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Considering Imports – Part 1
by Shody Chow
September 12, 2022
Warehouse with shelves of goods in cardboard boxes with employees working

Remark: Readers must use their best judgment in using the information provided, and not take unnecessary risks in importing.

During the past 10 years as a SCORE Counselor/Mentor, I have met numerous clients who want to import. Some of them have developed a new product and wanted to have it manufactured overseas to enjoy a lower price, while others could not find suitable domestic production or felt that the product quality may be higher in a foreign country. We then proceed to discuss the need to patent the product if possible, and the brand and logo. Other subjects that we cover could be the country of origin, vendor selection and qualification, channels of distribution, minimums and production quantities, quality assurance, pricing, shipping options, import risks, defining the customer followed by sales and marketing issues.

Some clients wish to import but do not yet have a product in mind, and wanted ideas and suggestions. I then proceed to ask them what they know, what they like, and what relationships they may have. If the client is an expert fisherman, then it may be a good idea to look at fishing gear. If the client has a close friend or relative in India, then consideration should be given to imports from India. If the client knows a buyer who works in a supermarket, then perhaps the focus can be on products sold in supermarkets.

I ask the client whether he or she has traveled overseas, and if so, to which countries. I always encourage the client if possible to travel abroad, visit the retail stores in foreign countries and synchronize holiday trips with visits to international trade shows. On a trip to China, I noticed that there is a small solar panel on every balcony of some high-rise condominiums. I assume that the solar panels generate electricity which is used somewhere in each home. When I visited a department store there, I noticed there were many household products with small solar panels being sold. Perhaps there is an opportunity to find one or two interesting energy-saving products by doing further research and contacting the Chinese manufacturers.

The US is a developed market. If you are importing a product that is already available here, you will be competing with other importers who are more experienced, better financed, and have existing relationships in the supply chain. There are usually more opportunities in growth areas, rather than in mature businesses.  Americans are becoming more health conscious, so there is always room for a new player that can supply unique health and beauty products. With the aging population, the market for senior citizens is growing, which gives opportunities for new suppliers.

The challenge for most importers is sales and marketing. If you can do this well, you will be successful. Start-ups in general do not have the capital to do mass advertising and branding, and in general, will have to rely on social media and networking.

Rather than wholesaling the imported product to stores, some start-ups have chosen to sell directly to consumers online. In this way, the investment capital is spent mainly on start-up costs and inventory, as there will be few accounts receivables to worry about.  After defining the customer, the client should use social media to drive the target customers to the website. The client has to develop a great website that is well-presented and easy to maneuver and has a story that the customer remembers. The marketing message should be strong with a “wow” factor, so that the target customer will respond positively “this is great, I want to buy now!”

Some clients would prefer to wholesale their products directly to retailers or distributors. Since the retail price is market-driven, there should be sufficient margin for the importer as well as the retailer. Department Stores may work on a keystone markup of 50% with a retail price of about $100 if the wholesale price is $50. Supermarkets and wholesale clubs work on lower margins and for some products, it is as low as 20%.  Some upscale stores and specialty stores may work on a margin higher than 50%, and this could vary by product and competition. The wholesaler in general needs a markup of 35% to 40% to be profitable to cover operating costs including financing for the inventory and accounts receivables. Some importers/wholesalers may enjoy a higher markup if their product is patented or they have exclusivity from the vendor. If the product is extremely competitive, then it may be necessary to work on a lower markup, at least at the beginning, to be attractive to the retailer.

About the author
Shody Chow
Shody Chow
Shody Chow has 35 years of experience in supply chain management.
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Herndon, VA 20170
(800) 634-0245

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