Fashion Designer and Content Creator. Daniela leads the social media operations at GAT Fashion Lab
In the fashion industry, there are various models or sales channels. Today, we'll explore the details of wholesale and what elements and strategies you should consider to be successful in this channel.
It's a sales model or channel that caters strictly to the wholesale market. Typically, it can be:
- B2B (business to business), such as large department stores or multi-brand marketplaces.
- B2C (business to consumer), for instance, independent wholesale buyers who resell or owners of multi-brand stores looking to stock their businesses.
For the brand or manufacturer, referred to as the Wholesaler in this context (which could be you), the wholesale business involves higher production volumes, primarily aiming to lower production costs and offer a lower price to distributors or wholesale buyers, who will then resell your garments.
Wholesale is a common strategy for independent designers or emerging brands because high production allows them to negotiate more easily with manufacturers, ensuring better production prices not only for wholesale products but also for their own production.
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In fashion, there are several sales channels and models, but the most popular are:
- Retail (selling to end consumers)
- Wholesale (selling in bulk)
Let's understand the former to later discuss the advantages and disadvantages of both.
Retail refers to the direct sale of the brand to its customers, i.e., a B2C or D2C (direct to consumer) model. The most popular channels in this format are:
- E-commerce
- Physical stores
- Sales through social media
The significant aspect here is that there are no intermediaries between the brand/designer and the end buyer.
The fundamental format of fashion retail is where most profits are made. Since there are no intermediaries, the profits belong to the brand. However, as the business scales up, direct sales incur high costs such as rents and advertising expenses (like ads and commercials). Therefore, it's essential to pay special attention to the company's finances and be clear about the margins.
At GAT Fashion Lab, we have over 20 years of experience in the fashion industry, manufacturing for the most important retailers in Latin America. Learn more by clicking here.
In retail sales, gross profit margins should ideally be above 60% to cover sales expenses. Luxury brands, for example, may have margins exceeding 80% or even more.
The decision of how much to earn in a sale is solely up to the brand owner. The only recommendation is that it should be more than 60%.
Another crucial aspect of retail is total control over communication and sales experience, as well as direct knowledge of customers. This is crucial for understanding their needs and creating products that truly meet their expectations.
If you are just starting your brand, a very important recommendation is to project your sales and include all the costs that a business may have, such as your salary, rents, etc. This way, you can get a clearer idea of how much you should sell to be profitable and when you need to grow, you have enough profitability to do it.
This is a very common mistake among entrepreneurs who do not calculate their cost structure well, and when they grow, they are not profitable because they never calculated it on time, so avoid this problem.
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The main difference from retail is that there is an intermediary in the sale, which as mentioned earlier, can be a person or a business. This intermediation almost necessitates that gross profit margins be lower than in retail. While this may sound disadvantageous at first, it also has a significant advantage: there is a lot of saving in sales expenses, as intermediaries manage them.
This strategy is particularly good for emerging businesses as it allows them to have higher production volumes and cash flow. However, one must be careful with payment terms and try to sell on demand or by order to avoid ending up with dead inventory.
Although margins tend to be lower, if you optimize for wholesale, profits can be just as high or even higher than in a retail model. However, you must be very careful with the business's finances.
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In the wholesale world, there are many actors dedicated to helping you connect with wholesale buyers. However, this can be expensive, and to start, there are several options you can manage on your own to reach these coveted wholesale buyers. Here are some options:
Trade shows may seem like a high expense, but they bring together all the players in the fashion industry, especially wholesalers, small multi-brand stores, large department stores, and online resellers. So it's a good option to find buyers. Plan your participation, research who attends, and evaluate options to make the best move.
Just as hundreds of buyers attend Physical Trade Shows to stock their businesses, there are online portals like FAIRE that connect emerging brands with buyers through technology.
It's a perfect place to showcase your creations, especially valuing craftsmanship. Its main advantage, compared to a physical fair, is that costs are very low, and you can create your account for free.
Faire is a wholesale B2B marketplace, so you need to be organized to sell at least in packages of 6 units, so keep that in mind and plan your operation there very well.
On this platform, products and their suggested retail prices are usually displayed, and a discount of between 20-50% is given to wholesale buyers.
Take careful note of the numbers; Faire is one of the fastest-growing technology-based companies in recent years and has connected over 850,000 entrepreneurs and buyers.
This model is especially popular for luxury products. They can be physical stores or online platforms that buy from designers and brands, showcase on their portals and stores, and manage traffic and everything related to sales.
Normally, these companies have teams of hunters who visit fairs and search for brands online to do business. In the beginning, they place trial orders to evaluate products and start with small purchases of 20-40 units per design, and depending on the brand's reception in their channels, they can help you scale to a large volume.
This is a B2B2C model, meaning one business buys from another business, which ultimately sells to the end consumer.
This model is very interesting for emerging brands as appearing in such a high-level retailer adds a lot of prestige to the brand or designer, which enhances its perceived value in the market.
An example of this type of retailer is Shopbop.
These platforms are very different from virtual fairs since, although they also connect with buyers, they are essentially software that helps you manage your wholesale sales operation. One of the main advantages of these platforms is that they have very rigorous registration processes, especially for buyers, and have certified buyers from large retail chains, as well as luxury retailers.
Initially, the main disadvantage is that they charge a monthly or annual fee for using the software. However, this should be seen as an investment and a saving, as they facilitate connection with potential buyers, as well as managing all the business information, which ultimately translates into efficiency and savings for the business.
To give you an idea, a platform like Joor, in addition to helping you manage your inventories and sales on a channel like Faire, allows you to have your own online wholesale store and manage your wholesale sales directly with your own customers, consuming a single inventory and calculating all expenses in one place. It's definitely an investment worth considering.
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- By selling wholesale, production and volume increase. With higher production, the unit price decreases. A wholesale business gives you more production volume but lower margin. In the case of retail, production, especially when starting, is usually lower, increasing the unit cost of each garment, but margins can be higher.
- Selling wholesale allows you to have a demand-based or pre-sale model more easily than in retail.
- Wholesale sales give more visibility to the brand, allowing you to grow faster, and in some cases, such as exhibiting in luxury retailers, adds a lot of perceived value to the brand.
- Selling wholesale saves you a lot of sales expenses, especially advertising expenses, store rent, and payments to salespeople.
- Producing in volume requires more working capital, and in case of being left with a production, there are more risks, especially financial, than with small productions.
- Gross margin is usually lower than in retail, but as we've seen, if you structure well, you can have a better margin.
- You do not control the sales experience and contact with the final customer.
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Regardless of the sales model chosen, there must be production involved, and for that, it is essential to find a good supplier. Therefore, at GAT fashion lab, we have a blog to find the ideal supplier/manufacturer; you can read it by clicking here.
Certain items must be taken into account when choosing the ideal manufacturer:
- They must have good references from past clients.
- They must have an MOQ (Minimum Order Quantity) suitable for the quantities that your brand wishes and can produce.
- The brand must be very clear about the manufacturer's specialty and verify that they can make the garments needed, such as a manufacturer specialized only in blouses.
- You must review their product catalogs beforehand to have a clearer idea of what their work is like.
- Delivery times are vital in this process precisely to avoid inconveniences, so it is essential to ask the company what their delivery times are and see if they fit what the brand needs.
- Not all manufacturers make samples of the garment to be made, but this step is essential to refine details and make the necessary corrections before starting production, so it is recommended to choose a manufacturer who makes the sample, whether physical or digital.
- The manufacturer you choose is recommended to have included technologies within their production process; all this is due to the fact that this streamlines the process and contributes to an item of sustainability.
To learn more about the requirements a clothing manufacturer should have, click here.
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