Ecommerce to Wholesale: Intro to Building Operations that Scale

Ecommerce & Wholesale Differences

In recent years we have seen digitally native, ecommerce brands like Allbirds, Bonobos, and Casper embrace in-person retail as online advertising and has become more competitive and expensive. During the COVID-19 pandemic in 2020 it seemed ecommerce would take over, but in the adapted words of Mark Twain, “The reports of brick-and-mortar death are greatly exaggerated.” According to the US Department of Commerce, over 80% of retail sales still occur in-person in brick-and-mortar stores; this presents a compelling opportunity to ecommerce-native companies. Selling to wholesale partners offers attractive opportunities for revenue and profitability growth as well as increased brand awareness through wider distribution, without the upfront investment required for owned brick-and-mortar stores.

Potentially unfortunate for those comfortable in ecommerce, wholesale operations differ drastically from ecommerce operations. Instead of dealing to many, small customers, companies have to deal with fewer, larger customers. Wholesalers have stricter operational requirements because they are in the business of making money, unlike the end consumer. The easier and faster they are able to buy, receive, process, and sell products from, the more money they make. The purpose of this blog post is to help introduce wholesale operations so more companies can take advantage of the opportunities available.

Wholesale Account Sizes

Let’s start with an overview of size tiers for wholesale accounts. I typically break wholesale accounts down into a four tiers: specialty, regional, national non big-box, and national big-box. Please that there aren’t always clean breaks between tiers. Some people may classify the examples I gave into different tiers or have more tiers. That’s not the most important point here. The important concept to understand is that there are different levels of “wholesale” and as companies move up into new tiers, their operations will need to become more sophisticated.

1. Specialty: Think your mom-and-pop skate shop, cute boutique, or neighborhood sporting goods store. Oftentimes going into specialty first is a good move for many companies newly pursuing wholesale. These accounts are typically less demanding than larger accounts. They are small but there are many of them which presents a compelling opportunity.

2. Regional: Sometimes the line between specialty and regional is blurred. A few examples of regional wholesale accounts I’ve worked with are Scheels, Academy Sports, Ron Jons, Al’s Sporting Goods, and Von Maur. As a general rule I would say these accounts have 5+ locations. At this size stores will start to impose some operational requirements. Some may have strict vendor guides and require sellers to transact via EDI (Electronic Data Interchange).

3. National (Non Big-Box): These are the big boys, but not the biggest boys; companies like REI, Zumiez, and Tilly’s make up this tier. At this point everyone has operational requirements that must be followed with and most, if not all, will require the seller transact via EDI.

4. National (Big-Box): These are the biggest boys. Target, Wal-Mart, Costco, and Home Depot are some of the top examples. Landing mass distribution through one of these accounts can completely reshape a business. However, companies must be ready operationally and financially. Expect strict operational requirements and be ready to give generous pricing and payment terms. These stores know who they are and they will be ready to throw their weight around.

From experience, two things stand out that make the operations for a specific wholesale account more complex as we move up each tier: vendor guides and EDI requirements.

Vendor Guides

Vendor guides exist for wholesale accounts to order, receive, process, and sell purchased goods as quickly as possible. The faster they are able to do these things, the more money they make.

I break down most vendor guides into the following four most important sections.

1. Finance:

   1. How does the wholesale account want to be invoiced?

   2. How will the wholesale account remit payment?

1. Product Labeling/Ticketing:

   1. How will each individual product be packaged and labeled?

2. Carton Packing & Labeling:

   1. How will each carton be packed and labeled?

3. Routing:

   1. How will each order be shipped?

Vendor guides will differ between accounts but often there are similarities. For example, all products must be barcoded. Cartons must include a packing list. Each carton must include a UCC-128 (GS1-128) label associated with an advanced ship notice (see EDI section below).

Companies selling into wholesale should put in the time to read vendor guides. If they do not follow them they will be hit with chargebacks from accounts. Chargebacks will eat into already reduced wholesale margins and can potentially sour relationships with partners.

At Thread, we use Notion to create summaries of vendor guides for our internal team and 3PL to reference. This makes it easier for us to ensure we are compliant with the key points of each guide. Because of these summaries we don’t have to “re-learn” each vendor’s guide when we have orders to ship.

EDI (Electronic Data Interchange)

In the context of consumer goods, EDI is the method of sending item, inventory, purchase order, invoice, and/or shipping information between a seller and a buyer. Vendor guides will state what a wholesale account’s EDI requirements are. SPS Commerce and TrueCommerce are two of the most popular EDI providers.

These are the most common EDI document types in the consumer goods industry:

• Invoice: 810

  • Sent from the seller to the buyer upon invoice generation. Typically this happens after the purchase order/sales order ships.

• Inventory Advice: 846

  • Sent from the seller to the buyer to inform inventory availability for items.

• Purchase Order: 850

  • Sent from the buyer to the seller. This contains all information necessary to create a sales order in the seller’s system (i.e. items, quantities, amounts, ship date, cancel date, shipping address)

• Purchase Order Acknowledgement: 855

  • Sent from the seller to the buyer to confirm receipt and acceptance, editing, or refusal of a purchase order.

• Advance Ship Notice (ASNs): 856

  • Sent from the seller to the buyer once a purchase order ships. This contains all information about a shipment (i.e. ship date, shipment contents, carton #, carrier information, bill of lading #/tracking number, etc.)

  • Most companies that require ASNs will require the use of associated UCC-128 (GS1-128) labels. These labels are linked to the ASN and detail what is contained in each carton. A warehouse worker at a partner’s warehouse will be able to easily scan a carton and see what it contains.

• Functional Acknowledgement: 997

  • Serves as a response, or electronic receipt, to confirm the delivery of information. Typically this is sent automatically by the EDI provider’s system.

EDI facilitates the structured exchange of data for large companies that have a lot of data to process.

Think of Costco. Goods on the shelves came from a seller (unless they were manufactured by Costco). Purchasing from a seller starts with a purchase order sent via EDI. The goods at Costco come from hundreds, maybe thousands, of sellers. That is a lot of purchase orders. If that data was being sent in a non-standardized manner with all sellers sending different data in different ways, Costco would not be able to efficiently process the goods they are purchasing across hundreds of locations. The use of EDI reduces operational costs and increases efficiency, allowing Costco to bring more value to their customers. This is why EDI is a powerful tool in wholesale.

Conclusion

Selling to wholesale partners offers attractive opportunities for ecommerce-native companies. Many wholesale partners have strict operational requirements that force sellers to adopt new systems and processes, like vendor guides and EDI. Whether testing the waters with smaller, specialty accounts or going straight to big-box, at SCG we guide companies through the creation and implementation of their wholesale operations. This allows companies to create and capture opportunities within wholesale that increase revenue, profitability, and brand awareness.