Let's get clear on what a Sale or Return wholesale agreement is so you can understand how it can benefit both the maker/brand and the stockists because that is really what it's all about.
In a nutshell, sale or return is an agreement between a stockist who agrees to sell and market a maker/brand's products with the promise of being able to return the goods if they don’t sell.
Let’s break it down.
What is Sale or return, and how does it work?
When you wholesale you can sometimes be asked if you offer sale or return, this would mean that you invoice and deliver to the customer as normal.
If they are on 30 days payment terms, they still must pay you within 30 days for all their stock.
If they have not sold the stock during a pre-agreed time period, they can return the unsold stock in perfect condition against a credit or refund.
You only have to credit them for the stock returned in a re-sell-able condition, but it can be difficult to argue with a stockist about the condition of the stock, so I don’t recommend this option very often, of course, there are exceptions to every rule.
Retailers love to ask for a Sale or Return wholesale agreement as there’s very little risk to them and they often argue that it would allow them to try a wider range from you.
This might be true but they also have less of an incentive to sell your range and to give it the best position in their stores so do consider it carefully before you agree to this and make it very clear in your terms and conditions that you will only credit them for stock that is returned in a perfect condition. I recommend that this is agreed upon in writing.
If you say no to Sale or Return, a lot of retailers ask for “Sale or Exchange” instead, meaning that they can swap any slow-moving product for one that sells better.
I often find it best to avoid this too, but if a customer gives me feedback about a slow-selling line for them and they are a good stockist of yours you can offer a goodwill gesture and ask if they would like to swap the slow sellers for something faster moving.
Make sure they pay for having the items returned to you and send replacements once you receive them back.
If you’re very keen on a particular stockist and they are unsure but you’re confident the range would do well for them, you might consider offering them “Sale or Exchange” as a way to get the sale for the first order only.
Make sure they agree that the exchange is only allowed if the items are returned in a perfect re-sell-able condition, and they need to display and try to sell the products for a minimum of 2 or 3 months before returning them.
Sale or Return - Working together to grow our businesses in a sustainable and enjoyable way.
Sale or Return traditionally works like this:
Stockists place an order at wholesale prices with the maker/brand.
The maker/brand confirms the order, if they think the stockist is over-ordering or ordering something that is not a great seller they will inform the stockists and they will agree on the final order.
Stockist pays according to the maker/brands payment terms, this can be proforma (payment upfront), in which case they won't be working on the order until they received the payment.
Order is processed and shipped.
Stockist displays the range and hopefully sells out :).
If the stock doesn't sell, after a pre-arranged time limit/time frame, the stockist will package it up and return it at their cost to the maker/brand or let them know that it's ready for collection depending on what was agreed.
The maker/brand checks all the stock, checks that there are no stickers or price tags or damages, and issues a credit to the stockists that can be used for other orders or issue a refund.
Benefits of Sale or Return
The benefit of sale or return is that a stockist can try new suppliers with confidence and at very little risk; therefore, they are more likely to give your brand a try.
It can be an excellent way for a maker/brand to “get in there” with a stockist and it can lead to a great long-term partnership that works equally well for both parties.
SOR can be useful to new brands with products that are untested or for when times are economically challenging.
Challenges of Sale or Return
The challenges with SOR arise when stockists expect makers/brands to supply stock without any commitment from them at all.
If a maker/brand supplies a store with stock and no payment or invoice is issued and the stockist has had to pay for other items in the store, the incentive to give space to the range bought on SOR is less than to promote the stock bought on a firm sale agreement.
It can also be challenging to get products back and in a good condition but once you work with a few different stockists on a SOR basis you will start to find out which of them are worthwhile working with.
Will a Sale or Return wholesale agreement work for me?
The terms have gotten very muddied for sale or return so my advice to you is that if you are going to offer this, have a good think about how it will work best for your business and set out clear terms between yourself and the stockist.
This will help both of you and should not be sales preventative. Be especially clear on payment terms and review dates including dates of returning the products to avoid chasing.
If you have a new product or you are a new brand then offering SOR to stockists is a lot more attractive to them and could lead to an amazing partnership in the future.
You can get first-hand feedback from the stockists on what is selling as anything that isn’t selling will be coming back to you so you will also receive valuable sales analytics at the same time.
Finally, just like everything else in wholesale you need to know where to draw the line and that’s different for every brand so make sure you do your research before jumping into any agreements.
Alternative wholesale options to Sale Or Return
There are some similar wholesale arrangements to Sale or Return that retailers may ask you to consider. It's good to be aware of them and decide where you stand on whether you want to work with retailers with these kind of wholesale agreements.
What does it mean to sell on commission?
Commission is often confused with sale or return.
This is a model often used by smaller boutiques or galleries, who take a commission on the sales.
This means that you will only get paid when they sell one of your items.
You might agree that every month they let you know how many they have sold of your items and then they pay you minus their commission.
There’s very little risk to the shop and if an item doesn’t sell or it breaks or is stolen, you’re taking all the risk.
Art galleries and shops that sell handmade items often use this model. It’s more or less the same as an online marketplace such as Not on the Highstreet but in a physical form and it’s not wholesale. The commission range from 25-50% depending on the store/gallery.
What is drop-shipping?
A lot of online stores ask now, if you offer drop-shipping. This means that they can list all the items they like from you and if they get an order, they would send it to you, and you send it to their customer but invoice them.
This is a form of wholesale, but you don’t need to offer them full wholesale prices, you might give them a 30% discount on the recommended sell price and absorb the freight or give them the same price as your wholesale customers but charge them a standard carriage for each order you send.
There’s very little risk for the retailer, and unless you have a fulfilment centre that’s used to processing drop-ship orders it’s time-consuming and labour intensive.
The customer often has their own portal where you have to set up the products, special packaging, or stickers they would like you to use and you have to include their paperwork with the order and then send them an invoice. You will also have to deal with any lost parcels and send replacements if a product arrives damaged etc.
Many Amazon and eBay re-sellers prefer to buy from suppliers that offer drop-shipping and it’s a very common method for cheaper products.
There are of course many other online shops that prefer this option, it allows them to have a huge range of products without carrying any stock which equals risk.
Some stores also buy some things and offer some on a drop-ship option and even if they say they will push all products equally they will want to turn the stock they hold faster as those items carry a risk to them so if you want to offer this option do consider the customer your offer it too carefully.
It’s very difficult to stop offering drop-shipping for long-standing customers if you start so don’t take on more drop-ship customers than you can handle.
When you start to wholesale your products I would recommend you to focus on firm sales for your wholesale orders and your growing retail business.
When you grow a bigger team, you can look at widening your offer and if it makes strategical sense to your business to go into drop shipping agreements with retailers.
