My number one concern when importing is limiting risk. This is everything to me. You can have three or four good import deals and then have one or two bad import deals and lose all your money. It is really important that you begin with a mindset at the start of the process of avoiding risk.
My first strategy for limiting risk is pre-selling. As an importer, people will look at you like a three-headed monkey. They say, “What do you mean? You go all the way over there to China and you deal with all these Chinese people?” Yeah, you do. These people will never be importers: they are scared of the process, they don’t understand it and they’re not going to be part of it. For this reason, it is usually easy, especially if you have a great price, a great product, and great quality, to go out and pre-sell, if not all of what you import, at least enough of what you import to avoid any risk.
We import hand dryers that blow your hands dry, such a romantic business… We got a quote on them and it was a fantastic price: they sell for about $400 each and we were buying them for $50. The quality was outstanding. We had the factory send them labeled and branded. Because we were known as an importer, they went above and beyond and actually branded the samples they sent us to our brand. Oddly enough, next door to the building we were in at the time was this company called Sani-Clean. They basically go in and clean toilets for a living. A very romantic business as well. Anyway, they had 30 trucks and they maintain a problem most people don’t want to deal with, meaning the restrooms inside their businesses. They maintained the restrooms including the supplies. We knew they used hand dryers and they were paying wholesale anywhere from $250 to $350 for a hand dryer and would sell to the retailer for $400 or $500 when somebody needed one. We went to them knowing we were going to sell our hand dryers for $295. We went to them and said,
“Hey, we have these hand dryers. We want to buy a bunch of them. Would you be interested in co-oping a shipment with us? We can get them for you for $150 a piece.”
That was way less than half of what they were paying for the hand dryers, so I got a commitment from them to buy one-third of the container at three times what I was paying. The container came in, I dropped it at their place and unloaded one- third of the hand dryers off the container, they gave me a check. At that point, I was absolutely even. The container moved over and dropped behind my dock and dropped off $65,000 worth of absolutely free merchandise into my warehouse.
This is what I mean about pre-selling. This is the number one way to eliminate risk in importing. You have to find bulk users.
Another example: we wanted to be in the key cabinet business, so we put up a website and the key cabinet business did okay. The thing was that there was a lot of competition. There were 100 different sites online selling these big key control boxes, and we were just one of them. In this particular market, we had a ridiculously good wholesale price. It was so good, in fact, that we didn’t want to reduce our price down to just become the cheapest in the market because it would make our quality look poor. Here’s what we did instead. We were selling a key box everybody else was selling for $200 that we were buying for about $12. We figured that all the other guys were paying about $100 for that lockbox. It was way smarter for us to not compete retail head-to-head. It was better for us just to go out and sell the lockboxes directly to all the other websites for $55 apiece. I made my four- or five-times markup – or at least my three-times markup – and I didn’t have to ever mess with having to deal with retail customers, selling individually.
The best part was that the product became much more of a consumable product at that point. Once you get that base established, now you can direct mail all the locksmiths in the country, which we did. You can go to the locksmith supply companies and sell them wholesale. You can go to trade shows for apartment complexes, for car dealerships, and for big arenas, and we did all that. You basically pick the low-hanging fruit first. You’ve just got to find bulk customers, and it’s not that hard to do.
If you have a few samples you can send out to your bigger suppliers, that’s a risk-free proposition. Even if you’re going to retail, it’s a great way to help get rid of some of your slower-moving inventory. The only problem is that if you’re retailing online and you’re selling wholesale online, you’re sort of straddling the fence a little bit, and the wholesalers may not like you very much. You’re competing with your clients and that sometimes ticks them off.
Dry testing is another way to limit your risk. It is basically seeing if a product is going to sell before you buy it. There are two kinds of dry testing, but we don’t do pure dry testing because I don’t think it’s very ethical.
You can do this on the Internet very well. You just go out, put up a website, and begin to sell something. Some guys will do it and just be out of stock of that thing, but I don’t think that’s a good idea because you’re being deceptive when you do that: you never really had it anyway.
Instead, for most things that you’re going to import, there’s already a domestic supplier of that thing. Let’s say that it’s lockboxes. I’m going to sell lockboxes and I know I can buy lockboxes for $12. To buy them wholesale in the States, they’re $100 apiece but everybody’s selling them for $200. I’ll put up a Web site selling lockboxes for $125, just to see how many I’ll sell. If I sell some, I’ll go buy them from the other company for $100 wholesale and fulfill my orders, but only until mine get here. It’s a great way, rather than saying,
“I know what I think. I think these widgets are going to sell. I’m going to go ahead and invest a bunch of money, buy them, and bring them in. When we get them in, we’ll put up a website, and then we’ll see if they sell!”
That’s just dumb. The better way is to know that you have a market before you ever get started.
One of the things that I like to do is make sure that I get more than one sample. I’ll ask for a dozen or two dozen samples, and I’ll be willing to pay extra for them if need be. A lot of the time, I’ll have five or ten suppliers out there, and I want to send them a sample along with a letter. I want to get good photography. I want to get everything together so that they’ll give me a buying commitment, so I know whether or not I want to import. It’s also a good way to check consistency from a manufacturer. I’ve stumbled across a couple of bad items when I did that once, and that was just in the sample lot.
Another I which can save you a lot of time and money, I call ‘Stateside prototyping’. A lot of people try to get their prototypes made in China. You try to draw a drawing or give them a spec if you want something built a certain way in China. You’re trying to explain it to them, and they’re trying to understand what you want. I always joke about it. I say, “If you send a drawing of a football to China, they’ll send you back a baseball. If you send them a baseball, they’ll send you a baseball.”
The best thing for you to do is to get designers to build your prototypes in the States if that’s possible. If you can’t build a prototype, then maybe there’s one for sale already. You can buy one and send it to them, and ask them to make one like it.
However, there are patent laws and trademark laws that apply. One of the worst things that you can do is get a container-load of something here that violates a patent. If you get the merchandise here, you just can’t sell it, and you have no choice. If you start to sell it, you get is a Cease and Desist. At that point, that merchandise is absolutely the worst merchandise you can have because you’re not even allowed to liquidate it. You just have to destroy it, and you have to pay to have it destroyed. It’s the worst possible problem that you can run into.
What I suggest you do is build your prototypes on the States side, send them to China, and say, “Make me an absolute duplicate of this.” They’re fantastic at duplicating things. They’re not very good at creating things from concept.
Later on, as you get savvier, you’ll learn how to walk in anywhere, look at an item, and tell you within five or ten percent what that thing costs in China. It’s a blessing and a curse. If you go shopping with your wife, you’ll say, “I’m not buying that stupid thing! It’s three dollars in China!” She’ll say, “Yeah, I know, but this one’s $150 and it’s pink!”
The good thing though, is that once you learn what stuff costs in China, you have this real big advantage. The guy I worked with that was huge in the home décor market would go to the Atlanta market, which is a wholesale market selling to other stores. He would go out into stores and find a vase or a knick- knack that was at some store – maybe even in the thrift shop – that was popular 30 years ago. He would just polish that thing up, put it out on the shelf for sale, and take orders from it. If a lot of people ordered, then he would go buy it from China. If people didn’t order it, he would write a letter back to the ones who did and say, “You ordered this, but after some internal testing, we realize it’s probably not going to be a good seller.” He was seen as a hero for protecting them from a bad seller. Also, though, he was able to have a big display of stuff in his showroom.
This is what I call “the sticker method.” You can actually scrape the other guy’s sticker off the bottom of the product and set it. In order to do that, you have to know your market and know your business well.
Those are some ways that you can limit risk. Limiting risk is a theme here, because the main part of this is that you can make a lot of money. However, if you don’t take some of these steps – or all of these steps – to limit risk, you could really get caught with your pants down and get broke real fast.