Every manufacturer that enters a new market faces the same question: How much stock shall I send in the first shipment?
How much do I send?”
A container full? Five thousand units? Five hundred?
With a conventional approach one might conclude that, given the potential sales volume in a huge market and the need to recover the costs of market entry, it makes sense to send more stock rather than less.
It’s easy to do the sums to work out that if each unit sold and yields $10 margin, and if there is $100,000 in market entry costs to recover, 10,000 units need to be sold to break even.
The freight costs are much less per unit when shipping full containers. At lesser quantities all the margin might be gobbled up in freight and customs costs.
And given the lead times in seafreight, when product sales start taking off it’d be a calamity to to run out, there needs to be enough stock to capitalise on the opportunity. All this suggests that more stock is better.
It makes perfect sense to send at least a container load, doesn’t it?
The flaw in the logic is the business risk.
What if that product doesn’t sell? What if it takes a while to get sales traction, and by the time it starts selling there you have product versions available? There’d be too much stock of the old version stranded overseas.
What if it turns out that red is the most popular colour and the in-market stock is mostly green and blue? What about all the working capital tied up in stock in warehouses overseas?
The World Wide Access approach is different. It minimises that business risk by lowering the market entry threshold and allowing stock levels to grow at a pace with sales.
World Wide Access consolidates shipments of products from many suppliers, which means the efficiencies of container shipping become available to individual products much earlier than if that business was exporting on their own. Regular container shipments mean that stock levels can be replenished regularly with smaller quantities to keep pace with sales. That means smaller quantities can be sent at the outset, with the confidence that there will be regular opportunities to send more.
Which brings us back to that question: How much do I send?
For a product new to an export market no-one can know for sure what quantities are needed in what timeframes. Some factors to consider:
- Seafreight lead times from New Zealand to the USA are 50-60 days from dispatch to the items being available for sale. That can be less or more with different origins and destinations. The time ‘on the water’ is typically 15-30 days but that’s just one part of the door-to-door elapsed time.
- It can take 60-90 days selling to get a useful indication of sales velocity and likely growth rate.
- Most products take more than 30 days to start building sales, some take longer.
- It takes only a few units of stock for any individual product to be ‘in-market’.
- It takes 12 months selling for an indication of seasonal sales patterns.
- We’ll only know which colours/sizes/packs/products in a range will sell more or less than the others once there’s some sales history.
- The sales split across colours/sizes/packs/products from existing markets are a useful guide until that sales history is available.
- If stock of a product runs out, how many might have sold can only be guessed at, and sales momentum will be lost. Stockouts are to be avoided.
My recommendation is to send the smallest quantity of stock that will get the product range into the market and keep it available through the first few months.
Send at least a few units across the full range of products eligible for the market, if not in the first shipment then early on. There’s no better data for decision-making than observation of what actually sells.
Identify the products likely to be the most popular, and send enough of those to reduce the risk of stockout in the first 100 days in the market. Why 100 days? That’s enough time to observe the first few weeks sales, to dispatch a second shipment and for that second shipment to arrive.
So how much is that?
For product lines with just a few products it might be 50 or 100 units of each in that first shipment. Maybe one pallet of product, maybe ½ a pallet. For apparel ranges with many styles, sizes and colours it might be 5 or 10 units of the most popular SKUs and 2 or 3 of the others to get range coverage.
If these quantities seem small, take into account that the objective is to get the product to market quickly. There will be another shipment on the way soon after, and why send more stock to market earlier than is necessary?
There’s a world of difference between funding stock to fill a container for conventional market entry, compared with needing to send only a few hundred units with World Wide Access then regularly topping up to keep pace with sales.
This is one of the ways business risk is so dramatically reduced exporting with World Wide Access, and why so many companies are choosing to export with us.
Read more about how it works.