Fashion Wholesale Terms Explained.
I have been working in global fashion wholesale now for over 8+ years, therefore I know what a good and bad wholesale deal looks like.
Like any negotiation, it is essential that you know and understand what each factor is within the negotiation, as this will help you to build your case and set boundaries for you to work within during that discussion.
Read on to learn what wholesale terms you should be looking out for, along with what a good and bad wholesale deal looks like in 2021 …
Wholesale terms breakdown.
To agree on a good commercial deal in fashion wholesale, you first need to know what all the factors are and their significance to your negotiation.
- Mark-up (MU) / discount. Platforms may choose to calculate the price they make in different ways, so it’s important that you know the meaning of both.
- A mark-up is looking at the price difference between the amount they will make; the wholesale price and the recommended retail price (RRP)
- A wholesale discount is taken off the recommended retail price (RRP)
- Currency. Be aware of the currency your commercial deal is being made in, as this will no doubt be different to your home currency and therefore risks any exchange rate fluctuations.
- Payment terms. In wholesale, this means the number of days after you have delivered the goods to their warehouse (landed), or handed the goods over in the country of origin (FOB) until you will get paid
- ‘Other fees’. Really be aware of any other fees and discounts they may charge you and what metric it is taken off. ie one-off costs or a flat additional discount is taken off any stock they order.
- Return to vendor (RTV). This is very rarely agreed upon for a wholesale deal, but something you need to look out for. You ideal want to agree on a sale and no return wholesale deal, meaning once you hand over the goods that you are no longer responsible for the sale of them.
- Delivery terms. There are normally 2 options available to you; either landed (most common) or FOB.
- Landed means you have to deliver all orders directly to their warehouse.
- FOB means you hand over the goods in a designated country, normally in Asia.
- Asset sharing. You may be asked to send a production sample for every style they place as well as longline descriptions and imagery. All these are extra costs and work, that you need to be aware of in your commercial deal.
What a good deal look like.
Now you have an understanding of what each wholesale term means, you now need to know what a good and bad wholesale deal looks like to empower you when negotiation yours.
A major thing to note is that this is a guide, this is not a strict rule book!
For example, for most agreeing to FOB is better than landed because most brands manufacture in Asia, therefore to ship to and Australia or the USA wholesale platform, would be expensive from there. However, if you produce your goods in the same country of origin as the wholesale platform, then landed would be ok for you.
Let’s now look at what a good wholesale deal looks like as of 2021:
- MU 2.7 – 2.9 or discount off RRP 63% – 65%.
- Currency – your own home market currency.
- Payment terms – 60 days.
- ‘Other fees’ – non or max 1%. Ideally negotiable.
- Return to vendor (RTV) – ideally, this wouldn’t be a part of your wholesale terms, therefore sale no return deal.
- Delivery terms – FOB.
- Asset sharing – only assets that you have to hand that require minimal if no re-work.
"You ideal want to agree on a sale and no return wholesale deal, meaning once you hand over the goods that you are no longer responsible for the sale of them."
What a bad deal looks like.
To be profitable in wholesale, it really does come down to having a solid pricing strategy that is both profitable and competitive.
A part of know this answer, is by working out your wholesale margin, therefore knowing what the highest MU or discount you can afford to agree, that will still enable you to hit your wholesale margin.
Let’s now look at a bad wholesale deal:
- MU 3.3 – 3.6 or discount off RRP 69% – 72%.
- Currency – anything but your own! USD would be the most acceptable if this is the same currency you pay your manufacturing costs in.
- Payment terms – 120 days.
- ‘Other fees’ – 8%+
- Return to vendor (RTV) – Agreed at the end of the season based on your sell-thru and markdown costs.
- Delivery terms – landed to multiple warehouses.
- Asset sharing – yes and re-worked to suit their format ie grey backgrounds for all imagery etc
What are the major variables to look out for?
Ahead of negotiating, you need to be aware of your capabilities, vs your costs and vs your reward (profit), before starting any conversation.
Because you need to know your boundaries, ie if they offer you a 70% off RPP discount for a landed deal, plus an extra 2% fees, does that fit into your pre-calculated profit margin? or is the total max you can accept 70%, not 72%.
When negotiating with a fashion wholesale platform, here are the major variables to look out for and therefore play with, within your deal:
- Payment terms. The standard terms now are 90-120 days once the shipment has been received in their warehouse, so push for 60 days at best but be ready to accept 90 days.
- More platforms are wanting to negotiate an RTV and/or a mark-down contribution at the end of the season, but what you should push for is a wholesale deal that is sale and no return.
- FOB discount, should never exceed 75%.
- Landed discount, should never exceed 70%.
- If you agree landed discount, ensure you are aware of the costs and the legalities of landing stock in a foreign country first and way up the return on this method as in some countries like the US it can be costly.
- Always make sure you know the additional costs and fees first, before agreeing to a discount off RRP. Why? Because some platforms like Zalando add 1-4% extra discounts just for working with them!
Looking to learn more about fashion wholesale?
I’d love to help! I have been working with ASOS, NEXT, Nordstrom, Zalando, About You, The Iconic + more for over 8 years now and know not only what it takes to work with these platforms, but how to succeed and make this a fruitful revenue stream.
Here’s how I can help you:
- We have a 4-week DIY wholesale workshop launching very soon (June 2021). If this interests you and you want to learn more please express your interest here.
- If you’re looking for a less hands-on approach, therefore looking for wholesale connections and sales, then you should check out our seasonal service here.
We love pitching and selling fashion brands to global accounts! So enquire now and see if we can help you 😁