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March 5, 2009, 10:28 AM
Gordon -

I have a couple of additional questions for Mr. Brody, if you're still taking them...

(1) Most chain stores and departments stores ask new suppliers to fill out a form that shows the financial position of the supplier. What if you are a new company with little to no assets? Won't that make the retailers nervous? If I don't start distributing products through mass merchandisers, then where do I start?

Yes, there is a Catch-22 at play. As most of our test "bird dogs" will readily identify with. Not only do they want to know your financial standing, but also you must now be EDI (Electronic Data Interchange) compliant with most major chains.

Almost every retailer is going to require a buy back clause in your agreement, and this often stops the small timer from pulling the trigger. For example, say SEARS offered to put 5 units in all of their stores, say, 3500 combined, so that would be an order for 17,500 and probably with a purchase order with terms, maybe 90 to 120 days with a small discount on earlier payments.

So, that means you have to have the 17, 500 manufactured and shipped knowing you won't get your money for several months...now the PO itself can be taken to your bank and a line of credit established.

Anyhow, there are tons of DETAILS that go into making these kinds of deals if you want to avoid legal problems down the line.

You would most likely begin with MASTER Distributors or MFGR REPS, who have a working alliance with the stores you want to get into.

One way that some NEW products are being entered into retail is via TV...the AS SEEN ON TV brand, Walgreens even has a special section for these items. So a mfgr could run an infomercial, even once, and post it on youtube for example, and have an AS SEEN ON TV PRODUCT.

Retailers aren't nervous if there is a buy back clause, they have nothing to lose. But if you have a dog on their shelves, you'll have a much harder time getting back on the shelves.

Another way and less costly way to break a new product into the market is via Direct Response. You have control over just about everything, the key is to create a promotion that works for the product. This is one way to do it.

(2) Who does the quality control inspection for your products? Do you hire someone to inspect the products after they are manufactured... or do you just trust that the products were manufactured correctly? I'm assuming that someone, somewhere, does QC after the products are manufactured, and before the products go to the distributor or retailer.

Great question. YOU are responsible for the quality, which is why you want the mfgr to be a quality control participant...say a ISO 9001 certified facility, which only agrees to the PROCESS, not the quality.

That falls on YOU and your mfgr, to make sure they are using high quality steel molds and not aluminum for example. It begins with the specs of the product and what steps along the way you have to insure the quality. The QC should begin with you and what your mfgr is going to turn out. You submit your specs, and have them checked before you go into a full run.

Then, there should be inspections afterwards too, and before it goes to the retailer/wholesaler. This falls on you. It could get costly fast, which is one reason Harvey likes to find existing products that have been on the market and just need more distribution. You come into the process much closer to the consumer, after all the "dirty" work has been done.

Of course, there are 1001 nuances when dealing with different types of products or even classes within a class of products. If you are selling chemicals, there are all kinds of hoops to jump through and with a new product, it may take months and months (even years) to have it work through the systems, like the FDA for instance.

IF you can find a product that is on the market, but is UNDER marketed, you'd be way ahead of the game.

Thanks for those great questions.



P.S. Thanks Gordon, for keeping Harvey's teachings alive.

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