John Van Beekum for The New York Times Gerald Shvartsman has expanded his start-up to more than 50 employees and sales of $7 million.
Case Study
What would you do with this business?
Last week, we published a case study about an entrepreneur, new to the furniture business, who had expanded his business selling patio and deck furniture to $7 million in annual sales. Instead of selling through sales representatives, Gerald Shvartsman, founder and chief executive of Source Outdoor, which is based in Miami, employed a multichannel sales strategy.
He sold to South Florida furniture retailers, fulfilled orders taken by Internet merchants, cut deals with local decorators and designers, and did not overlook an opportunity right under his nose — the beachfront march of condos, all needing outdoor furniture around their pools. But Mr. Shvartsman hit a speed bump when he started enjoying much higher profits through a fifth sales channel: selling his goods at retail prices at local home shows.
One of his best retail customers complained: “I’m buying from you and you’re trying to sell to the same customer I am.” Neither that store owner nor any of Mr. Shvartsman’s other retail outlets were selling at the home shows. Still, he wondered if it might be best to remove his retail hat and stick to wholesaling. After some personal debate, he decided to stop displaying his goods at the home shows. We talked to Mr. Shvartsman about why he decided to walk away from his most profitable sales channel — and also about the advice elicited by this case study.
How did you reach your decision?
Basically, I decided that having a good reputation and good referrals from my current customers was more important than the income from selling directly at home shows, because it’s a small, cottage industry. They all know each other. People talk.
One reader suggested that you open another company with a different name to work the home shows.
That was my first instinct, to be honest. But that’s not the right thing to do, because people talk. Why am I going to put myself in a bad situation for extra money? At the end of the day, integrity is more valuable.
Both of our experts and several readers suggested ways to partner with your retail customers so as not to leave this market untapped. Did you make any such attempts?
Yes, last year I offered to pay for the show for this retailer, which came to more than $8,000. I would set it up for them, because I have the infrastructure, the trucks, a full-time marketing team. I designed the fliers for them. I gave them an extra 10 percent discount off their price. I sent them one of my salespeople who knows the product and does well at home shows. I paid him out of my pocket, $250 a day, so he wasn’t working on commission. He helped their two salespeople, who were not used to this environment. These shows are a one-call close, whereas in retail it’s not necessarily that way, not as fast pace, not as much pressure, where you have to close while you can or likely you’re not going to close them.
And how did this work out?
They did really well. They did almost $60,000 in business. So they paid me back the $8,000. They were very happy. I offered it to them going forward, but they didn’t feel they got a lot of post-show business and the main salesgirl had a baby and they just didn’t want to do it anymore.
Have you offered this service to any other retailers?
The other retailers in the Miami-Fort Lauderdale area that I would offer this to aren’t set up for it. The retail side of this business is a very family-owned kind of business and multigenerational. You have to be a hustler to do well at home shows, and they don’t have that type of personality.
But if you have determined that none of your retailers are interested in the business, don’t you have every right to do it yourself?
The answer is yes. But at the same time, integrity is everything, and your customers have to be secure that you’re not competing with them. The minute they think you’re competing with them, they’re going to find somebody to replace you — no matter how good you are to them or what kind of terms you extend to them or how you treat them.
What do you think of the reader suggestion to enjoy the higher profit margins at home shows beyond the reach of your Florida retail customers — in Atlanta, for example?
It crossed my mind, but it’s penny-wise and dollar-foolish. Setting up in Atlanta is not really an option. Even Atlanta is too far to ship the goods. It’s only really worthwhile in our backyard.
Have you identified any other sales or revenue channels?
Yes, we’re spreading our wings into export. As we’ve become a brand instead of just another guy importing wicker, within the last year or so we’ve acquired overseas customers, so we’re not only a U.S.-based distributor, we have distributors called Source Outdoor Colombia, Source Outdoor Costa Rica, and we’re working on Source Outdoor Brazil. We ship directly from our factory in China to these people around the world. They could very easily go to China and go to a show and pick up a manufacturer and buy merchandise maybe a little cheaper. But with me, I make their life easier. They have a beautiful catalog that they otherwise couldn’t afford. We send them leads. Every time we do a show and someone comes to us from one of their regions, we send them the lead.
How big is this new international revenue stream?
We’ll probably do about half a million dollars this year from distributor sales, and I think we’ll get that to $5 million in the next five years.
Article source: http://boss.blogs.nytimes.com/2013/05/01/a-wholesaler-decides-to-abandon-his-most-profitable-sales-channel/?partner=rss&emc=rss