Do you know you could sell the products of the same quality as that of national brands on your online stores? Do you know the private label manufacturers of the largest retailers are actually the same manufacturers of the national brand companies?
For decades, large corporations and multinational businesses have leveraged a unique strategy for scaling and diversifying product development and selection. It’s called private labeling and involves the process of purchasing generic goods that are manufactured by an independent company and then marketing and selling them under a specific brand name.
Thanks to the rise of the internet and the popularity of convenient ecommerce platforms like Amazon.com, any individuals, entrepreneurs, and small businesses finally have access to the same opportunities that their deep-pocketed counterparts have had in the past. Even more interesting is that many private label products you find on the shelves of a supermarket or pages of an ecommerce site are actually produced by the same manufacturers of brand name products. By identifying these manufacturers, an individual seller like you and me can actually sell private label versions that are of the same quality as that of national brands.
If you are already selling on Amazon or thinking about selling your private labels, it’s worth getting to know about this new option to find a reliable private label manufacturer.
The opportunity: Private labeling your way to a passive income
For individual sellers, the major benefits of private labeling and selling on Amazon are two-fold. First off, private labeling levels the playing field. You don’t need warehouses, factories, and large product research and development teams. You can sell virtually any product you want, so long as you find the right manufacturers and establish healthy working relationships. But the biggest benefit of private labeling has to do with the hands-off nature of selling goods on a streamlined ecommerce platform like Amazon.
The fantastic thing about selling on Amazon is that it’s set up to benefit its third party sellers like you and me. While launching a new product definitely requires a lot of time and energy on the front end – this includes tasks like creating a listing, optimizing the listing, accumulating reviews, and paid or non paid advertising – the end result is a mostly passive income.
Once the infrastructure in place, Amazon FBA system handles virtually everything for the sellers. Amazon stores their products in its warehouses, processes orders and returns, picks orders, packs orders, and communicates with their customers. All you have to do is monitor sales and replenish products with your manufacturers when inventory gets low.
The two biggest keys to Amazon FBA private label business success
In my experience, I’ve found that there are two primary keys to sell private label products on Amazon. First off, you must choose a profitable product to sell. Secondly, you must find a reliable private label manufacturer to make your products.
Product selection is huge. You obviously can’t be very successful if you aren’t private labeling products that people want to buy. This is a dilemma I’ve encountered many times in my private labeling pursuits. I’ll see a product that I’m interested in and that I believe will sell well, but then find out after conducting some market analysis that there isn’t actually a large market for the product. By trial and error, I found out that there are some key metrics to study when analyzing the opportunity for a product. These include things like Amazon BSR (Best Seller Rank), product reviews, customer comment, some Amazon sales research tools like Jungle Scout and Merchantwords.
But this post is dedicated to finding the right private label manufacturer for your products. When it comes to selection, the first thing we have to think about: domestic or overseas manufacturers? When I say domestic here means you produce your product with the manufacturers in the same place that you reside and where you are going to sell the products. I choose overseas ones because of the lower production cost and tons of easy ways to find one that will manufacture my products. China is known as the factory of the world, which makes Chinese private label manufacturers a good choice to me.
There are three ways to go when it comes to finding private label manufacturers in China. The first two are conventional: Do it yourself using a B2B sourcing platform like Alibaba, Yiwubuy.com, Made-in-china.com, or work with a middleman. Surprisingly, not so many people know about the third option: directly deal with the sourcing divisions or buying offices of the leading worldwide retailers.
The first way : The rise of Alibaba and convenience
If you think Amazon is big, then you don’t know much about Alibaba. When it comes to sales figures, Alibaba dwarfs Amazon – both in terms of revenue and units shipped.
Think of Alibaba as a do-it-yourself (DIY) platform for finding private label manufacturers. It acts as a directory that helps connect manufacturers with people like you and me. No doubt, Alibaba makes it easy for anyone to find private label manufacturers and set up custom orders in a quick and efficient way. However, there are a number of challenges associated with the DIY-nature of Alibaba. Bear in mind that many of the so-called verified or gold suppliers on Alibaba are simply trading companies, not manufacturers. Before you place any large orders on Alibaba, please make sure that you perform strict due diligence on potential manufacturers. Rick Frasch covered it well in his post about 8 common mistakes U.S. companies make when looking for goods and manufacturers in china on Forbes.com. Here are my personal experience with Alibaba :
If you only speak one language – such as English – then it’s possible that some language barriers could slow down the process or create confusion along the way. I’ve had countless email conversations with potential manufacturers where I thought everyone was on the same page only to find out later that there was some confusion when translating the conversation into our respective languages. That’s not a mistake you can afford to make! Keep in mind that only a minority of the manufacturers in China are able to communicate in fluent English. Many of them use online translators after received your inquiry emails. Draft your emails in simple English and try to avoid using too professional terminology to make the manufacturer comprehend your needs easily.
Lack of credibility
As an individual or small company with no preexisting relationships, you may not have the credibility needed to negotiate the lowest prices, get small order quantities, or receive on-time delivery. I’ve found that this can be frustrating and hard to overcome. On my own, I’m unable to get small quantities of a product, which often leads to risky investments in larger orders that may or may not sell.
And, if I’m using a manufacturer that also works with larger retailers and proven brands, I’m more likely to get pushed to the “back burner”. Since my small orders are much less cost effective, the factory will rush orders for giant retailers before they’ll ever touch mine. This can be very inconvenient when you’re trying to get an order completed.
It takes a lot of time to vet factories, verify quality, and negotiate orders. Furthermore, if you’re in another time zone – such as the United States or Europe – your business hours may be quite different from a Chinese manufacturer.
Remember, time is money. It could take weeks – even months – to find private label manufacturers on your own. This can kill your chances of coming to market in a timely manner and may ultimately give the competition an advantage.
The second way: Work with an agent
Should I work with a sourcing agent? Not necessary. The cost of hiring one is not low. It will take probably 6-15% of your total order amount with the manufacturer as the service fees. The commission rate varies from agent to agent and most of them set a minimum charge for each order. A good agent is definitely a valuable asset while a bad one is rather like a liability as the factories they selected might not be the most qualified to manufacture your products. Yet, it’s no easy to reach a reputable sourcing service provider for companies running small businesses. All in all, it is illogical to pay a sourcing agent more than the total amount of your entire order.
The new option: Work with the buying offices of the giant retailers
The reality is that not all qualified private label manufacturers or suppliers choose to list themselves in B2B sourcing platforms or directories. Some feel that they have been flooded with inexperienced buyers who are not looking for long-term business relationship. How do you find them out and get the best prices and terms from them, you might need to work through either a renowned sourcing service provider or the buying offices of the large global retailers. How large is large enough? Top 250 global retailer ranking can give you a good hint. These leading worldwide retailers like Walmart, Kroger, Tesco, Carrefour, Metro, Casino, Bestbuy, Ikea also have their own private labels and they care the same thing as you : find a private label manufacturer that is able to make the product they want at the lowest price. They either have their own sourcing divisions or simply work with some highly reputable global supply chain managers like Li & Fung for product purchasing and manufacturing. If it’s too costly for you to private label products through a prestigious supply chain managers and you also feel uncertain about the sourcing agent company you found online, the buying office of these top global retailers might be another way-out.
Here are some of the advantages of going down on this new route :
These buying offices or sourcing divisions have strong relationships with their manufacturers. And since they are constantly placing large orders with them, they’re able to negotiate far lower prices and smaller order quantities than you would be able to obtain on your own. Whereas private label manufacturers may publicly advertise a MOQ (minimum order quantity) of 1,000 units, they may know that the factories are actually willing to do 250 units. I know from personal experience that having this leverage can make a world of difference.
The biggest benefit is that it saves you time. I am not talking about days or weeks, I am talking about months. Sophisticated product sourcing process is complicated. These buying offices function like a sourcing agent for you. They handle everything from supplier identification and verification to negotiations, payment, and delivery. You don’t ever have to communicate with the manufacturer, which makes the entire process smoother on your end. They know which manufacturer best suits your business, and how to get the product delivered on-time, with or without your orders, they are still doing the same for the banners of their parent companies across the globe.
I personally had an experience just this past year where I ordered 1,000 units of product and the factory shipped the product to the wrong address. Since I was working directly with the manufacturer, I had to spend hours of my time locating the shipment.
While there are still honest manufacturers on Alibaba, you should be aware that fraud is prevalent. Manufacturers in China where there was a wave of factory shutdowns just last year, aren’t always the most stable. They change names, switch addresses, and it can be impossible to trace them.
If you want to establish a sustainable and secure business model selling private label products on your online stores, it looks more secure to go down the route of this new option in the long run. Even if my manufacturer goes out of business, these buying offices can find me a replacement immediately.
Proper Manufacturer Vetting
A sourcing division of a top global retailer leaves no stone unturned. They vet, verify, and frequently review their manufacturers to ensure factories and facilities meet social compliance standards.
They have their own quality teams that visit factories in person and manually audit their capacities and the quality of their facilities. Most of them have specialists that conduct corporate social audits. This means they’re looking at fire safety, child labor, working conditions, sustainability, and the various management systems in place at the factory. They have to do it because the reputation of their parent companies will suffer if there is any recall.
How to find these buying offices out?
Keep in mind that it’s not every one of them providing sourcing services for clients who do not belong to their group. You need to find them out first then check with them if they can take care of your orders. Usually they use the banner of the parent company and put “Global Sourcing” at the end as their trade name. It’s not hard to spot them out on google actually. That’s the way how I searched Casino Global Sourcing out – the sourcing division of Groupe Casino (or Casino Guichard-Perrachon). After several email exchanges, I get to know that they not only source for the most banners of their parent company, but also source private label manufacturers for small companies or individuals like me providing that I can reach the minimum order quantity set by their manufacturers.
To facilitate their clients’ product sourcing process, Casino Global Sourcing has an online catalog, godirek.com which showcases generic electronics, home and leisure products. They explained me that these items have been already manufactured under the private labels of their retailer clients. The most important is that these products have been already tested qualified, manufactured by audited factories and ready to private label for any other companies.
I do not really like working with a middleman because they will not disclose much about their manufacturers in the fear that I would work directly with them in my next order. That’s why I think it’s a bold act when I knew that Casino Global Sourcing emphasized on absolute transparency and no strings attached. They allowed me an option to meet the suppliers in person and fly to visit the factories.
Is it worth money and time for finding my private label manufacturers through these buying offices?
Do-it-yourself option may appeal more to start-ups and beginners on selling private label products on marketplaces but it might take a long while before you found a qualified manufacturer. When you’re on your own, your only options are to conduct internet searches and look for positive reviews or warnings that may or may not be reliable. It’s virtually impossible to effectively vet private label manufacturers on your own unless you go and meet them in person.
I’ve personally tried to find manufactures both on my own and with the help of an agent. I started launching private label business with the help of Alibaba, because I felt like it was cheaper as no commission will be charged. However, what I didn’t realize at the time was that it would be more expensive in the long run.
I am not suggesting that working with the buying offices of the worldwide retailers is the best option because you have to pay them the service fees as well. Just I am wondering if I pay a little more from the beginning to save me tons of time, help me skip the unnecessary troubles and assure a reliable manufacturer for my business. It seems not bad as another option to find private label manufacturers.
Which do you think is better?
Share with us: How you find your private label manufacturers? We’d love to hear about your experience!