from available||Average margin/TD>|
|Branded merchandise||Advertising support, name recognition||Low margin|
Commitment to Direct imports
Some retailers do not have the Buying Power to import directly, but if they do, it offers them a margin opportunity. The margin is the difference between the cost and the selling price. The cost price will be the ex-factory price, converted to home currency and with an allowance for shipping, insurance, duty and distribution. This is known as the landed duty paid price.
To import directly the retailer has to be able to place an order large enough to merit a production run , and ship a quantity that will be economic –i.e. fill a truck from the factory to the port, and fill a whole (or possibly part) container load .
So an important consideration for the buyer is the space allocated to direct imports. Commitment to those lines will have to be made at an early stage in the process, to allow time for production and shipment before products bought domestically are viewed. The retail buyer will usually visit various source markets themselves, where the products are manufactured, searching for new product to import directly for their company.
The place of manufacture for a product is determined by a number of factors such as;-
- Available components for example, wooden items such as toys or furniture will usually be manufactured near heavily wooded areas. There are many manufacturers of plastic toys in Frances’ heavily wooded Jura region, who originally made wooden toys and later switched to plastic. Now there is local manufacture of the required plastic pellets.
- Related industries – availability of expertise and manufacturing plant. For example places which specialised in production of lace such as Nottingham in England influenced development of an underwear manufacturing centre.
- Availability of skilled labour, for example there are a lot of skilled clothing machinists in India and China. Twenty years ago Hong Kong was a centre for clothing production and there was availability of skilled machinists there producing cheap clothing in volume. Then the cost of living and the price of labour became so high that it evolved into a centre for highly skilled, intricate and complex sewing and embroidery work.
- Availability of plant –again in Nottingham there is a concentration of the machines used to manufacture lace.
So certain areas become centres for specific commodities, and the buyer will be aware of these and will visit these localities to source product.
Pros and cons of direct imports
The advantage of direct imports is that margins achieved are much higher on direct imports, perhaps double that available on branded merchandise, which may be heavily discounted on the high street.
The disadvantages though are the irrevocable stock commitment made by the company and the long lead time. When buying a direct import, the Buyer may commit the company to something made redundant, or less appealing, than a domestic line that they have not seen yet. So the higher margin must be balanced against these factors.
Once the direct import programme is established, the number off product slots available for new merchandise can be calculated by sub range or category and the buyer can begin to mentally fill those slots from the available merchandise they see.at Trade Fairs, through wholesalers, distributors importers
They will probably also list product from wholesalers, distributors or importers that they can buy domestically. They will also consider product from branded companies who in their sector who design, source and manufacture their own ranges to offer to retail buyers.
Own brand products
It is easy to appreciate the value of own- brand product for retailers. These lines may be part of the Direct Import programme. Many supermarkets have launched their own brands in recent times, and sometimes offer several levels of product. It offers them an opportunity to deal directly with manufacturers, specifying and controlling production themselves, using their trusted brand to support the product. They can set the price as the product is unique, so they can make higher margins on these lines.
They are not paying for advertisers promotional campaigns, rather relying on the strength of their own name to carry the ranges.