Want to Be a Direct Importer
Direct importing of merchandise may be a way for you to increase margins and improve your bottom line.
Both financial institutions and overseas vendors are becoming more accustomed to working with importers and exporters. This, along with advanced technology, often can simplify the importing process.
Following are key elements to help you decide if direct importing is right for your catalog company.
Sourcing vs. Importing
If you currently buy imported goods from domestic suppliers, distributors or resellers, you may be offering products at good value to customers, but you won’t enjoy the higher margins that come from importing products directly. But before you get excited about the prospect of making more profits, understand there are associated costs with sourcing products directly.
For example, you’ll work with trading companies, agents or vendors to find and develop products before shipping them into the United States. There are hidden costs to importing that you need to understand. You or your buyers may have to make overseas buying trips. And the list goes on.
For small- and medium-sized organizations that may not yet be comfortable with those related costs or don’t have buyers with overseas purchasing experience, working with U.S.-based trading companies and suppliers may be the best answer. This gives you the chance to directly import products and gain some margin increases, while also having resources available for sourcing and developing products.
Takeaway tip: Aggregate as much of your business as possible with one or two trading companies to leverage your importance with them and ensure they comprehensively understand your business.
Logistics and Risk
Regardless of how you find the products to import, there are two big differences in directly importing items vs. simply selling imported items: managing the logistics and assuming the risk. Being an importer of record (i.e., your company name is on the shipment) requires you to get familiar with some key import and financial logistics.
1. Decide whom you’re going to pay: the foreign vendor directly, a trading company or a U.S.-based vendor that’s helping to facilitate the transaction.
Also discern who will select the shipper and who will clear the shipment through customs. And decide who will be responsible for the shipment after it clears the port of entry.
2. Negotiate the payment type. Whom you’re paying often will play a big role in the required type of payment (e.g., net terms, letter of credit [LC], wire transfer). The longer you work with a company, the more relaxed this process will become.
In the beginning, you may be required to secure your payment with an LC. If you and a vendor have no sales history, this probably is the best payment form since there’s built-in protection for both sides. Caution: LCs come with bank fees and can be quite costly.
Takeaway tips: Work toward paying your overseas vendors in the same way you pay domestic vendors — say, 30 days after receipt of goods. With overseas vendors, however, they may want payment as wire transfers to foreign banks rather than checks.
Following is a method that has worked well for us: Pay 50 percent of the purchase order value at the time of shipment and 50 percent upon receipt of goods. Before you do this, you must have faith in, or experience with, the vendor. If not, use an inspection service at the shipping end. This will ensure that your goods are acceptable prior to shipping and before you pay the first 50 percent.
Once your goods arrive in the United States, and you’ve made some payment, negotiating what to do with defective merchandise can be difficult. For more, see the “Risk Assessment” section below.
3. Assign shipping responsibility. Decide at the time of purchase which party will be responsible for shipping the products to the United States and your warehouse. Following are some examples of order terms:
• Ex-factory means you assume responsibility at the factory’s dock.
• Free on Board (FOB) shipping point, the most common order term, means you assume responsibility after the merchandise leaves the shipping port.
• FOB port of entry means you assume responsibility for the goods at the port of entry.
• FOB your warehouse means you assume responsibility at your own dock door.
Just as with domestic shipments, I recommend assuming shipping responsibility as the buyer so you can be assured you’re paying the best price for the freight. In addition to moving the products, you’ll have to clear the imports through U.S. Customs and file necessary forms.
Takeaway tip: Shop around for a full-service freight forwarder to help you with this part of the process. A freight forwarder will arrange the shipping of full and partial containers, clear the freight through customs and file proper paperwork. You then can have the forwarder deliver the items to your warehouse or you can pick them up at the U.S. point of entry.
Risk Assessment
In exchange for the potential higher margin, you may assume heightened risk for product defects and other inventory issues. Unlike with a domestic vendor, if you receive overseas products that have problems, you may not be able to refuse the shipment or send it back for repair or replacement. Instead, you’ll be stuck with the goods and have to repair them yourself, and/or negotiate compensation from the supplier.
Takeaway tip: Build an allowance into your original price to account for potential defective merchandise or liquidation, especially if the individual unit cost is high.
And due to the long lead times of sourcing overseas goods, buy a higher percentage of your forecasted sales — maybe even more than 100 percent. You won’t be able to get items quickly back into stock, and no doubt you’ll want to avoid backorders, especially for seasonal or fashionable products.
If you plan well and buy products at the right price, these risk factors can be offset by increased margins. Start with items that already are successful. Then move slowly into developing new products that bring more risk with them. The world really can be your oyster!
Phil Minix is the vice president of catalog marketing for Reiman Publications. He can be contacted at (414) 423-3117 or via e-mail: pminix@reimanpub.com.