This is the second of a two-part series on ecommerce transitions. Read part one, “Ecommerce Essentials: How to Build a Direct-to-Customer Online Sales Channel.”
For a digitally native brand with a loyal following, looking to sell through third-parties — including brick-and-mortar retailers — might feel a bit... retro. But remember: In-store purchases still account for about 85% of all retail sales(opens in new tab). A full 97% of 1,200 consumers surveyed for a recent Brainyard Future of Retail report(opens in new tab) agree there is still a need to purchase items at physical stores. That’s leaving many online-only companies searching for a way to get their products into physical outlets.
It’s a worthwhile endeavor. Placing your product or service in retail chains and third-party ecommerce sites can unlock the next level of growth. Wholesale distribution remains a critical, if overlooked, channel, especially for brands that came of age online.
For those that have exclusively sold online to consumers and are trying to break into retail and B2B distribution, it’s not as complicated as you might think. In this article, we’ll walk through a timeline for getting your business in front of a larger audience.
If you’re trailing in your overall ecommerce efforts, click over to our companion piece, which covers starting an ecommerce site.
For six years, Pauline Wilson has manufactured pool toys in a small factory and sold them to consumers exclusively online. Pauline’s Pool Toys makes an array of pool paraphernalia, including floats that look like a variety of animals, pool volleyball nets and basketball hoops, hydro balls, diving rings, and more. The company is based in Destin, Fla., and employs about 60 people.
Like many digitally native brands, Pauline’s Pool Toys’ success is closely tied to social media. She has a large following on Facebook and Instagram and uses those platforms to watch for trends and promote products both organically and through paid ads.
While the ecommerce business is performing well, Pauline thinks growth will accelerate if the company can sell products through big-box stores, where a new group of shoppers will see them. The founder thinks Savers Warehouse and Pool & Patio would be ideal outlets for her products, but she’s unsure of how to set up a wholesale distribution channel. Caroline Harris, a VP at Pauline’s Pool Toys, thinks Pauline is onto something. Caroline takes the lead on the project because she dealt with big-box stores at a previous job.
We’ve broken down a comprehensive plan for Pauline’s Pool Toys into five buckets of milestones, with the idea that the company’s CFO could budget over five fiscal years to achieve a robust wholesale distribution presence. Some companies may move more quickly, or more slowly. Let’s get started.
Caroline knows from experience that landing on the radar of large retailers takes a lot of time and effort. It’s still an old-school industry built on relationships with buyers. Trade shows and industry events are a great place to make those contacts, so Caroline starts putting together a list of large retail shows and smaller pool and spa industry shows the company could attend.
With Pauline’s approval, Caroline secures booths where Pauline’s Pool Toys can showcase its products at six different trade shows in the first year. She knows buyers from Savers Warehouse — the larger of the two retailers — will be at five of the shows, and Pool & Patio will attend three.
In addition, two staffers help Caroline email and call the purchasing departments at these two large retailers. They have a few meaningful conversations with buyers at Pool & Patio but have no such luck with Savers Warehouse, a big-box retailer with nearly 2,000 stores across North America.
Near the end of Year 1, the company’s colorful pool floats finally catch the eye of a Savers Warehouse buyer at a major retail trade show. The buyer has a long conversation with Caroline at the booth and explains that Savers Warehouse is looking into opportunities to sell a greater selection of pool toys, since it has not fully capitalized on that market. However, like most buyers, the Savers Warehouse rep is looking for products to land on its website or store shelves in six months to a year. It’s September, and the retailer would not start selling the products until April. But the buyer drops off his business card and asks Caroline to follow up in two months.
By the beginning of Year 2, Pauline’s Pool Toys seems to be getting some traction with Savers Warehouse. Caroline’s contact from the tradeshow introduces her to his boss, the senior director of purchasing, and they have a few promising conversations.
Things are moving along with Pool & Patio as well. One of the buyers Caroline’s team spoke with visits Pauline’s Pool Toys’ booth at a trade show and explains that her boss, the VP of purchasing, saw some of the business’ products and thinks the store should try selling them next summer. The partnership progresses a bit faster with Pool & Patio because it’s a smaller retailer than Savers Warehouse.
Pauline’s Pool Toys starts looking for an EDI system(opens in new tab) because both Savers Warehouse and Pool & Patio require any third parties they work with to have electronic data exchange technology. EDI will move product information like price, product number and more from Pauline’s systems to the big-box retailer’s systems in a standardized format that doesn’t require manual intervention.
Additionally, Caroline promotes one of the employees who has helped with this project to manage retail distribution full-time. Jack Naughton will maintain relationships with Savers Warehouse and Pool & Patio and ensure Pauline’s Pool Toys is in line with their dynamic requirements for third-party sellers, EDI and otherwise.
By the end of Year 2 two, all the operational pieces are in place for Pauline’s to sell through these two big-box stores.
Since Pauline’s Pool Toys is a small vendor that’s never worked with big retailers before, both Savers Warehouse and Pool & Patio want to start by offering its products online only. Pauline’s Pool Toys will then be responsible for drop-shipping orders. This is a common arrangement with large retailers, which typically want to see how a product performs with minimal risk to themselves.
But before its pool toys and floats can even appear on their websites, Pauline’s Pool Toys must set up that EDI data feed so Savers Warehouse and Pool & Patio can get all the product information, specs and images they need. Pauline’s must also agree to ship all orders within 24 hours of receipt to meet the delivery window promised to customers.
After three months selling on the third-party ecommerce sites, Pauline’s Pool Toys products start to gain traction. Its hydro footballs and shark and alligator floats sell especially well. Sales on Savers Warehouse’s site double between the three- and six-month mark, and Pauline sees about a 30% jump over that stretch with Pool & Patio. By the end of this year, revenue from the two retailers’ sites make up 50% of what Pauline’s Pool Toys transacts through its own site. The margins are not as high, since the retailers take a cut of every sale, but it’s a promising start for this new arm of the business.
With order volume rising and its current production facility at capacity, Pauline’s Pool Toys starts looking for help. Caroline and Jack find two Chinese manufacturers who will help the company scale up production to support this expanding channel.
Now that the products are proven sellers, both retailers want to start stocking Pauline’s Pool Toys items in their own warehouses to keep up with increasing demand. Savers Warehouse wants to keep 15 different SKUs on-hand, while Pool & Patio identifies 10 products it wants to stock at its warehouses. Both companies put in large purchase orders with Pauline’s Pool Toys, requesting several thousand items each.
One key challenge for Caroline and her team at this stage: The company must now pay close attention to compliance standards for Savers Warehouse and Pool & Patio. Requirements include specific delivery windows, quality metrics and other rules that can lead to sizable chargebacks if they are not met. For example, if Pauline’s Pool Toys has only 300 alligator pool floats available, but Savers Warehouse ordered 600 of them, the company will have to pay a fee. Caroline and Jack work together to educate other employees on the importance of staying aligned with retailers’ expectations.
This next step in the partnership also comes with a meaningful milestone: Both Savers Warehouse and Pool & Patio will start selling a handful of Pauline’s Pool Toys goods in their stores. The plan is to start with a select group of stores in Florida, Georgia and South Carolina, then expand into more locations if the products sell well in those coastal states.
In Year 5, orders from Savers Warehouse and Pool & Patio keep climbing. The retailers are selling a wider selection of the company’s floats and introducing Pauline’s Pool Toys products to more stores. Inspired by that success, Pauline wants to partner with additional big-box brands. Caroline supports that idea and figures it will be easier to break through now that it has a team member dedicated to the channel and the right systems and processes in place.
Caroline’s contact at Savers Warehouse introduces her to fellow buyers at Budget Shoppers Club and Outdoor Central, two other chains that sell pool floats and accessories. After presenting to these companies and noting their fast success with Savers Warehouse and Pool & Patio, Pauline’s is drop-shipping on behalf of Budget Shoppers Club and Outdoor Central about six months later.
In addition, Jack reaches out to Pool Supplies Superstore and SwimOutlet, two of the leading online-only retailers in this category. Within a few months, both ecommerce shops are selling the company’s floats, diving rings and pool basketball hoops.
The year ends with exciting news: Savers Warehouse wants Pauline’s Pool Toys to produce three products exclusively for the big-box chain. The exclusive items — a standard lounge float, aqua footballs and children’s floaties — will be sold under a private-label brand. That contract gives Pauline the funds she needs to continue ramping up manufacturing and hire a person to exclusively manage the Savers Warehouse relationship.
Five years into this project, distribution accounts for almost half of the total revenue for Pauline’s Pool Toys. The brand exposure provided by its products being in heavily trafficked retail stores and websites has increased direct-to-consumer sales, as well. The company works with retailers to ensure prices are identical in stores and on its ecommerce site. This prevents competition between the two channels, especially important since Pauline’s Pool Toys still has better margins on sales from its own site.
Building a new sales channel from the ground up requires a commitment of time, energy, money and support from across the organization. For a pure-play online retailer looking to sell through big-box stores, there can also be a cultural adjustment. As customer expectations continue to change(opens in new tab) in both the B2B and B2C world, however, selling through multiple channels is increasingly a requirement rather than an option.
Beyond that, companies must find creative ways to link those channels. Going forward, Pauline’s team might, for example, explore with its partners an option to “buy online, pick up in-store,”(opens in new tab) or to allow customers to place an online order in-store for a product that’s not currently available. They might even come up with a way to sell personalized pool floats. Allowing customers to purchase items through multiple channels is a big step in the right direction, but only the first step in a business reinventing itself to stay relevant in the years to come.
While opening a new channel is difficult, it should not be completely overwhelming. Companies can start by dipping their toes into online commerce — as Wally’s Wood Distributors, which we profile in our companion story, did — or in big-box retail, like Pauline’s Pool Toys, rather than diving in headfirst. Let the results of first steps determine the future investment in and resources dedicated to that channel.
The only unacceptable reaction to this changing landscape is inaction. Start looking for ways to diversify revenue channels now, before it’s too late.