Startups
10 Tips For Startups Sourcing Products From China
I had the pleasure recently of interviewing Michael Fox, who is the co-founder of the online store Shoes of Prey. What I loved about talking with him is that most of their brand has been built by word of mouth and the use of social media influencers. One of those social media influencers was Juicystar07 aka Blair Fowler, who sent more than 700,000 people to the Shoes Of Prey website in a very short period through a Youtube video she shot.
In the first three years, none of the founders took a salary, and the money they had each saved was what they lived off. In June 2012, they raised a $3 million AUD round of funding which they used to ramp up their hiring and experiment with marketing channels. In November 2013, they raised another $2 million in funding. Finally, in November last year they did a big round of $7 million to help them grow even further.
Shoes of Prey are predominantly an online business with a small retail footprint that allows women to design their own shoes, which they make and then send to their customers. The options for designing women’s shoes on their site are literally in the trillions and you can change things like the toe shape, the back shape, heel type, decorations, leather type and colors of the shoe.
The biggest success they have had in recent times is their partnership with Nordstrom in the USA, who have 120 department stores. They currently have two retail stores in Australia and six retail stores that they have partnered with Nordstrom over in the USA. After being introduced to Nordstrom they took feedback on their design and spent the next 12 months tweaking things for the USA market. This resulted in them getting a yes from Nordstrom. The main crossover was that they are both fanatical with customer service so this was a good foundation to build a partnership and relationship on.
Michael, his ex-wife Jodie and Mike Knapp started the business while they were all studying at law school. The three of them were fairly entrepreneurial and started out with regular jobs. Michael was doing advertising sales at Google; Mike was a software engineer at Google and Jodie was working in advertising. When Michael and Jodie would book holidays, Jodie would always like to book stopovers in Asia because there were stores where you could design your own shoes.
On her second and third trips, her friends started asking her if she could design shoes for them because they had seen the cool shoes she was wearing. The three of them wanted to start something in the online space for a while and spent many years diligently saving up their money to do so. When Jodie’s light bulb moment came with the shoe design concept, the idea ended up becoming the now famous Shoes of Prey.
The future looks bright for Shoes Of Prey so expect them to be opening more stores, raising more money from investors and introducing new product lines such as boots, handbags and other leather accessories.
Below are the ten tips Michael Fox gave me to help you be successful in sourcing products from China for your startup.
1. Find smaller suppliers at the start
When you are first looking for suppliers, you want to try and go with someone who is a bit smaller because they will be hungrier for your business and might be more open to doing something a bit different. Michael said that the economy also helped them because during 2008 the Global Financial Crisis hit the smaller suppliers, and their orders were suffering as a result.
Shoes of Prey had to find fairly unique suppliers in China because they were sourcing custom made shoes one at a time and sending them to a customer rather than ordering containers of product. Rather than using websites like Alibaba, which is great for generic products, they attended trade fairs in China and met with shoe manufacturers. The first obstacle they had was that the minimum order was often a thousand pairs of shoes, and they wanted them made one by one.
2. Stand out with your product to avoid copycats
To avoid copycats copying your product and affecting your sales, you should consider the concept that comes from Seth Godin’s book “Purple Cow.” The analogy in the book is imagine you’re driving past a paddock of brown, black & white cows, you wouldn’t pay any attention because you have seen this before but, imagine you saw a purple cow, you would be posting photos on Facebook and telling everybody. What your business can learn from this analogy is that you want your product to be like the purple cow and to really stand out from the other products in the market so that you will attract buyers that can’t go anywhere else for what you offer and avoid copycats. It’s this concept from “Purple Cow” that inspired Shoes of Prey to start their eCommerce company.
If there is a way for you to develop a unique product, you won’t have to deal with the issue of your suppliers selling the same products to your competitors. You can try locking them into exclusivity, but you will need the volume to do this.
3. Get the volumes up with your marketing
From the beginning of the Shoes Of Prey business, they marketed via word of mouth and on the first day they sent an email to about eight hundred of their friends. The email told their friend’s what they had been working on for the last few months along with a coupon that gave them a $50 credit. This $50 credit also allowed their friends to forward the same coupon onto other people to try it out too. Michael believes that word of mouth, along with a unique product and awesome buying experience will see your online sales quickly grow. Through this process, it’s a good idea to pay close attention to your net promoter score with the help of NPS Survey Tool, which will help you attract repeat customers.
The other part to Shoes Of Prey’s marketing strategy was to open small stores within larger department stores to leverage their brand. Every time Shoes Of Prey open a store in the USA they contact all the local fashion bloggers, Instagrammers and influencers and invite them along to the store events. This helps to get people talking about them, and the traditional media are also very useful for these events too.
Shoes Of Prey had an amazing story where a video blogger on Youtube spoke about their product, and they got more than 700,000 thousand visits to their website. This volume of traffic was more than what they had had in the nine months prior to the video being posted! Check out the video from Juicystar07 below
Go through your own customer database using some of the tools available online, which allow you to lookup your customers Instagram accounts to see who the influencers are and then invite these people to your events. Consider also using a PR agency that will have access to a lot of the top fashion bloggers and journalists.
4. Work with multiple suppliers
Michael said that at the start the approached about twenty suppliers before they picked two suppliers and began placing orders with one of them. With a business like customised shoes, you can’t work with two suppliers because one factory might make a totally different shade of red shoe than another. When three months with one supplier passed, the relationship just wasn’t working out which is why it is always important to have a second supplier as a backup. The next supplier that Shoes of Prey used lasted for three years. Michael’s advice would be once your startup gets big enough, it’s a good idea to think of building your own factory in China, which is what they now have.
If you only have one supplier, then that company know that strategically you are not in a strong position and this can lead to them dictating both price, delivery times and quality.
5. Make it easy to send orders to your supplier
Before they had their own factory Shoes Of Prey developed an online order form that had a built in translation system that could translate the order from English to Chinese and then be sent to the factory to explain the individual shoe that needed to be made. Once the order form was in the factory, all the components of the shoe would be put into a box and go through various stages to make the shoe before going then proceeding through to quality control.
With custom made products it’s important to price the shoe at a lower margin when you begin so that you can still be competitive, once the volumes rise you can then increase your margin because your buy price is lower.
6. Be careful of intermediary shipping
China is like the Wild West for doing business and if you have the money to spend you can source almost anything very quickly. The negative is that if you don’t have enough shipping volume in the early days to deal with the large shipping companies like DHL, you are forced to use an intermediary. What Shoes of Prey found was that because the intermediary were paid by the cubic metres of the shipping parcels and then they in turn were charged by DHL in cubic metres, they would unpack their nicely packed shoes boxes, and cut down the top off the shoe box to make the shipping cheaper for them.
Customers began telling them that the shoes were great but the boxes looked horrible, and Michael couldn’t figure out why. Being a clever entrepreneur and understanding the power of customer feedback, he drove around to one of the customer’s houses in Sydney and inspected the box. On closer inspection, Michael could see the shoebox had been cut around the top to save space.
7. Keep a close eye on the payment terms
In the early days of your startup, you should expect to pay your Chinese suppliers up front. In the case of Shoes of Prey, they would get the money in full from the customer at the time of ordering, and once they had a relationship with the supplier, they could typically pay 14 days from the invoice. What this did was put them in a positive cash cycle and allowed them to grow. For you to be successful in importing products from China, you must be continually renegotiating your supplier payment terms to make the cash cycle as good as it can be.
8. Keep the design process simple at the start
Initially, Shoes Of Prey used the Chinese manufacturers design of the shoe to start with and so that it wouldn’t burden the relationship too much early on. If you go down this path, consider flying to China and seeing all the samples yourself. If you only deal with them by email, it can be tough to have any sort of relationship. As things have progressed, Shoes Of Prey now do all the design work and styles themselves. The continual theme here is to start with a simple arrangement with your manufacturer otherwise you will find it very difficult to get your first one. As things move forward, and they can see orders coming in, they will be much more open to trying new ideas with your product.
9. The first employee you hire should be in China
Overcoming the language barrier when dealing with Chinese suppliers is definitely possible as a lot of them have English speaking sales and business development staff. Very early on in your startups journey, it is a good idea to hire English speaking staff that work for you and are based in China if you’re going to be sourcing products from there.
The nature of manufacturing anything in China is that you must have rigorous quality control standards, and this must be done by you. For Shoes Of Prey, the first employee they hired was based in China to do quality control before they even launched. As you expand you should eventually have your own factory with a workforce of employees that you employ directly – small steps should be taken early on.
As founders, you should expect to be spending a fair bit of time China yourself keeping on top of the quality control, and perfecting the business.
10. Control the production time
If the manufacturer knows you can’t go to another supplier, it can be very challenging to hold them accountable for production times of your product. One solution to this problem is to keep the backlog of orders on your end. For example if you had 100 outstanding orders for shoes, you would send 10 to the factory, they would produce them, and then 24 hours later you would send an order for another ten of your must urgent orders and so on. This can help them keep the production time under control.