Sourcing for online retailers

04.02.2020

Importing from China versus purchasing in the EU – When do these options make sense?

“The profit is in the purchase”, this popular trading wisdom is more valid today than it has ever been. Online retailers in particular are in permanent competition over prices. This article demonstrates the advantages and disadvantages of the various purchasing strategies and shows various procurement strategies for online retailers.

Importing from Asia

The main arguments for importing from Asia are usually the affordable net price per unit and the large selection of products and manufacturers, and the high level of flexibility towards custom production. The Chinese manufacturers are also generally prepared to work together with any retailers who can pay for it. In Europe, however, you frequently have to go through an “application process”, where the point “online retailer and sale at markets” will sometimes quickly result in rejection.
On the other hand, however, there are also clear disadvantages with supply from the Far East. Depending on the product groups and shipping options, a significantly greater volume must be purchased in China than in Europe. Because large and/or heavy products are often only profitable with sea route transportation. However, the handling costs at the port alone lead to the Chinese producers in the corresponding product segment only accepting orders with a value of over 5000 dollars. These restrictions apply, for example, in the decoration and polyresin sector. On the other hand, fashion products or electronics are generally easy to ship via air freight in small quantities. In any case, the logistics costs are greater because of the distance, and transport takes longer than for procurement in Europe, which means that you always have to plan for the long term in this area. For sea freight, you have to calculate a total of around 6-7 weeks, 4 weeks for the sea transport, the rest is pre and post-processing at the port and in the respective country.
The Chinese generally only offer customizations above a certain quantity as well. The language barrier can make communication difficult. All these points lead to the fact that the risk of something ultimately going wrong is greater than when you purchase products from established manufacturers or importers.
When an online retailer decides to import from China or another third country (i.e. not in the EU), they must consider that they then become a sort of manufacturer. In many segments, to protect the European consumer, there are legal requirements and regulations which a product which is to be introduced into the EU must fulfil. For example, for electronic devices, toys, or products which come into direct contact with food or the human body. If there are these kinds of rules for a product group, the importer must present a conformity declaration which states that the imported product meets the requirements (“is compliant”). A CE mark is applied to the product itself to make it clear that it has fulfilled the requirements.
When importing into the EU, the responsible customs office checks whether the product meets these regulations. The importer is responsible for complying with all these regulations and in this context, is also liable for any damage that the product causes later.
The importer should therefore find out beforehand which proof, certificates and labels the products require. For electronic devices alone, this can be the CE mark, registration according to the Electronic Equipment Act, Regulation on electronic material (RoHS directive), electromagnetic compatibility test (EMC test), entry in the register of old electronic equipment and evidence of lead-free solder. This is merely an example. If you would like to learn more about the required labels and certificates for a certain product area, you can do this on the platform ProductIP (https://www.productip.com/). From 30 Euro, the experts there can find out all the requirements which must be fulfilled for the marketability of a product.

Procurement within the EU

The disadvantages of procurement in the Far East form the basis for the benefits of sourcing within the EU. Retailers can purchase products which have already been produced in small quantities and, if needed, purchase more afterwards in a quick and flexible manner. The importer who sells to the retailer is responsible for complying with all requirements. If problems arise with missing CE labels (I’m thinking back to the import and customs misery of the fidget spinners in spring 2017), the retailer can take recourse against their suppliers and hold them responsible for any damages. On the other hand, you have the higher price per unit when purchasing. You would therefore have to perform precise calculations with all costs (including freight charges, customs and funding).
If you would like to procure products in the EU, you can do this on zentrada, for example (basic membership is free of charge for retailers) or visit the IAW in Cologne.

The right procurement strategy for online retail

A generally applicable either-or strategy makes no sense for online retail, for the reasons given. Instead, there are various success strategies when it comes to procurement. Here are two of them:
– Beginner strategy: Clever online retailers always start with trade goods from the EU in new product groups. In doing so, they can identify immediately the certificates that experienced importers can present, and also gain experience with the product and customer feedback. They identify which requirements customers have of the products, how great the market demand is, what price levels can be implemented on the market and which features can cause problems. This then forms the basis for product innovations in their own developments. The pleasant side effect: For more and more categories, Amazon expects a supplier invoice as proof before activation. For this, invoices from European manufacturers and importers are generally better than Chinese ones.
– Range mix strategy: Even the biggest online retailers do not import everything from China themselves. Just as experienced importers limit themselves to main product groups and purchase the rest from their colleagues, large online retailers import their core range in quantities from the Far East. However, supplementary ranges, trend goods and short-term offers are purchased from importers and large retailers in Europe.

Guest contribution by Martina Schimmel, zentrada Manager in Germany

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