Choosing Between Custom Orders or Pre-Stocked Inventory: What's Best for Your Business?
As a budding designer, you've likely pondered this question: "Should I invest in upfront inventory or create items based on orders?" Let's dive into the complexities and find clarity.
First things first: determine your sales channel. We recently covered the right sales channels for your brand and emphasized the importance of alignment with your chosen production strategy. It could be one or a combination of:
- Online Sales (including Drop Shipping)
- Your Own Shop (Pop-Up, Pop-In)
- Wholesaling (Trade Shows, Showrooms, Agents)
Now, let's delve into these scenarios:
Online Sales
Online sales throw up a couple of different answers. If you're selling through your website, IG/Facebook, or a third-party platform, ask yourself, "Will customers be willing to wait six-to-eight weeks for their orders?"
Certainly, some customers would appreciate the exclusivity and detail in your creations, enough to wait for a made-to-order item. You can explain the process and provide incentives like offers or discounts to entice them. However, if your merchandise leans towards commodity items like yoga wear or athleisure, chances are customers prefer an "immediate gratification" mindset. In such cases, it's vital to have inventory ready for immediate shipment.
Drop shipping works the same way: you must have stock available for instant dispatch when orders come in, as you've limited contact with your customers, and it's rare they'll entertain a wait for made-to-order items.
Pros of Online Sales:
- Cash at the point of sale
- Higher ownership of income
- Real-time feedback on styles
Cons of Online Sales:
- Inventory investment before knowing its sales potential
- Risk of overstock or unselling specific colors/fabrics
- Split income with drop shippers (if applicable)
Brick-and-Mortar Sales (Your Own Shop or Pop-Ups)
Having inventory on hand is a given if you have a physical store. However, chunky trunk shows — events held at a store for pre-orders — present an intriguing exception. Instead of showcasing finished inventory, you can present samples of your upcoming collection and take pre-orders. While there's a 50/50 split of income with the store (typically), engaging with customers in person can boost sales, as shoppers enjoy meeting the designer and learning about the process.
Pros of Retail Sales:
- Upfront cash
- Opportunity to build customer relationships
- Immediate feedback on styles
Cons of Retail Sales:
- Inventory expenses before knowing sales
- Ugly sight of unsold stock and markdowns
- Costly to open a brick-and-mortar location
Wholesaling
The wholesale route presents the least financial risk but includes splitting profits with retailers. You'll need to work with buyers from trade shows, showrooms, or sales agents. Production takes place based on orders (three to six months lead time), minimizing inventory risks.
To succeed in wholesale, you'll need to produce in bulk and invest in development. The opportunity to display your collection to a wide audience can pay off, but be aware that competitive pricing is crucial to attract buyers.
Pros of Wholesaling:
- Generous lead times for production
- Retailers settle the bill before or on delivery
- No need to manage unsold stock or markdowns
- Clear budgeting for manufacturing with pre-known order quantities and costs
Cons of Wholesaling:
- Competitive pricing required to grab retailer attention
- Commission to sales agents or showrooms
- Difficulty in reaching large demands quickly
Dissecting Make-to-Order vs. Upfront Inventory: Key Pros and Cons
| Aspect | Make-to-Order | Upfront Inventory ||-----------------------|-------------------------------------------------------|-------------------------------------------------------------|| Inventory Costs | Costs minimized as production occurs on demand | High inventory costs and capital needed upfront || Customer Experience | Customizable, potential long wait times | Faster delivery, though risk of missing out on trends || Risk | Lower risk of overstock and obsolescence | Higher risk of unsold inventory and markdowns || Operational Cost | Higher per-unit production costs potentially | Economies of scale reduce per-unit costs || Suitability for | Online, niche, or customizable fashion lines | Physical stores, large wholesale orders || Cash Flow Impact | Positive, no upfront production costs | Negative, tied up in inventory until sold |
Ultimately, your brand's production strategy depends on your sales channels, product range, and target market. An integrated approach that balances elements of both make-to-order and upfront inventory strategies may help you achieve the best results.
As an emerging designer in the fashion industry, the choice between investing in upfront inventory or creating items based on orders can seem daunting. The production strategy you choose should align with your sales channels, whether it's online sales, brick-and-mortar sales, or wholesaling. For online sales, consider whether customers are willing to wait for made-to-order items or if they prefer immediate gratification. Brick-and-mortar sales offer the advantage of building customer relationships, but inventory management can be challenging. The wholesale route minimizes inventory risks, but profits are shared with retailers. By understanding the key pros and cons of make-to-order and upfront inventory strategies, you can make informed decisions that suit your small business, lifestyle, and fashion-and-beauty brand. Entrepreneurship in this industry requires balancing these aspects effectively to ensure financial success.
