Business owners who rely on China’s abundant manufacturing facilities and low production costs may be in for a massive challenge. The ongoing trade war the US government has waged with China may not end by March, meaning more potential tariffs that could disrupt the global economy.
ETC’s own Mark Bienstock and other industry experts spoke to California Apparel News this week about strategies to protect yourself and your business from the effects of this ongoing international conflict.
Express Trade Capital is inviting wholesale businesses to apply for the first annual ETC Trade Show Grant & Community Outreach Award! This award reflects our personal commitment to helping our community and encourages our friends in the wholesale industry to join us in giving back.
Requirements to apply for the 2019 ETC Community Outreach Award are:
Application must come from an owner or authorized representative of the nominated wholesale business.
Nominated businesses must sell consumer goods to retailers in the US with a minimum annual sales volume of $100,000 USD.
Applicants must demonstrate their business’s commitment to the community at large, whether through charitable giving, volunteer work, or other creative methods.
All applications must be submitted by February 28th, 2019.
We will announce a winner on March 1st, 2019. The winner will receive $3,000 USD toward a booth at a trade show of their choice.
A back-to-back letter of credit (LC) is a common, but often overlooked, form of trade financing.
In a typical back-to-back LC scenario, an intermediary trading company receives an inbound LC from the buyer’s (applicant’s) bank and, using that first LC as collateral, issues a second, outbound LC in favor of the supplier (beneficiary).
Back-to-back LCs are surprisingly simple to coordinate, as both LCs are nearly identical. The only differences between the two LCs in a back-to-back LC model are the credit amount vs. the unit price and the expiry date/period for presentation/latest shipment dates. The unit price is how much the product will cost the final customer, whereas the credit amount accounts for the wholesale costs. The timing of the two LCs must be staggered to allow time for each party to process and transport the shipment.
The additional layer of security that back-to-back LCs provide comes not only from the presence of two separate, albeit nearly identical LCs, but also from the fact that both LCs are available at the intermediary’s bank. This centralized method of monitoring reduces risk and secures all parties involved in the multi-tiered transaction at hand.
Back-to-back LCs therefore help build trust between buyers and sellers of goods around the world, reduce credit risk, and speed up cash flow. They’re beneficial to the intermediary trading company insofar as the company does not need to disclose to its supplier the details of the ultimate buyer of the goods or even the price at which they were sold.
Big brands, particularly food brands, have been merging with and acquiring smaller brands for decades. In recent years, food and drink executives have continued to strategically acquire small brands, but struggle to boost productivity among those acquisitions without damaging or cancelling out any of the fundamental qualities that made the small brands worth buying.
This struggle to maintain the appeal of a small brand while operating under a massive international conglomerate like Coca Cola or Hershey has become increasingly challenging as consumer priorities evolve. When a big brand acquires a smaller one, consumers tend to be concerned, at least initially, about the product remaining consistent. Over time, however, other issues often arise. A strong company culture and drive to innovate, both of which are often crucial to a small brand’s success, can get lost when a big brand takes over.
A prime example is the trajectory of natural food brand Kashi since it was acquired by Kellogg Co. in 2000. Prior to the acquisition, Kashi was one of the first brands to usher in the now-lucrative and popular industry of healthy foods made from simple, ethically sourced ingredients. Though the partnership worked for a while, Kellogg’s impulse to control Kashi’s internal operations eventually took hold, which hindered Kashi’s ability to constantly innovate and improve its products. Before the acquisition, teams of three or four people made decisions about everything from suppliers to pricing to new product development. In an attempt to take more decisive control, Kellogg’s convoluted Kashi’s processes, slowing down their decision-making capability and complicating attempts to change or grow.
To be clear, no one is saying that big brands shouldn’t acquire smaller ones. There is immense potential value in giving young, fresh businesses the resources that big brands have. However, when acquiring a young company that’s found a niche and an audience, one should be aware of what makes the small brand appealing to consumers and make every effort to maintain and support those qualities, while still facilitating increased production and global reach.
Some of Walmart’s recent acquisitions, notably Bonobos, are perfect examples of this. When Walmart initially acquired Bonobos, there was considerable public backlash. Fans of the online men’s wear brand were concerned that quality would plummet in favor of lower prices when Walmart took over. Walmart wisely remained “hands-off”, allowing Bonobos to uphold its central values as a company: high quality, a good fit, and inclusive sizing. As a result, Walmart indicates that its online sales have increased substantially since it acquired Bonobos among other ecommerce brands last year.
Needless to say, it’s a tough balance to strike, but since changing a formula that works for a small brand is a bad idea, it’s obviously important for big brands to rigorously research whatever businesses they plan to acquire. It’s also important to keep key team members from the smaller business involved and give them input on how the business moves forward after the acquisition, rather than commandeer operations entirely. Simply creating an open line of communication can do wonders to not only maintain the acquired brand’s growth and success, but also to establish a positive working relationship between new management and the people who made the business successful in the first place.
If you’re relatively new to the wholesale business, you may find it difficult to navigate peak seasons for wholesale orders. Without ample experience, preparing for these times of year can be a bit of a scramble, but here are a few tips to help you prepare for the busy seasons:
Know when your busy seasons are.
This will depend on your industry, as peak demand for different kinds of products varies. There is no hard and fast rule for this, but generally speaking, the following timelines apply:
Apparel orders generally peak between December and January and then between July and August. Footwear and accessory items peak between late December and early February, then again between late July and early September. Hardgoods tend to peak in late January and early March, then again in August-September.
Manage your timeline.
To take full advantage of busy seasons successfully, make sure that you have time to fulfill the orders you receive. You can even implement a deadline for your customers to place their orders with you during the busiest times of year (I.E. holidays, back to school, etc.). Generally speaking, your customers will prefer to submit their orders early anyway, but a deadline will ensure that you don’t end up struggling to keep up with last-minute orders.
Favor big orders.
During less busy seasons, fulfilling small orders from your retail customers isn’t a problem since orders are generally staggered, which keeps you from becoming overwhelmed. During peak seasons, however, you may want to set a (reasonable) purchase order minimum, either in cost or in number of units. This will distill your orders to the ones that are most worthwhile and discourage your customers from ordering piecemeal, which can throw a wrench in your production schedule.
Assess production costs and plan accordingly.
One of the primary challenges any wholesaler faces is managing the cost of fulfilling orders, particularly when retail customers usually prefer to pay on open terms. If you can manage your operational costs such that you are prepared to spend more that usual on production, you’re in great shape. If not, you may want to consider seeking out financing your purchase orders, receivables, or both. These services are generally inexpensive and will allow you to fulfill larger orders than you could otherwise afford.
Ship with care.
If you aren’t experienced in managing your own logistics, you may want to seek out a professional, particularly if your production takes place overseas. Any wholesaler who’s experienced subpar logistical management will tell you that a lot can go wrong when your goods are being transported. If you haven’t developed a solid relationship with your factory yet, it may also help to use a letter of credit in place of a deposit when you place orders with them. The letter of credit will protect you from losing your deposit and ensure that your goods arrive on time and as expected.
Be ambitious, but reasonable.
Provided that you prepare scrupulously, there is no reason not to be a bit ambitious in planning for your peak seasons, but be mindful of overextending yourself and your resources. Dreaming big and taking risks is part of the territory for an entrepreneur, but be sure that you do the math and make sure you don’t find yourself stuck without the means to complete your orders.
President Trump’s promised trade war has begun and it doesn’t look like there will be any winners.
Earlier this year, Trump imposed a series of new import tariffs on goods made outside the US, particularly those made in China. The move has been controversial, largely because each affected country’s respective economy relies heavily on exports. As many economists predicted, however, China, India, the EU and Russia have all fired back.
The president signed the so-called “Trump Tariffs” in March in an attempt to combat “unfair trade practices“ in China and other manufacturing hubs. The newly established tariffs targeted $34 billion in Chinese-produced goods, as well as numerous steel and aluminum goods manufactured abroad.
Shortly after news of the proclamations broke, the EU pledged to place new tariffs on American-made goods in retaliation. Soon after, China announced plans to impose a 25% tariff on US exports, including motor vehicles, soy beans and lobster, which also total at $34 billion in value. Russia followed suit last week and began introducing its own tariffs on US goods, including mining and road building equipment as well as oil/gas industry products. India joined in last week as well, notifying the World Trade Organization that it would raise tariffs on 30 US products including almonds, seafood and chocolate.
Experts continue to debate the precise effects that the trade war will have, but many agree that US traders will struggle to maintain financial stability and accessibility to everyday consumer goods. Although the US is economically stronger than any of the other involved countries, we lack the infrastructure and workforce to supplement the manufacturing resources on which we’ve become dependent in recent decades.
The trade war also drew controversy within the White House and among the Republican party. Several party leaders including House speaker Paul Ryan and former White House economic advisor Gary D. Cohn lobbied against the trade plan. Cohn even resigned shortly after the plan was set in motion, though it is unclear whether he left specifically due to the trade war.
As of now, it is still unclear what the lasting effects of this trade war will be, but sources warn that US consumers and exporters will suffer the most. It may seem counterintuitive, but a combination of the price increases on goods that we continue to import to meet demand and the devastating effect that retaliatory tariffs will likely have on US farmers and manufacturers will probably have a far more detrimental effect than most activity in the ongoing struggle.
Needless to say, it’s difficult to predict precise outcomes this early in the process, but given the buying and manufacturing powers at hand, the international trade industry may change dramatically.
As a product manufacturer you are always considering ways to grow your company and get your products in front of the people who are most interested in purchasing them. There are several ways of approaching the sales process, and through this post we explore several of the most important.
Likely the most formal and most traditional method of reaching potential buyers for your products is through trade shows. Events like Moda, Mobile World Congress, and the Advanced Manufacturing and Design Expo are excellent ways of getting your products in front of hundreds if not thousands of prospective clients.
Trade shows offer exposure to an audience that is more interested and relevant to buying your products than any audience or venue. There will be buyers from multiple organizations walking around looking for products just like yours, and they will be interested in speaking with you to either set up a meeting or learn more. It’s a strong way of breaking into an industry and reaching the right people at the right time.
The downsides to a tradeshow can be burdensome however, and especially taxing on smaller companies. One of the most common problems with tradeshows is the cost. To have a booth and present at a tradeshow, you need to come prepared. Typical costs include registration fees for the actual booth, materials needed to show off your products, transportation and accommodation required to attend the show, the cost of amenities within the venue including things like Wi-Fi, and lastly the setup and teardown costs mandated by the venue staff.
Where traditional methods of getting your products in front of retailers may be inefficient and difficult to scale, online platforms allow the introduction process to yield a greater benefit.
Services like RangeMe, Maker’s Row, and ThomasNet bring suppliers and retailers together in an entirely new way, creating an easier method of introducing value to both parties. With modernization and the age of the internet have come new efficiencies that coincide with the transactional process between buyers and sellers. The other important benefit that comes from using services like these is the capture of data and potential application of that information across various analytics channels. This kind of data is important because it allows for better decision making across every element of a business and informs relevant stakeholders on where to focus to drive the greatest amount of value.
Unfortunately, digital aggregators also present the threat of competition, leading to marginalization of product portfolios. As multiple aggregators materialize, similar products are spread across each of them, thus requiring buyers to spend more time searching for your product and often causes them to overlook your product entirely.
Often, the best approach to reaching retailers and potential customers is multi-pronged. It’s more effective to try a combination of both tangible and digital methods in pitching to potential customers and expanding into what works best for you and your products. Having a presence in both types of media is important to reduce the risk of being overlooked, however, it’s certainly tenable to throw more resources at one method over another once you learn what’s best for you.
Having a multi-channel presence is also important because it encourages your business to explore all open opportunities. There are constantly new channels, platforms, and events that might be relevant to your business and having an open mind in exploring them is essential. Your competitors will fight just as hard to get in front of retailers, so it’s important to never let your guard down or get too comfortable in the notion that what you’re doing is enough.
This piece is intended to provide an opinion on how a business can best use its resources to grow. At Express Trade Capital, we work with hundreds of small businesses and entrepreneurs every year, and we are happy to provide a closer look at your business and how we can assist in your growth. You can reach out to us here.