The affect of Direct orders

The result of square and other e-commerce platforms have largely affected yoyo brands.  It has become significantly easier to start a "yoyo company" than ever before.  All that's needed now is a couple hundred bucks for the design, and to pay someone local or outsource the machining, and you have a nearly finished product.  However, most retailers can see past this type of almost laze, and will refuse to carry the product.

What do these people do?  They sell direct.  They will create a page online, using the same platform as a larger scale established company (think Yoyofactory, Recess, etc.)  and sell through their website.  See the following expenses and how selling direct would impact your net profit, using the reference of a single metal yoyo.

6061 aluminum yoyo: 

Design costs: 500

Prototype: 300

Run of 100: 2000 (20 per yoyo, inclusive of shipping and surface treatment)

Boxes: 30

Stickers: 30

=2860 (28.60 per yoyo, all prices rough estimate)

To break exactly even, one would need to sell to a store at exactly 28.60, assuming one does not keep a single yoyo for themselves.  This yields a rough retail price of 57.20.

But established brands are making yoyos for 45 dollars on the market.  By increasing production runs, one can cut down on the cost, and lower the pricing on the individual unit to the single dollars.  However, if the yoyo is launched through an unestablished brand, it becomes increasingly difficult to sell out.  Keep in mind, the 57.20 retail price yields no return on investment (in time and product.)

By eliminating the retailer, and using e-commerce, every single dollar above 28.60 will now go to the seller, sans the credit card/paypal fees.  This is extremely beneficial to the brand, but detrimental to the retailer.  Because retailers rely on these types of wholesaling for a living, it because increasingly difficult to compete  with the direct stores.  In addition, direct stores have a larger incentive to provide complimentary shipping, because their net profit is higher.

So why sell to the retailer?  Not only is it good to maintain a healthy relationship with the retailer, as most of them also help run established contests, but it is also a vital marketing tool.  It is not often that people browse a direct and run across something that they didn't know about.  Chances are you were already on that website looking for something that had been advertised before.  It is however, really likely that one is to browse yoyoexpert or rewind and find something in the new release or upcoming sections that they did not know about.  This is the type of marketing that I am referring to.

Another method is to use direct sales to market.  A certain theoretical Japanese company will launch direct orders weeks in advance compared to retailers to compromise the retailer's orders.  Since the direct store has free shipping at 100 dollars, and often times has a cheaper retail price point(justified with the fluctuating yen,) consumers are more inclined to purchase direct, as it would provide them with product faster, and cheaper.  However, if it weren't for the brand's popularity, it wouldn't sell out.  

All in all, I think that direct sales have been great for start up yoyo companies, having done that myself.  However, once presented with the opportunity, I believe that a healthy split between the two should be the answer if at all possible.  I believe that releasing the product at the same time, or having direct sales be later than retail sales is the right choice, as it allows consumers a choice as to whether or not to support the business directly, allowing a healthier profit, or providing a profit to the retailers.  

 

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Tyler Hsieh