After having spent 20 years in the retail business, Marc Joseph figured in the mid-1990s that the Internet offered broad new opportunities. But even though he had devoted much of his career as a merchandise expert for Federated Department Stores Inc.’s Burdines chain, he wasn’t thinking retail. His sights were on the web and its ripe potential for changing the wholesale consumer products business. Online wholesaling has become the next wave to hit the Internet, he says.
In 1998, Joseph founded DollarDays as a wholesaler of general merchandise to independent retailers. After years of slow growth, it surged in the past year as more merchants have raised their comfort level in sourcing products online and have come to know DollarDays through searching the Internet for merchandise.
A few years ago, retailers were tentative about going online to buy wholesale products, says Joseph, President and COO. They preferred the traditional way of walking around trade shows to see a few hundred vendors, talk to people, look at samples and then decide who to buy from.
No more traveling
But a growing number of retailers, after becoming more familiar with using the Internet for personal shopping and conducting research, are becoming more accustomed to shopping online to stock their businesses. And some have begun to lean on the web as their lifeline.
“Without going online to my suppliers, I would be out of business,” says Trina Ortiz, owner of three Ortiz Dollar Store & More outlets in the Pueblo, Colorado, area.
At the same time, adds Joseph, who also spent several years as a traditional wholesaler to grocery and drugstores, manufacturers have cut back on their policies of sending salespeople to stores to display products and process orders.
With online retailing continuing its steady annual growth, subsequent growth in online wholesaling is a natural progression, experts say. When all of the Internet play in 2000 was on retail, wholesale was under the radar, Joseph says. It’s been a basic business matter of converting the mindset of store owners to realize that buying over the Internet is not only convenient and safe, but that it also gives them a chance to find the latest products at competitive prices.
The growth of online wholesaling is expected to continue rising steadily, according to a study released earlier this year, “Facing the Forces of Change,” commissioned by the Distribution Research and Education Foundation of the National Association of Wholesalers. The percent of wholesalers’ revenues gained through websites will rise from to 13% in 2008 from 3% in 2003, says the study, which was conducted by Philadelphia-based Pembroke Consulting.
Over the same period, the study notes, e-mail orders will grow to 5% of orders from 2%; online orders through third-party websites will stay at 1%, and EDI orders will grow to 18% of all orders from 12%. Overall, online ordering will expand to 37% of orders from 18%, the study says.
Not just technology
Reaching that growth in retailer-wholesaler online commerce will require a continued evolution of the web as a channel for sourcing retail inventories among independent merchants. And as large mass-market and specialized big-box retailers deal more directly with manufacturers, cutting into traditional wholesaler-distributor markets, a new breed of online wholesalers is emerging to serve the small, independent merchants that often find themselves competing with the largest retailers.
But making online wholesale activity more common can require coaching by wholesalers, as well as a better understanding of the benefits of online buying by merchants themselves. Online wholesalers are also finding the web doesn’t negate the basic skills of merchandising and customer service.
The benefits to small, independent merchants are not difficult to comprehend. Through the ease of using web browsers rather than having to hit the trade show circuit or meeting with dozens of sales reps, retailers gain wider selection of suppliers, as well as products in a more expedient manner. They can also realize more organized management of orders and shipments while viewing webpages that show near-real-time updates of inventory availability.
Joseph figures that, in the long run, the most sophisticated small retailers will also integrate data from online orders with back-end inventory management and accounting software applications, saving them time on updating their inventory management and accounting software as they purchase supplies. Wholesaling products is the next logical step in the evolution of the Internet, Joseph says.
But for now, retailers involved with online wholesaling say they’re more focused on the near-term benefits that the channel offers them over more traditional wholesaling. Most wholesalers put out a catalog once a year, and that catalog has the merchandise that, at the time of publication, is usually in stock, says Ortiz, the dollar store owner, adding that keeping her stores stocked with fresh products is key to her success. But a couple of months later, the percent[age] of merchandise that is in the catalog and not in stock is very high. The only way to find new items is online, which is usually updated as often as daily.
Tom Williams, a principal and manager of the family-owned Big Gib Store in rural Republic, Washington, says he routinely receives visits from a locally based wholesaler of general merchandise for his store’s section on goods typically found in dollar stores. But that wholesaler, who is also a friend of the family, rarely gets any of Big Gib’s business, Williams says. “His pricing is pretty much the same as online wholesalers’ [pricing], but it takes him three to four weeks to deliver goods. [W]hen we order online, we get deliveries in seven to 10 days or sooner.”
The 4 Quarters Dollar Store in Belle Fourche, South Dakota, has done all of its product ordering online since opening for business last summer, says owner Robin Olson. Although Olson will occasionally view product offers from traveling salesmen, so far their product catalogs have been too scant and their prices too high in comparison to online offerings. “They haven’t been able to give me prices as good as available online, and their catalogs are not that big and don’t offer a lot of variety,” she says.
Taking care of customers
Olson adds that ordering from DollarDays, which she often does late at night, saves her time during the day to tend to customers and other store-keeping chores. It also provides for ease of managing her orders through self-service administrative features that let her print out an order record after making a purchase, then tracking the shipment online and checking its details against the order record—all without having to place calls to wholesalers. “I don’t have to use business hours to do business with suppliers,” she says.
Olson will occasionally travel to a consumer products trade show to see vendors and products personally, but she says the quality of product images and descriptions available online makes frequent trade show visits unnecessary. “We get a pretty good idea how good a product is by viewing it online,” she says. “There have been a few times I’ve been disappointed because a product wasn’t the quality I expected, but that’s been a small percentage. Most of the stuff, I’m happy with it.”
As happy as Ortiz and other retailers are with their online buying experiences, the biggest challenge to online wholesalers is to broaden their market among the large majority of retailers who continue to source products through more traditional wholesaling, Joseph says. “The downside of the online wholesale business is having to convince the rest of the business world how easy the Internet is to use. Our biggest competition is the more traditional wholesalers, [and] our biggest challenge is how to get more offline buyers online.”
Yet Joseph says he does no offline advertising but focuses mostly on building word of mouth through strong customer service and merchandising. “It comes down to the basics of retailing, having the right product at the right price at the right time,” he says. “Our home page changes every day with new product offers. We have to be sharp with merchandising and make sure we’re priced right.”
Online wholesalers must also rely on human interaction in customer service as well as special support programs to attract and keep customers, he adds. “You can’t be a customer service slouch and wholesale on the Internet,” Joseph says.
Indeed, online wholesalers are resorting to old-fashioned personalized service to stay in the mind of customers. Olson of 4 Quarters Dollar Store says online wholesalers will frequently call just to touch base. “A lot of times they call me to ask how things are going and if I got the last shipment okay and if I’m happy with everything,” she says. “They also call to tell me when they plan to have special promotions or tell me to wait a few days to order to get a better deal. It makes me feel better about doing business with them and makes it more likely I’ll keep going back to them.”
Williams of Big Gib Store says he’s had similar personal contact. He adds that he feels that online wholesalers are more likely to treat small retailers with the same respect as larger retailers, regardless of the size of their orders. In one case, after he had sourced about 300 sweaters from DollarDays, the online wholesaler called to alert him that the sweaters were used merchandise that had been shipped by mistake. “They took the sweaters back and credited us for the entire amount, even including the dozen that we had sold,” Williams says.
Others competing in the online wholesale consumer products market, including Overstock Inc.’s OverstockB2B.com and eBay’s “Wholesale Lots” section, are offering incentive programs geared to attract more small, independent retailers into sourcing products on the web.
eBay is planning to offer, this year, an inventory financing program for wholesale sellers, and it also plans to provide improved site navigation from eBay’s home page into its “Wholesale Lots” consumer products section. “We want to make it easier for buyers and sellers to find each other,” says Jordan Glazier, General Manager of eBay Business. “‘Wholesale Lots’ accounts for a sizable proportion of eBay’s business-to-business sales, which also include sales of office supplies and industrial equipment, and which totaled $2 billion last year,” he says.
Search marketing here, too
Overstock plans to introduce, this year, special services to small merchants, including a commercial credit card program and health insurance programs in association with Advanta, though Overstock has yet to set a date for launching those services, a spokesman says.
Wholesalers also need to develop effective Internet search marketing strategies, including testing the most effective keyword combinations and linking to frequently visited sites. Joseph notes that DollarDays has grown its number of customers ten times since 2000 and that most find his site through web searches for keywords of products preceded by the term “wholesale,” as well as through listings on aggregator sites like WholesaleCentral.com.
Other wholesalers also say the web has caused a noticeable jump in customers. “[Fifty percent] of the business we attract online are people we never sold to before,” says Jeff Rosen, marketing director of PriceMaster Corp., a wholesaler to thousands of convenience stores and other small, independent retailers. While PriceMaster has provided more than 2,000 products for large convenience store chains, it’s now moving those same products—non-food items like photographic film, aspirin and Chapstick—to new kinds of retailers through PriceMaster.com, which gets much of its traffic through a connection with WholesaleCentral.com. “It was a nice surprise to us that we could attract mom-and-pop non-c-stores,” Rosen says.
Scott Sumner, President and CEO of Sumner Communications, which owns WholesaleCentral.com, says the site nearly doubled its number of wholesale-retail buying sessions in March to 781,388 from 404,500 a year ago. The site hosts more than 1,400 wholesalers, who pay $199 every six months to conduct trading sessions. That fee includes 100 keywords for use with WholesaleCentral’s site search engine. It also sells advertising spots throughout its site with fees ranging up to $1,500 per month.
DollarDays, privately held with venture capital from Boston-based C.P. Baker & Co., doesn’t release revenue figures. But the wholesaler, which currently attracts more than 750 new customers daily [to its website], up from about 500 six months ago, […] set a record for sales in a single month when April sales increased 199% year-over-year, Joseph says. April also set a record for number of orders, rising 205% over April 2003, he adds. The wholesaler has been profitable for the past year, Joseph says.
DollarDays serves more than 187,000 U.S. merchants, including single mom-and-pop gift shops and small regional chains of general merchandise stores, Joseph says. About 10% of his registered merchants drop out every year, but at the current net rate of growth he expects to have close to 400,000 merchants by the end of this year. The online wholesaler offers about 30,000 consumer products, including toys, household décor, apparel, electronics and seasonal items.
When Joseph launched DollarDays in 1998, he sold to retailers partly online and partly through more traditional means of appearing at trade shows and making sales calls. He went completely online in 2001, about the same time he secured venture capital from C.P. Baker.
Joseph staffed his customer service department with 20 reps with experience as retailers—many of whom had operated their own businesses. The retail-veteran reps have proven key to the wholesaler’s growth, because they play a role in helping more merchants to make the shift from offline to online buying, Joseph says.
A new customer who is unsure of the online buying process will talk on the phone with a rep while each views the same web pages on DollarDays.com and conduct a test run of filling a shopping cart. DollarDays encourages the new merchant to study the order overnight, then review it the following day with the rep to discuss how it could be modified to hit targeted costs and merchandise assortments.
Successfully luring retailers online can require flexibility to let merchants place orders and communicate with wholesalers as they choose, experts say. PriceMaster, for example, plans to redesign its site as a more useful tool for attracting clients. “Jobbers can order online in half the time it takes to order over the phone,” Rosen says.
It new website will provide clients with more tools and data for managing orders and inventories. It will show what they ordered in the past, provide real-time availability of products and reminders on what they need to order, and show price histories to support analysis of prices and profit margins.
But PriceMaster will not force clients to order online. “A lot of our customers are old-school, not used to using the web, and some don’t even have web access,” Rosen says. “But even the more technologically sophisticated customers still need human interaction,” he adds, “including jobbers who need help in explaining new products to retailers.”
PriceMaster has also kept the automation of online orders to a minimum. Rosen will print out batches of online orders and hand them to sales reps, who then key in the information to order management software while calling the customers to confirm the order information, answer any questions, and, at times, suggest additional sales. “We have the capability to automatically integrate online orders with other software, but we don’t want to lose the human touch,” Rosen says.
Getting to jobbers and retailers
The web is making wholesalers more nimble. Take PriceMaster—[i]ts core clientele is jobbers who sell to retailers. And, in fact, the web has made PriceMaster more attractive to jobbers, says Jeff Rosen, Marketing Director. They come for the same reasons that retailers do: the convenience, the selection and the prices.
But the web is also allowing PriceMaster to sell directly to more retailers because there are many areas of the [United States], mostly outside of major metropolitan areas, where jobbers don’t operate and where there are growing numbers of retailers who, like jobbers, are finding PriceMaster on WholesaleCentral.com and […] Wholesale411.com. The result is a net increase in sales to jobbers, as well as directly to stores, Rosen says.
“We’ve seen a tremendous increase in customer activity in the past year, and we expect even more,” Rosen says.
PriceMaster, however, trains its customer service reps to encourage new retailer clients to use jobbers, if available. PriceMaster would rather deal with jobbers because they present the opportunity to sell larger volumes of products in fewer transactions. An average jobber order is $3,000-$5,000, but the average store order is $500-$750, Rosen says.
“But as long as there are retailers without jobbers, the web offers the ideal way to sell to them,” he adds. “If jobbers aren’t selling to stores in an area, we still want those retailers’ business.”
What retailers expect from online wholesalers
The web is going to change the retailer-wholesaler relationship—and fast, says “Facing the Forces of Change,” a study commissioned by the Distribution Research and Education Foundation of the National Association of Wholesalers.
For instance, by 2008, 83% of wholesaler-distributors expect their retailer customers to require some form of electronic ordering, up from only 24% today. The study defines electronic connections as ordering from a wholesaler’s website, through e-mail or through EDI, including web-based EDI.
The web will also continue to change the way in which retailers find and evaluate sources of products, the study says. It found that 53% of wholesaler-distributors believe that the Internet will become the most common channel for retailers to source products by 2008, and that 48% of wholesaler-distributors believe that the Internet will become the most common tool for retailers to evaluate multiple sources of products.
Merchants will also expect information about products and orders to be available on wholesalers’ websites, as the web encourages a broader use of self-service tools. The National Association of Wholesalers study notes that by 2008:
- 33% of retailers will expect to have the ability to gather product information from their wholesalers’ websites, up from 8% in 2003
- 34% will expect to access pricing information online, up from 6%
- 36% will expect to communicate with their wholesalers’ sales staff via e-mail, up from 14%
- 27% will expect to review purchase history online, up from 2%.
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