One word: Money.
Importing gives you an incredibly unfair advantage. In the buy low/sell high business, everybody knows that the money is made on the buy side. If you could buy a new Mercedes Benz for $5,000 a piece, could you make money? Of course, you could because there is a market. There is an established market for practically everything. We find the established market price and if we can buy that product for less than the established market price and get it to market, in front of the eyeballs of the people who are the potential buyers, we pretty much win the game.
Old Navy is a good example of the benefits of importing. Old Navy is a clothing retailer. Most retailers sell a pair of jeans for $40 after paying $20 for them from a designer, from a U.S. company that had it made somewhere and gone through all the steps. Old Navy figured out that if they could import the jeans themselves for $2 or $3 a pair this would give them an amazing amount of money to spend on marketing. This is how they can run all those cool commercials and run all those great, big stores in the really high traffic locations. They have an unfair advantage over the other clothing retailers as they have the margin to market and the margin to advertise.
If you don’t have a margin to market your products, it is very difficult in today’s marketplace to win. Everybody is marketing very heavily. The Internet has created an entire new breed of people who know how to market. I would venture that 20 years ago you could count all the great marketers in America on two hands. Now, there are hundreds of great marketers. It takes marketing dollars to market, so you need margin to be able to spend marketing dollars.
If a product has a lot of price elasticity, you could sell it for $5 online or you could spend the same product for $20, and spend $10 on marketing. In this case, I would choose the higher price and spend the money on marketing. I would absolutely dominate the competitor; I would crush them. There is no way on earth that they could get in front of the eyeballs that I could get in front of. This is the reason I love the import business so much.
The Consumable Market
The import business consists of real merchandise and with merchandise that is consumable, you can often do the work one time and make money for a long time. If you start selling consumable things that come from China to the U.S., the same customers will come back to you and buy month after month after month after month.
Believe it or not, at some level most things are consumable. Spark plugs are consumable, obviously; tires are consumable. Believe it or not, to a distributor, to a wholesaler, microphones are consumable. They’re not consumable to an end use customer, sure: you buy one microphone like we are talking on now and it will last you a lifetime. However, for the music store where I bought this, they sell 30, 40, 50, 100, 200, 500, or 1,000 microphones a month. This is a consumable thing to them: they will run out and need more.
If you are importing correctly and choosing your markets wisely, you will find markets where you can set up a relationship one time, begin to bring products in, establish customer relationships on the U.S. side (or wherever you are), and then consistently, every month, just deliver those wholesalers or retailers more and more and more goods.
Working With Retailers
There is an absolute gazoodle of money in importing when you get it right. There are billion-dollar and multibillion-dollar importing companies. The gentleman who bought my company sold a billion dollars a year worth of home décor, chachkis, stuff that you set around your house. They had a 40-foot section inside every Walmart store in the country.
A lot of retailers are there buying directly now. Bass Pro Shops is one. You can’t be more American than that: “Let’s go bass fishing.” Pick up some of the Bass Pro Shop stuff and I challenge you not to find “Made in China” on the back. They have buying offices in Guangzhou and Shanghai now and Hong Kong. The big retailers are turning onto the fact that they can go over and buy, but there is still a service you can provide to them. They aren’t able to buy all of their stuff themselves, and they never will be able to.
There is also another whole rung of wholesalers and retailers out there that are not billion-dollar a year retailers like Bass Pro Shops, Garden Ridge, and multi-hundred-million-dollar companies. They don’t have that ability and they’re stuck with buying things at markets in the U.S. where they can only make a 50% margin or so.
As an importer, you are typically looking to buy products at one-third of their U.S. wholesale price. For instance, let’s say we’re selling a $40 pair of jeans. We have to wholesale that $40 paid of jeans to the retailer for $20. We want to pay no more than $6 and that is called FLC (First Landed Cost). In other words, the $6 should include the price of the materials, the initial warehousing, the freight, and the duty. You want to be in at about $6 on a $20 wholesale item as this gives you the ability to do something.
The stores are paying $20 a pair for the jeans and selling them for $40. If, for whatever reason, this particular purchase doesn’t perform well or there is a minor flaw in it or whatever, it gives you the ability to sell it for two times your cost to a liquidator. This means you still double your money on a bad batch.
The other thing is that when you’re selling for $20, you are typically going to have to wait to get your money. You can use a factoring company who will advance you money on your invoices. If you need to find out about them, look up “invoice factoring” at Google. There are some good invoice factoring companies that, as soon as you ship your product to your customer, will go ahead and cut you a check for 80% or 90% of the purchase price.
However: here’s the drag. They will charge you 2% to 3% per month interest on that money until the retailer pays you. You have to realize that when you are selling to the end use customer for $20, you are going to have what we call “cost of money.” You will have a cost of money expense; you will have some returns unless you have a ridiculous return policy. There are other costs involved too that will not allow you to keep all of that $20. The worst-case scenario, if you import based on this rule I’m giving you, is that if you had to you could sell the jeans for $6. You could dump them to Big Lots or Dollar General Store, flea market vendors, or somebody who would give you $6 for them.
While the importing business is risky sort of, if you understand the last part of the importing business which is liquidation, there is not a lot of risk in the business. If you’re going through all the checkpoints, making sure you know how to buy, what to buy, and you’re following the points being laid out here, while you are risking your money sometimes and sometimes other people’s money, you do have that Plan B.
Buying at a third of U.S. wholesale will work in most markets. You should try to make it work everywhere you are, if you can. In some cases, like the commodities business, for instance, there is no way on earth that will happen. You will bring in for .80 cents and sell for a dollar. However, for the most part, if you are going to end use, this is what you want to do.