Almost every Australian company dreams of one day exporting its consumer products, inventions and ideas to the US retail mass market. How could you not dream about it? I do.
With over 300 million consumers, hundreds of thousands of storefronts and home to the biggest retailer in world – Wal-Mart – the US domestic market is a seductive prize.
I have seen brand new products launch on Home Shopping Network, sell out, and then within six months they are on-shelf at five different mass retail chains generating many millions of dollars.
The US retail mass market can take you from little league to major league, outstripping your sales in Australia many times… if you can crack it! But how do you crack it? Unfortunately, it seems that the majority of CEOs or Sales Managers from Australia think it’s easy. It’s not.
I am an Australian living in the United States. I would be considered a retail entrepreneur. What is that? Well, essentially, I work with companies from all over the world who are looking to enter or expand in the US retail marketplace.
I have been presented with over 500 different products from over 300 different companies, quite a few of which have been submitted by Australian exporters. Out of all of the Australian consumer products I have seen, less than one percent really got me excited.
Not because they weren’t good products, but because they just won’t cut it in the US. Sometimes I wonder who feeds these companies the information that their product has a real shot in the American market.
I recall a phone conversation with the CEO of an Australian company. He was looking at the US market and wanted to tackle it aggressively. I loved his enthusiasm! He told me that his product was a world first and that it was taking Australia by storm. I did some research only to find that 3M had exactly the same product, only they were selling their product at $19.99 and the Australian company wanted to sell at $69.99, with no point of difference. I eventually had to visit a store and take photos for him to prove I wasn’t lying! After that he never called me back.
This is but one of many examples where I have seen exporters (from all over the world) fly over here expecting that their product is the next big thing, only to find a major player already controlling the space or a similar product already fulfilling consumer’s needs. This can all be easily avoided by doing your homework first.
Your popularity at home counts for very little
I also see a lot of exporters try to enter an already crowded market by trying to leverage their brand as the big selling point.
The problem is, having a brand in Australia means very little in the US. Buyers will perceive you as a startup (again) requiring a completely new value proposition.
Let’s actually look at a crowded mass market category, beauty skin care, as an example.
If you hold 10 percent of the beauty skin care market in Australia and you come to the US with grand plans of world domination, don’t be upset if you go home empty handed. Your prospects of success are extremely modest unless you really do have something unique to offer. And I don’t mean great sales history in Australia or a brand that is recognised by most of the Australian population.
- Do you actually have a formula that no-one else can ever copy?
- Why will a US consumer buy your product instead of the one they have bought all their life?
- Can you financially sit comfortable next to the big brands and throw millions of dollars at advertising?
Don’t get me wrong, if you want to enter a crowded market there is a glimmer of hope, but it won’t be with your brand. It will be for retail private label. Private label is big business! In fact, many big brands also make retail private label to compete with their own product.
When thinking about private label, you should ask yourself a couple of questions:
1. Why would a retailer use you if you manufacture offshore?
2. Wouldn’t they go direct to the factory?
3. And can you actually meet their very low price-point requirements?
These are all important points to think about.
Don’t get me wrong, you can certainly build your brand here in the US – many Australians have done it. But they all have something different and unique to offer. Is your product really unique enough to make it? Don’t be biased!
Get some clout on the ground
Another challenge we all face is Vendor Reduction. This is happening more and more in the US market and is a key factor determining whether you will even be able to get a meeting. Having a licensor, distributor or rep with an established vendor number is critical when entering mass retail.
It’s very rare now that a retailer will want to set you up as a new vendor if you will only generate a very small percentage of the category’s revenue (to start). Why would a retailer add financial resources for one new vendor in this economy? My solution is to find a distributor or rep (with a vendor number) before even approaching the buyer. Over time, once you have proven yourself, you may get your own number, but to start, chances are very low.
Another important factor is your supply chain.
- How will you actually fulfil orders?
- Do you have to make new stock for US orders because of differences in UPC numbers (barcodes) or different grammar?
- Are you going direct or through a distributor?
- If direct, do you have a US company setup? Nine times out of ten they won’t set your Australian company up as the vendor or buy FOB origin.
- If with a distributor, will your distributor actively sell your product, or do you need a rep?
- If you need a rep, do you have allowances for commissions?
- Who controls marketing dollars?
- What happens to damaged or returned stock?
One critical factor in finalising a distributor is your pricing model. If it retails in Australia at $29.99, expect it to retail for $9.99-$19.99 in the US. With that in mind, can you even fit in a distributor margin? Remember, a distributor will probably want at least a 20-30 percent margin, which generally includes the cost of picking up the goods from your factory, and the retailer will want no less than a 50 percent mark-up (100 percent to some of you) from the wholesale price.
Can you do this and still make a profit?
If yes, step 2.
Lately, I have seen many distributors pay their vendors when they get paid from the retailer, which can be up to 120 days. Can you manage cashflow on these terms if they place a significant order?
If yes, step 3.
Can your current factory handle more orders? Can you actually deliver on time?
If yes, step 4.
Next, expect to sign an exclusive two-to-three year deal with your distributor, who may or may not launch the product successfully. Are you ok with this?
If you answered yes to all of these and you feel you’re product is sufficiently unique, then you are ready to try and enter the US market. However remember, there are no guarantees!
In my opinion, every exporter’s situation is different when looking to enter the US market. However, the formula is generally the same.
My advice firstly is to work out whether you do actually have a unique product offering in this market. A good way to do this is to invest in a market researcher to study the market for you and prepare a market entry strategy (if it exists).
Next is to hire a consultant or sales rep that is excited enough about your product to look at developing the strategy, locating the right distribution partners and finding retail opportunities. A consultant is always a better option, because you pay for them, which means you’re not just one of 100 products that a rep is trying to get to.
Remember to start small. Don’t expect you are going to be in mass retail in the first six-to-12 months. It takes time and a lot of investment (both time and money). Can you really see this through? Remember, success in the US market doesn’t come easy – it requires a long-term commitment.
Always remember, it’s a partnership between you, the distributor, the rep and the retailer. You are all in it together. Don’t treat distributors or retailers as just avenues to “dump stock”.
For advertising, use PR firms to help build awareness of your product through magazine, online and TV. There is nothing better than paying a PR firm a retainer in exchange for free editorials’ in magazines with over two million readers.
Look at licensing. Instead of trying to build you’re brand, why don’t you license your patent to an established brand in exchange for a royalty? That way you get your product to retail and don’t have the stress of what financial disasters could lay ahead.
The US market may seem daunting, but really it’s just a very big country of opportunity. Australian products are relevant, but make sure it makes sense for all parties involved before wasting time, money and energy. Make sure you really do have something different and unique – that’s what buyers are looking for.
Remember the simple maths: five products at 15,000 storefronts doing one per store per week with an average $4.99 wholesale is over $19 million in sales. Very achievable if you have the right product.
Chad Hetherington is an Adelaide-born entrepreneur now based in California, USA. He is a retail Business Development specialist for consumer products. [email protected]