As the founder of clothing line FUBU and an investor on the hit reality pitch show “Shark Tank,” millions of Americans see Daymond John as an entrepreneurial mentor.
Whether entrepreneurs are pitching to him on the show or elsewhere, John says that one of the most common questions he gets is if he can get their products into big-box stores like Walmart and Target.
“There are so many things wrong with that question, and most people simply don’t understand what needs to be in place before you even think about selling to large retailers like this,” John writes in “An Entrepreneur’s Retail Ready Checklist,” a supplement to his upcoming eight-week online course, the Daymond John Academy.
Here are the hard facts about getting a new product into a major retailer.
Even the best connections don’t guarantee anything.
John says that some entrepreneurs think that he can call up someone at a store and immediately get a product stocked.
“There’s no magic phone number; there’s no one-stop shop for retail success,” he writes. “It simply doesn’t work that way.”
Big retailers aren’t for everybody.
Some entrepreneurs equate securing a deal with a big-box retailer with massive success. But it can actually be a terrible idea.
Large retail chains place massive orders and have low margins. Procter & Gamble can afford to test a new cleaning product in Bed Bath & Beyond locations, but a young company could be risking too much money by doing the same.
Companies are typically down several million dollars before seeing a profit after a big order, and success can sometimes kill a business.
When a company receives a purchase order (PO) from a large retailer, it could be an order for millions of dollars’ worth of product. The company then quickly produces the order and the retailer agrees to pay for it within a negotiated amount of time, which John says is often 90 days. “That means you are out several million dollars for 90 days plus the time it took to manufacture and ship,” John writes.
If, within this period, the product is a great success, the retailer may place a second order, requiring another hefty investment before the first payment comes in. “This is called the ‘float,’ and it has killed many businesses that simply were not prepared and did not have enough operational cash,” John writes.
And if there’s any problem with production or shipment and the retailer receives products that are irregular or damaged, then they have the right to send them back and not pay for them.
Despite the risks, major retailers can make products hugely popular.
John says that he doesn’t always discourage entrepreneurs from eventually pursuing their dream of seeing their product in a Walmart, but he ensures that they’re “retail ready” before making the leap.
His “Retail Ready Checklist” includes an actual checklist of materials and questions entrepreneurs need to prepare for before meeting with a large retailer. You can sign up to be among the first to know when the Daymond John Academy online course begins at this link.