In today’s post we will be taking a look at the question in the title of this post. Does Amazon want us to source our products via the wholesale model when selling on their platform? The reason for diving into this question is that there have been an increasing number of brand restrictions on Amazon. Many new sellers are unable to sell some of the most popular brands, and more and more brands are requiring approval to be sold on Amazon. To obtain approval for these brands, you typically need invoices directly from an authorized distributor, or a letter from the brand owner stating that you can sell their products. Sometimes there is an application fee of up to $1500 attached as well.
This has a particular impact on retail arbitrage (RA) sellers, as retail receipts are generally not sufficient for obtaining these approvals. [Quick side note: if you are ever looking for what acronyms related to selling on Amazon mean, I have compiled a full list HERE. I don’t think that this makes RA obsolete, but I do think that wholesale sourcing alleviates some of these concerns. If you interested in reading more of my thoughts on this topic, this blog post has an in depth look: The Future of Online and Retail Arbitrage as I see it.
In my business, we have been focusing more and more on wholesale over the past year in particular. This December so far we have done well over $100,000 in sales from our wholesale suppliers alone. We have found the model to be a great addition to the other sourcing methods we use, and plan on continuing to focus heavily on the model going into 2017.
If you are unfamiliar with wholesale sourcing, it is the act of purchasing products directly from a manufacturer or a company. Typically you will receive a significant discount off of the retail price, and will be buying in bulk directly from the brand owner.
Q&A with Dan:
1. What are some tips for transitioning from RA to Wholesale?
Transitioning from RA to wholesale can be reasonably nerve wracking. However, once you understand the dynamic of the model – it is really easy to get behind and embrace the wholesale model.
Some of the key tips to making that transition are:
1) Don’t just stop doing Retail Arbitrage initially. You are a business, and you need income. Make sure that your income needs are being met before making the jump. I know it’s exciting, but Wholesale is slow on the front end. One primary hurdle is setting up key accounts. So, we need to establish a few accounts to start the transition.
2) Set blocks of time to the side to start doing wholesale research, build a large amount of leads up before contacting people. We suggest doing this to optimize your time. It is really inefficient to call people EVERY TIME you find a new lead. Instead, build a huge leads list, before you reach out to your first vendor.
3) Don’t get discouraged, there is a lot of failure in wholesale. You can do multiple millions of dollars in sales with a 90% failure rate. Go into this with the mindset that you will fail A LOT! However, you have to make each call and send each email knowing that you will succeed!
1A. Biggest differences compared to RA?
The biggest difference is that you fail so much in wholesale. Vendors are tough in their requirements, and many of them don’t want to work with Amazon sellers. This makes it very frustrating on the front end, because unlike RA you don’t get many “easy wins”. However, when you establish a good account, many of them will be profitable for years. In RA we get spoiled with “instant gratification.” We find a profitable product, buy it and then we are off to the races. The problem is that is a one-time gratification, whereas wholesale tends to pay much longer term dividends.
That being said, if you can control your mindset and go into each situation with the mindset that you will succeed regardless of what happened on your last few calls… You will be successful in the long term.
1B. Biggest similarities to RA?
The primary similarity is that in both models we are looking for similar products. We want fast turning products that allow us to maximize profits over time.
Much like retail arbitrage, wholesale requires a pretty significant time investment. All of your effort is on the front end. Once you establish accounts, that is where the models really differ. Each account functions like a passive income stream, as we really get it down to reordering.
1C. Pros and cons of making the switch from RA to Wholesale in your opinion?
There are many reasons that people should make the switch. The model lends itself to perfect scalability. You develop simple broken up processes, and can grow simply by adding team members to take over those aspects of your business. Also, this model over time lends itself to a more hands off model. As you put people in place or find effective ways to outsource your research, you are simply adding income when you reach out to new accounts. For the most part, accounts provide a long term stable income.
The only con is that it requires you to operate more professionally. With the RA model, you are simply taking advantage of market place inefficiencies. You are looking to get in and out. With wholesale, you have to make a longer term commitment, and approach it from that perspective. It requires more work on the front end before you see results.
2. What is your opinion on the current brand restrictions on Amazon?
I personally love the brand restrictions in regards to our business. I am sad, that it negatively affects so many sellers. However, in terms of our model, it really is fantastic. We develop strategic relationships with vendors and have no problems meeting Amazon’s requirements for getting approved.
In terms of RA, I believe this will continue to squeeze it. Recent articles indicate that this is just the beginning, and that spells bad news for the RA model. In RA, there is NO WAY that you can get approved to sell those products. It requires you to have a real relationship with vendors to meet Amazon’s approval requirements.
3. Do you think wholesale sourcing will be impacted by brand restrictions as well?
Yes, there are several forms of wholesale. Many of them rely on “buying from distributors” or purchasing from “closeout style vendors.” I think that these will be negatively impacted, as it is VERY tough to get approved. Even working directly with vendors can prove to be difficult to get the exact paperwork that Amazon needs. That being said, it could prove impossible with many forms of wholesale.
Fortunately, our business is based on working directly with brands! This gives us a HUGE edge, and actually improves our model, as it gives the manufacturers and brand owners ways to weed out the “sneaky sellers”. In our situation, we develop great relationships founded on truth and trust, so our vendors know exactly where their products are being sold. So, we have no problems getting the right paperwork together for Amazon.
4. How are you approaching the situation with the increase in brand restrictions?
We are currently targeting restricted brands. We want to work with them, for two reasons:
1) These brands prove to be more profitable. Effectively, the vendor knows who all sellers are, and can eliminate bad actors rather quickly.
2) We want to continue to go through the process of getting approved. Right now, we are VERY good at it. However, we have seen shifts in the Amazon requirements, so we want to stay on top of the progress. We believe this will be a HUGE part of Amazon in the coming months, and want to be as efficient as possible in going through the process.
5. What is your opinion on how selling on Amazon will change in the future?
Amazon is growing and becoming a more professional platform. The problem is that Amazon’s size makes it a HUGE target, so they have to be more “in control” of their marketplace going forward. I believe this will constantly raise the bar for sellers, and force sellers who cannot or will not make changes in their model out.
For example, Amazon is giving a REALLY high value in these restrictions to companies who are working directly with their manufacturers. They are putting a lot of power back in the hands of the brands, which will help reinforce the professional growth on their platform.
I think right now, it is more important than ever, for people to look at how they can improve their business and become more professional. I think wholesale is still super wide open, and will prove to be the best model going forward.
6. What are the key differentiators for people who succeed with wholesale compared to people who don’t?
I actually really love this question. Most people ask only part, what makes people successful. I think that the best case studies come from the unsuccessful people though. Here are three key components:
1) People who succeed aren’t results oriented, and instead are process oriented. That means, these people are looking for how to improve rather than simply make more money. Good processes drive your income, and improving your processes will have a much bigger impact on your income than simply trying to make more money.
2) Develop your company identity. This is critical. Most people who fail revel in the things that they can’t do, rather than learning to provide the best value that they can. Whereas, successful people tend to take the solutions oriented approach and look for how they can help their vendors succeed in the marketplace.
3) They realize early on that it is a numbers game. You take your leads and start to make contact, then you get feedback (either in the form of acceptance or rejection). In the instance of rejection, you should look for WHY you are getting rejected, rather than reveling in the rejection.
The best approach is to take lots of shots, and use the data you get back from them to refine your process and message.
Thank you to Dan for doing this Q&A with me about wholesale sourcing. If you’d like to check out more articles from Dan, you can find them on his blog HERE.
Also, I will be doing a free live webinar with Dan on January 12th at 3:30PM CT. On this live webinar, Dan will share how to get started with wholesale. If you are interested, you can register.
Let me know in the comments what questions you have and either Dan or I will get back to you in the comments or a future blog post. What questions do you have about wholesale sourcing?