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The sale on return agreement dilemma

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sale on return agreement
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If you are a designer or have any kind of lifestyle product to sell to retailers, you probably came across sale on return agreement. As retail has been evolving so has its playing field and terms. Flexibility and low risk is something that most retailers seek in partnerships. Twelve years ago, in the industry I was in, no one was trading using sale on return. It was either a discounted display stock or nothing. As I get asked about this a lot, here is what I think about the sales on return  dilemma.

Generally speaking, I think that sale on return is NOT a win-win solution for both parties. The obvious question is: If I provide my stock for free and therefore the retailer has no financial commitment, how much incentive does the retailer have to make sales for me? As an independent retailer myself, I used to assess what stock I had and how much money I had tied in it and then got creative with sales. I didn’t take on new products unless I was sure I can sell them. I knew every product I had inside out – the USPs, benefits, technical aspect, usage. Basically everything that would help me to convince my customers to buy them. What seems to be happening now though is that retailers are happy to “test” various products to see “if” they sell. Risk-free. So how can you benefit from this? If the retailer is not proactive in selling it, meaning actively promoting and introducing it to customers, or doesn’t really understand your brand’s story, you could end up with a returned (even damaged) product. 

So what’s the solution? There are many options but first of all you need to understand the retailer’s business and their ability to sell. This can be very tricky because everyone wants to “look good”. They might tell you white lies because they like your product. They might not be completely honest in order to get what they want. Negotiating skills, following your gut and some previous experience all help you to decide whether or not it’s worth doing business together. 

  1. TEST THROUGH A TRIAL PERIOD

    If sales on return agreement is the only option on the table suggest a trial period, which both parties are happy with. That way you will provide enough time for the retailer to do their work.  They will have to have some incentives, either from you or themselves, to actually deliver your expectations. Perhaps suggest that within the trial period you would expect X amount of sales, based on the information they provided. Of course there are no guarantees but it puts a certain pressure on them. If they don’t deliver you take your business to the closest competitor in the area. 

  2. OFFER INCENTIVES

    Talking about incentives, perhaps suggest an additional benefit which will make the retailer work harder for you. It can be an extra discount once they hit certain amount or volume. It could be sharing costs of promotional materials or offering free delivery on orders over certain amount. You can only decide on the best incentive once you find out what makes them tick. Are they driven by bigger margins, higher volume sales or less extra costs?

  3. MAKE SALE ON RETURN AN UNATTRACTIVE PROPOSITION

    This one I think will really test your negotiating skills. So what do I mean by making sale on return unattractive? This kind of strategy will probably apply only to situations where you know for certain that the retailer wants your product quite desperately. Where your product can really help the retailer’s business. If you spot that, you have some serious room for negotiating. Suggest that you have two pricing structures – one is for sale on return and the other is for wholesale (stock displays and sales thereafter). The difference between the two would have to be such that sale on return wouldn’t make sense. For example, sale on return could require a deposit to cover any damage while in their care and during transport. Also you could charge admin fee and postage for returned stock, and/or require collection from your warehouse. Why should you be the one who takes the hit and cover the extra costs when they don’t even buy the product? On the other hand, you can offer much better terms, if wholesale. 

To sum up, here are some dos and don’ts when it comes to sale on return agreement. But remember this: when it comes to independent retailers, some of them might be just starting out as well, not all of them know how to trade and sell well. The way I see it is that most comply to the standard trading terms, which can be easily found, whether that’s through online search or networking. They use the same margins, have same demands and most feel that they are doing you a favour. On the other hand, big retailers will try to bring you to your bottom line. You need to evaluate each opportunity and decide, based on your expectations – sales, exposure, brand awareness, whether or not they are right for your business. You should always strive to create win-win situations. If they approach each supplier in a same way and have demands which are not win – win in your eyes, don’t be afraid to walk away. I’ve done it loads of times. I stopped working with suppliers who didn’t meet me half way or didn’t support me and I also stopped supplying retailers who didn’t comply to our terms. The good thing is that right now there are new businesses popping up everywhere. You might feel you’re missing out but trust me, there are many others who are hungry to do business with you.

The dos:

  1. Be flexible and adjust your terms to each situation, if necessary.
  2. Know your bottom line and expectations.
  3. Understand the retailer’s business.
  4. Ask even the most stupidest question in order to get the information you need.
  5. Always strive for win-wins.

The don’ts:

  1. Don’t be afraid to create your own terms.
  2. Don’t accept win-lose terms.
  3. Don’t rely on the retailer and hope for sales. Offer your support and educate them. Become their best supplier.
  4. Don’t be afraid of missing out on opportunities. Better ones are just around the corner.

Want to be part of a group of like-minded creatives who are going through what you’re going through? We have an amazing community of emerging designers, interior designers, stylists, fashion accessory brands, artists and photographers, where we help each other grow. This is where I encourage sharing knowledge and brand collaborations. No fakes, self-centred liars and backstabbers are allowed. Please join us here. And, feel free to share if you found this useful!

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