Selling your Soul to Big Box Stores - Part 1

Early last year, we felt as though the natural progression of the business was to start getting into big box stores (Target, Walmart, Babies R Us, etc.).  We felt we were ready for it.  And we hear a lot of people saying that maybe more moms would consider cloth diapers if they were in chain stores.

We hired a consultant whose job was to introduce us to the decision-makers for the big box stores, and to give us advise on how to properly present ourselves to the giants.  To be able to get in the game these big players played, we had to figure out the following:

1. Pricing. First thing on the agenda was to create a price sheet with multiple pricing levels.  The bigger the chain was, the lower prices they got.  We also had to factor in giving advertising allowances, extra markup for reps, etc.  By the time everything was said & done, we pretty much had to sell our products at a much lower price than what we were currently offering our retailers.  If we were to continue having our products made in the U.S., we’d be making a whopping 50 cents on each diaper that would retail at about $25.  We might be able to squeeze $1 if we really tried.  We’d have to “dumb down” our products by using cheaper materials if we wanted to make more money.  But if we were going to do that, we might as well just have them made in China.

2. Packaging. The product has to “pop” when placed on store shelves.  People will have to quickly understand what the product was just by looking at it.  I’m not sure if you can really put everything you need to know about cloth diapers on just the product’s packaging.  It’s not exactly as self-explanatory as toothpicks or socks.  Since we typically just sell to online retailers who mostly work at home, there was no need for any kind of elaborate packaging.  Those that had brick & mortar stores pretty much had their own way of displaying our products.  There was no need to have a ’self-explanatory’ type of packaging because the store owners were the one telling their customers how to best use our products.  But if we wanted to be in the bigger chain stores, we had to have standardized packaging (singles, 3-packs, 12-packs), UPC codes, lot numbers, case packs, pallet packs, and the list goes on.  We will have to invest A LOT of money in packaging.  Not just for the products that go on the shelves, but even for the boxes that the products will be shipped in.

3. Production. We needed to make sure that we had production ramped up to a level where we’d be able to fill a big order in a matter of weeks.  This means that we would have to carry a lot of the materials in stock & ready to be cut & sewn at any given point in time.  Most of our materials are custom-made for us and takes 6-8 weeks to be made and shipped.  We usually only keep about 3-4 month’s worth of materials, but if we were to get a big box store account, we’d have to carry maybe 3 times that amount.  But that is if we kept production in the U.S.

4. Customer Service Issues. We all know that big box stores have very lenient return policies.  While most of our online retailers carry a 30-day return policy on unwashed & unused items, big box stores typically have 90-day return policies with no restrictions.  This means that you can turn a nice-looking shirt into a dish rag, tell the store clerk there’s something wrong with the shirt, return it and get your money back as long as it’s within 90 days.  The store takes it back, dumps it into a box, sends it back to the manufacturer and gets a credit back for all the returned items PLUS the cost of shipping it back to you.  One of the major online stores that approached us had a policy that we needed to respond to any customer email sent through their store within 24 hrs (regardless of weekends or holidays) or we get fined $5.  Product returns/exchanges also needed to be responded to within 24 hrs.  Otherwise, they will respond to the inquiry themselves and charge us for whatever it costs them to resolve the problem, plus $5.  So if we decided to take off for some federal holiday, we’d have fines gallore to come back to work to.  Basically what all this boils down to is that these big merchants are absolved from any kind of responsibility for your product other than to put it in their stores.

5. Payment. We would need to be able to float several tens and even hundreds of thousands of dollars worth of invoices for at least 30 days.  AT LEAST 30 DAYS.  We’ll need to give at least 2 more weeks for late payment.  Remember all those customer service issues I just mentioned?  They don’t bill you for them, they take it out of the check they’re supposed to pay you.  One manufacturer we knew that had her products in a baby chain store said that a lot of times, it felt as if she was paying them to sell her products.

This is by no means everything that we needed to do, and just part of an extensive list of things we have to comply with.  As we were trying to work through all this and evaluating our sanity for even considering it, representatives from the big box stores started approaching us.  Even major online retailers started inquiring about adding our products to their site that gets tens of millions of visitors a month.  Holy crap!  That’s what we wanted, right?  We stalled on the vendor agreements and after several months of talking to other manufacturers, I seriously don’t see why anybody would want to put their products in the hands of the chain stores.  Sure you’d get more product visibility, and the prestige in being able to say your products are in chain stores, but at what cost?  It almost feels like you’d have to sell your soul.

To be continued….