Product Sourcing Models For Online Retail Businesses

One of the things every retail company (online or off) has to deal with is the product itself. If you haven’t already decided the best inventory solution for your business, keep reading!

There are a number of methods to choose from and finding one that works can be a daunting task when you’re starting out (i.e. covering every aspect). Here, we’ll compare and contrast garage/estate sales, dropshipping, self-inventory, clearance/restocks, and self-manufacturing to help you along your process of finding the right one for you.

Garage/Estate Sales:
Yep, you read that right. If you want to sell locally found items or unique pieces, you couldn’t find a better source. You can often find great items at a steal and, considering the local source, you’ll save on shipping costs. The downside, however, is the limited availability of your product. This helps with exclusivity, but there’s no mass production aspect to meet potential demand and you may have to get creative to determine appropriate pricing (especially for older items/antiques). A good rule of thumb is to only source items you know will sell, and at what price point.

Dropshipping:
A dropshipper is a wholesaler who handles the inventory for you and ships it directly to your customer on your behalf – you never see or handle the merchandise. You can typically send them shipping labels with your logo, as well as advertisements, to accompany your orders. This is often a good method if you want to test the waters with a new product before you decide to stock it yourself, but also for large or expensive items that may be difficult to self-stock.

Dropshippers can be found in many places – trade shows, online and even in person. As a rule of thumb, it’s always a wise move to contact any company you feel would be good for your business, since many don’t advertise on their websites. For more information, read our article on the pros and cons of dropshipping.

Self-Inventory:
As the name implies, this is where you have your wholesale supplier(s) ship the items to you and you store them in your own warehouse. Having a warehouse of your own means additional overhead (rent/lease, payroll for workers, budget for equipment, etc) and the possibility of unsold stock cluttering your shelves, which is something to consider.

The advantages include knowing when your product ships out to your customer, improving shipping timeframe estimates. Handling the merchandise yourself also means you can more easily ‘gift set’ your items for celebratory events, discounts, etc. Additionally, with some suppliers, you have the option to go ‘light bulk’ and order in smaller amounts to reduce your storage space requirements. This lets you stock at a rate that’s comparable to your sales and give new products a ‘test run’.

Clearance/Restock:
From time to time, suppliers, as well as some retailers, will have an overstock of items and a need to reduce that stock at a discount. They typically do this when times are very good or very bad, in order to make room for new inventory or meet sales to keep their doors open. You’ll generally see these advertised as clearance sales, stock clearances or liquidation sales; however, if you may still have to look around for deals if this will be your primary sourcing method.

These sales offer an opportunity for retailers to replenish their stock at (often) reduced wholesale pricing, making it a deal worth taking advantage of. It’s also a good way to try out how well a product you’re new to sells. A downside is the possibility of limited stock, discontinued stock or inventory that previously hadn’t sold well. To prevent being stuck with ‘unsellable’ merchandise, make sure of what you are buying and don’t jump on an item simply because the price is great.

Self-Manufacturing:
This is the method of making your own items to sell and stocking them yourself. With this method, you’re in complete control of everything from the making to the shipping. Creating your own product means you know it intimately and can even carve a niche for yourself. While this is a boon to your marketing efforts, it should be considered that that bit of time you save in marketing (plus some extra) will go toward manufacturing the items you sell. Also, you will require the additional overhead to store your product. If you’re looking to go this route, it helps if you’re passionate about your product, as this can help you avoid possible burnout.

As you can see, there are many methods of product sourcing and each has their pros and cons. Arming yourself with information is the best way to go in deciding which method will work best for your business needs.