Made-To-Order(s) vs. Upfront Inventory. Which Option Makes Sense for Your Brand?

Which Option Makes Sense for Your Brand?

As an emerging designer, you’ve probably asked yourself this question (or you will soon): “Should I take on the expense of creating upfront inventory, or should I do my manufacturing once I have my orders in hand?” 

There is no “one-size-fits-all” answer to this question which is why we thought it was worthy of its own blog article. The answer is a bit complicated but please stick with us here. We think you’ll find the clarity you’re looking for.

First thing you need to do is identify your sales channel. Earlier this month we published an article about choosing the right sales channel for your brand. As we mentioned, there are really three options (alone and in combination) and the option(s) you choose will help you answer the “made-to-order vs. upfront inventory” question. 

Just to remind you, your possible sales channel options include:

  • Online Sales (including Drop Shipping)
  • Your Own Shop (including Pop-Up and Pop-In Shops)
  • Wholesaling (via Trade Shows, Showrooms and Agents)

To help you figure out your inventory questions let’s take a look at each of these scenarios one at a time, shall we?

Online Sales

The online sales channel option has two different answers (we warned you this might get complicated!). 

If you are selling online via your own website or through IG/Facebook, ask yourself this question: Will my customer be willing to wait six-to-eight weeks to get their order? Before you quickly answer, “well, no, of course not! Don’t be silly!” think again. 

Depending on the exclusivity and complexity of your garments maybe your customer would be willing to wait. After all, you’re creating a very unique and detailed garment. It’s not unreasonable to explain the made-to-order process to your customers and respectfully ask them to wait. Especially if you offer them some incentive to do so like maybe some branded swag or a discount on a future purchase. Brands that are considered “exclusive” or “couture” take this approach all the time.

That said, if your product is more of a commodity-type item – think yoga wear or athleisure – chances are your customer has a “buy now, wear now” mindset. Add that to the shipping speed of most of your online competition and you simply can’t afford to ask your customer to wait. 

This also holds true if you are drop-shipping your merchandise through a third party website. In case you don’t know how drop-shipping works, it involves your goods being sold online via an online store which is not your own. The online store presents your collection and the customer buys from them. You then fulfill the order by sending the goods to the customer directly from your warehouse. 

In the drop-shipping scenario you must have inventory ready to go the minute you receive the order. You’ll have very little one-on-one contact with your customer so you can’t ask them to wait while you get the garment manufactured. Also, unless you work out some prior arrangement with the drop-shipper, chances are they aren’t going to allow you to use the made-to-order manufacturing approach. It simply won’t work with their business model which is typically based on speed.

Pros of typical Online Sales:

  • You get your money at the moment someone places an order
  • 100% of the income is yours (this is a biggie)
  • You’ll see, in real time, how your customer responds to each style

Cons of typical Online Sales:

  • Significant investment in inventory before you know how well it will sell (unless you are able to offer pre-orders)
  • You might make something in a color or fabric that no one will want and you’re left with overstock
  • If drop-shipping you will split the income 50/50 with drop shipper

Brick-and-Mortar Sales

The answer here is pretty obvious: you can’t have a retail store without merchandise to sell. This is true whether the retail location is your own, or a pop-up (or pop-in). So manufacturing inventory to sell on the spot is the clear answer in this scenario.

But there is one exception that’s very attractive to emerging designers: hosting a trunk show. If you’re not familiar, a trunk show is a one-to-two day event typically held at a boutique/retail store in which you, as the designer, make a personal appearance and bring samples of your new upcoming collection for pre-orders. 

You then meet and work with customers to sell your line. If you are working with sales reps they can do the trunk shows for you, but we recommend you be there in person as well.  Your personality and knowledge of your collection will help close sales. Plus part of the allure of trunk shows for the customer is the meet-and-greet with the designer. 

Generally speaking the idea is to showcase your latest collection and take orders (that you can then ship out in four to eight weeks). You can also sell existing inventory you may have on hand from previous seasons. Always be sure to let your customers know when they can expect their shipment. 

In the trunk show scenario, you will split the income (typically 50/50) with the store or boutique, so be sure you are pricing your collection with this in mind. 

Pros of Brick-and-Mortar sales:

  • You get your money upfront
  • 100% of the income is yours, unless you are selling at a trunk show
  • You’ll see, in real time, how your customer responds to each style
  • You can build a personal relationship with your customer

Cons of Brick-and-Mortar sales:

  • You must make an investment in inventory before you know how well it will sell
  • You might make something in a color or fabric that no one wants and you’re left with inventory that you’ll have to deeply discount
  • Opening a brick-and-mortar location is expensive (build-out, overhead, staff and full inventory)

Wholesaling

This is the category that holds the least financial risk, but it’s also the one where you again split the profits with a retailer, just as you would with a trunk show or dropshipping (at the risk of sounding like a broken record, please keep this in mind when you’re determining the price of your garments). 

Also, to really succeed in wholesale and make money you need to be selling high quantities. Therefore do you have the ambition to offer a lot of SKUs every season and invest in development? If the answer to this is a resounding “Yes, sign me up!” then read on.

When you wholesale your collection (either through a showroom or a sales rep/agent) the retailer will place the order and you’ll have three to six months to fulfill it. Which, along with trunk show orders, is the truest and most traditional definition of “made-to-order” inventory.

With the wholesale model many designers have a minimum order quantity (MOQ) that their wholesale accounts must meet, plus a set cost price for every style sold. Therefore you know, even before manufacturing your inventory, how many units of each style you’ll be selling. 

This has many obvious benefits: you’ll know exactly how many units to order in each size and color from your manufacturing partner and you’ll know the exact amount of raw materials needed to create the orders.

 From a budgetary standpoint it doesn’t get much clearer than this. You’ll know exactly how much you will be spending and how much you’ll be making before you even begin the manufacturing process.

Pros of Wholesaling:

  • Time, time, and more time. You’ll typically have three to six months to manufacture your product 
  • The retailer pays for the garments when they receive the order (sometimes even before)
  • You don’t have to deal with markdowns or overstock. The retailer takes on this risk
  • Because you know exactly how much you are selling, you can easily create a manufacturing budget

Cons of Wholesaling:

  • You must sell your collection at a price point that allows the retailer to make a profit
  • Typically, unless you plan on doing sales yourself, you’ll be paying a commission to a sales rep or showroom
  • You will need to find a channel that gets your merchandise in front of store buyers

In closing…

We told you upfront the question was a bit complicated and we hope that this article helped untangle it all for you. It’s also critical to the success of your brand that you have a plan in place before starting the manufacturing process.

At Teg, our clients all have different needs when it comes to inventory. And we do recognize that each brand (and each season, for that matter) comes with its own set of questions. We’re happy to help you find the answers that best suit your unique scenario. So feel free to give us a call at 800-916-0910 or reach out to us at https://tegmade.com/get-in-touch/.

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