Fashion wholesale or marketplace? The pros and cons disclosed.
Deciding which operating model is right for your fashion brand is a decision you shouldn’t overlook or rush, as it affects all future actions within your business.
For example, if you rush into a marketplace deal it’s hard to go back to re-negotiate a fashion wholesale deal, as marketplace deals are generally more favourable to platforms therefore why would they?
Choosing which operating model; fashion wholesale or marketplace, is right for your brand, is as important as choosing which market and which platform.
You need to walk through a similar validating process. So let me help by highlighting to you the pros and cons of both models.
Choosing to launch your product onto 3rd party platforms falls down to 2 decisions:
- Sales growth
- Marketing and brand exposure
Therefore it is important to understand the pros and cons of both fashion wholesale and marketplace from a sales and profitability perspective first.
Fashion Wholesale Pros
- Most deals are sale and no return, meaning the stock you sell and deliver to a wholesale platform is paid for in full.
- You can control the selling price, meaning the price you sell your product to the platform. Therefore you can choose to inflate the prices to cover your operational costs.
- Gaining wholesale orders, in addition to your own .com order, gives you buying power with the factory to negotiate a lower cost price.
- Generally, there are zero marketing costs for you, as it’s in the interest of the platform to sell the stock that they have bought.
- You can work a lot closer to the fashion wholesale buying team and grow your sales together, using a win-win strategy.
Fashion Wholesale Cons
- Payment terms vary from 60-120 days from the point of delivery of the goods. The most common terms being 90-120 days. This means that you need to fund the factory order long before you’re paid for the sales order.
- You can’t control the recommended retail price (RRP) – the price they charge their customer, therefore there is a slight risk that a customer could see it cheaper on their site vs your if we look at the worst-case scenario.
- Depending on which market and platform you sell to, some platforms ask for a rebate at the end of the season, if your brand did not match its KPI’s that being high mark-down costs or high stock on hand (SOH). This mainly occurs in the US.
Marketplace Pros
- Payment terms vary between 7 – 30 days, meaning you are paid fairly quickly for the stock you sell.
- You control the pricing on the 3rd party platform. For example, if you’re running a BOGOF promo on your website you can do the exact on the marketplace platform. Pricing transparency does equal customer satisfaction, but this only really applies to those savvy shoppers which again normally only applies to those big-ticket items.
- Flexibility within your omnichannel strategy. For example; if you list a style on both your own DTC channel, along with 2 other marketplace platforms and one platform sells really well, you have the control to move your stock to ensure that channel doesn’t run out. Flexibility is essential in today’s market to never miss that sale.
Marketplace Cons
- Compliance within manufacturing and logistics.
- Logistics: how to deliver product in a wholesale way.
- Pricing model by country. Hedging ex.rates, competitor analysis.
- Creative – on-boarding a dedicated design team for wholesale.
- Buying; process change, introducing wholesale into the ways of working.
"You can control the selling price, meaning the price you sell your product to the platform. Therefore you can choose to inflate the prices to cover your operational costs."
Unzipped
If profitability isn’t the driving factor in you considering launching your fashion brand via fashion wholesale or marketplace model, then let me cover further pros and cons of both operating models.
Fashion Wholesale Pros
- You’re creating an omnichannel strategy, giving your customers the choice to shop your brand on their preferred channel.
- It doesn’t cost anything to set it up. There are no integration costs etc, the only cost is if you choose to invest in a wholesale consultant, as well as standard costs like a lookbook, sampling etc
- Speed to the consumer. If you’re a new brand or a brand located at the opposite end of the world, you will not be able to beat the speed of delivery to their customer vs the wholesale platform’s ability. So benefit from this using wholesale terms.
- You can try to ensure a minimum order quantity (MOQ) & cost price is met for every style you sell.
- Wholesale gives you the opportunity to try new ideas. For example, you could create an exclusive ‘European’ collection or you could collaborate with the buyers and create market-specific items.
- Once you gain one account it is easier to gain others.
- You will work directly with market experts, therefore their insight into that market will be invaluable for your brand’s growth.
Fashion Wholesale Cons
- You lose full control of your brand identity, as you are in part conforming to the platform’s page layout, tone of voice and assortment of your total collection.
- To work with the larger accounts you need to be an established brand. For example 100K IG followers.
- Really to succeed in wholesale and make money, you need to be selling high quantities. Therefore do you have the ambition to offer a lot of SKUs every season and invest in development?
- Depending on your geographic location, it is hard to trade and react to good sellers and most fashion wholesale platforms require a repeat best selling back in stock within 2 weeks.
- Some see wholesale as your competing against yourself in your own market, so why would you do that.
- Business operations in a new country can be tricky, for example: being registered for VAT in Europe or gaining an EORI number etc
- Operational fees can be charged for different issues, for example, late stock, broken cartons, wrong labels etc.
Marketplace Pros
- With most marketplace platforms you can choose to integrate your platform backend with theirs, meaning that there is 1 transparent stock pool across platforms.
- You choose the assortment therefore a platform can simply mirror your website, meaning zero product development costs.
Marketplace Cons
- Asset resources meaning with the marketplace you have to provide a longline description (LLD), imagery that meets each different marketplace platform’s requirements, which takes time and money to alter.
- Lack of human feedback as you’re not dealing with buyers consistently.
- Lost stock if the platform processes return or house your stock at all.
- Even though with a marketplace you keep most of the control, you can still be expected to ship in that platform’s way for example using their branded poly bags etc.
And if you’re still weighing up if fashion wholesale or marketplace is even right for you all then I definitely need to let you know these facts! …
By using either model you get:
- Free marketing to a whole new audience, as an ASOS customer is an ASOS customer as is an Iconic customer etc. Whether or not you’re launching in a new market or your existing market, using wholesale is a means to promote/market, your brand.
- Learn about a new market and its customers before investing in your own infrastructure.
- Freedom to control who you sell to. In most cases brands seek partnerships, therefore you will only choose to work with who you feel comfortable with and who matches your brand values.
To summarise.
As a start-up brand or even a brand that’s been operating for 5 years, you’re never going to be able to reach global audiences by yourself.
Choosing to use fashion wholesale or marketplace on major platforms like Zalando, ASOS, NEXT, Nordstrom, Iconic etc can give you that exposure and the benefits are huge!
I encourage brands to see a 3rd party approach, that being fashion wholesale or marketplace as a huge opportunity. However, that being said it requires as much work and effort as your main business (DTC) if not more in the beginning, so only choose this route if you’re ready to take your brand to the next level!
