My business partner has a best friend in Italy who makes high-end golf shoes using top-notch materials. This golf shoe is already selling well in Italy’s retail stores, for between €300 and €450. We want to help him sell his golf shoes in the U.S. through Amazon and eBay. The wholesale price for these shoes is about $120 dollars. I checked other branded golf shoes on Amazon and the price ranges from $120-$190.
I have been an Amazon FBA seller for almost two years now, but I still consider myself to be new. So, I’d like to know whether this would be a good move financially, and if I should test the market online first. Also, is it unreasonable to have the golf shoe maker sign an exclusive contract with my company?
— Jean-Paul B., New Jersey
Before I tee-off on this reply, allow me to commiserate with you. You have been using Amazon FBA for two years and still consider yourself new to the model. That humility will serve you well, as it can be pivotal to long term success. I’ve worked in this industry for a decade, and I learn new things every week.
First let’s do some basic maths
These items retail between €300-450. Let’s convert this to dollars so currency conversions don’t trip us up. This is roughly $350-550 based on present conversions.
With the wholesale price at $120, you have a margin of 70-80%. So far, so good.
Let’s assume shipping and other associated costs of getting the product from Italy to Amazon FBA in the U.S. will eat into this by 20%. Likely too high, but let’s be conservative.
With a margin of 50%, the maths check out nicely. Reselling another company’s brand for a 50% margin is healthy.
No sand trap so far, but it still needs to be examined further before we know if we’re under or over par. I have never played golf in my life.
Here is the tricky part. You are comparing this brand/retail price to other brands already present in the U.S. I can see why you are doing this, but let’s be careful here.
A brand is a value proposition. Brands take years, if not decades, to build a presence around their name, logo or product. A buyer who knows a brand, knows the inherited value proposition they are purchasing.
For example, take cars. Think about BMW. The brand is known for solid craftsmanship and reliability. You buy a BMW because they have spent a long time building a value around the brand. Sadly, some models still come without turning signals… but you don’t compare a BMW to a Kia or Chevy. The prices are different, the “image” is very different, and the mentality you have entering the purchase is different.
Or maybe take another example – Heinz Ketchup. They are dominant in the ketchup market. They built a brand around it as a household name and many people do not consider any ketchup as “real” unless it’s Heinz. My sister would have a hissy fit if I served her anything else. But is it better? Does it have a better taste? Likely no, it’s just established and now what people expect for “ketchup”.
Maybe one final example: Apple. In my opinion, overpriced computers. They are 25% more costly than a traditional PC, often with the same specifications. But people buy them for the brand, because they are known for being reliable, intuitive and, let’s face it, sexy.
My point, assuming I have one, is there is danger in comparing these golf shoes to other leading golf shoes, because you are only comparing the product type. You could compare a BMW to a Kia. They are both cars, but the brand element makes a substantial difference.
Given your wholesale price is the retail price of other branded golf shoes, you have a problem. You can either hope for brand recognition to allow a higher price point, or you’ll need to massively cut in to your margin to build awareness.
Assuming this brand is unknown in the U.S., you cannot really hope that a new ASIN with no reviews or history on Amazon will gain much traction when priced higher than similar products. To be clear, I am not stating they are the same quality and craftsmanship. But, from a buyer’s perspective, there is no way to know that your product, priced 30% higher, is better if the brand is unknown.
This leaves you with the long-term messy business of building awareness. I imagine your wholesale activities would help dramatically, as branding is about getting the item in many places. But, be it wholesale or direct retail, I assume sales would be slow without an aggressive price point and marketing.
You also have another challenge. On Amazon, you don’t really have the ability to “brand” product. Buyers are in an ocean of choice and will often focus on price, shipping and value before branding. You may have to build the brand elsewhere before you can make profitable sales on Amazon.
So building a brand is expensive and hard, but this is not necessarily a bad thing for you, because companies build brands all the time. But the hole is a 655 yard par five and not a 125 yard par three – it takes time. You need to believe in this product and be prepared to grow it over a long stretch of time. If you are aiming to do it for a quick buck or two, you may only get a buck or two from your efforts.
I would 100% encourage a small test first. Buy a few cases of the shoes, list them on Amazon, wrap some PPC around them and see how it goes. If they don’t sell, you know it’s going to take time to build this brand. If they start to trickle out the door, maybe there is far less to do to gain traction than assumed.
Do you believe in this product? Are you keen to build this brand?
If yes, go for it. Absolutely, positively, have an exclusive distributor agreement signed in blood. If you are going to build their brand for them, you want 2-3 years exclusivity and realistic targets to allow for renewal. You are doing a lot of hard work for them, so make sure you have airtight legal control.
In a past life, I worked for a small outdoor accessories company which had exclusive rights over a BBQ brand. The device was unique and amazing. But the first year, the company operated at a loss. Attending trade shows, getting product on shelves, getting a dropship network, getting the product listed everywhere… a lot of work, and a net loss year one.
Year two, all the hard work began to pay off. The brand, and product, started to sell itself. By the end of year two, most of the dropship accounts had been cut and the bulk of revenue was coming from direct sales and stores. Since then, as far as I know, it’s been profitable.
It’s a long course you are on here, with a lot of bunkers along the way. Play shrewdly, and it could pay handsomely by the time you reach the eighteenth hole.