I am starting an online store. What inventory model should I use?
This can be a tough decision when starting an online store and one of the most crucial.
Do you go with dropshipping?
What about consignment?
How do you know what will work for you?
We decided to reach out to one of our favorite retailers to ask how she came to find the retail model that works for her…
Hi, I’m Rosa Ng, founder of the online and seasonal pop-up store Young & Able.
I am a knitwear designer by trade and I love everything entrepreneurial! Back in late 2013, I was itching to start something of my own and debated launching my own knitwear brand.
However, I decided that rather invest in my own private label, I wanted to find a way to invest in the local community through a retail concept that would highlight emerging talent.
Young & Able is a curated platform that promotes emerging designers and helps share their stories by way of interviews, photoshoots, videos and maker’s workshops.
The mission of the brands inspired the name of the store.
Coming from a design background, I knew there were a lot of things I had to teach myself and test out. I’ve taken the past 1.5 years to try out a few different retail models including wholesale, dropshipping and consignment.
Here is what I have learned.
Wholesale: not right for this stage of the business
What is wholesale?
Wholesale is when retailers purchase products in bulk and hold the inventory. Therefore retailers are in charge of shipping items to customers.
As a younger store, I knew I could not afford the wholesale model. I did not want to purchase in bulk from brands before I knew my audience and could predict their buying habits.
Buying wholesale would have left me with a lot of inventory and less cash.
This just did not appeal to me as I started an online store. I still do not feel that I am in the position to purchase in bulk.
Dropshipping: tried and failed
What is dropshipping?
Dropshipping is when retailers do not hold inventory but rather sell products through images online and have the brands fulfill the orders by sending products directly to the customer.
Let me share a story to illustrate why the dropship model did not work for me.
When I first started out, I had an international customer purchase a large order from a brand that I had agreed to dropship with.
As any retailer knows, this is an exciting moment and can make or break a relationship with a customer so the pressure was on to deliver everything on time!
Unfortunately, the brand had failed to communicate that she was low on inventory and could not fulfill the order as promised.
I was furious!
Now I had to tell the customer that she would have to wait an extra 2 weeks to allow the brand to finish production.
Luckily, the customer was understanding.
But that is not always the case. I wasn’t willing to take that risk with any further orders so that was enough for me to end the relationship with that brand. It was a really tough decision because the brand embodied everything Young & Able was trying to promote.
Unfortunately, one bad experience with a brand tainted the way I felt about dropshipping so I have not tried it since.
I think dropship doesn’t work well until you have developed a relationship with the brand and trust they will follow through with orders.
How can you know who to trust?
Sometimes I look at how long it takes them to respond to an email. Something that simple can give you a sense of what they will be like to work with.
Consignment: ding ding ding!
What is consignment?
Consignment is when brands loan products to retailers, and the retailer pays the brand only when an item is bought by an end customer.
The reason this model has worked well for me is that it allows me (and the brands) to test out which products appeal most to our customers without the financial risk of wholesale.
In other words, the brands can send me a selection of items that I will then post to the site and we can see which items get the most sales.
For those with the most sales, I will consider moving into a wholesale model where I would purchase upfront at wholesale prices.
The difference between consignment and dropshipping is that I am holding the inventory (though only a few of each product) so that I can control the supply.
This way I don’t risk not being able to fulfill an order. Plus, I don’t have to pay upfront like I would for a wholesale relationship.
This allows me to put money into different areas of the business to help it grow.
So for me, consignment has worked well thus far.
If you’re unsure of which retail model to use, I suggest you test each one out.
Each retailer is different, so it really depends on how you plan to run your business and what type of customers you have.
-Rosa Ng, Founder of Young & Able