Why Undercutting Your Stockists is a Terrifyingly Bad Idea

Bathtub Displays at Plaisir

Come, my pretty.

Walk with me through the haunted back alleys and twisted lanes of wholesale, to a place where the honest light of day will never show its face.

Journey with me into the heart of darkness if you dare, and I’ll show you horrors that will curdle your ear wax.

Ah. I see you’ve guessed where we’re going, but it’s too late, there’s no escape!

Today we’re going to talk about the dark and shadowy practice of undercutting.

Ahhahahhhahhaa!

Sorry.

I’ll stop frightening you to within an inch of insanity now. I’m not taking this cloak off though. It’s fleece-lined. And there are some Jammy Dodgers in the pocket.

Eating them with these plastic vampire teeth in might be a little tricky.

So, undercutting.

Undercutting is when an artist or designer sells their work directly to the public for significantly less than their stockists are able to charge.

This means they’re selling their product to retailers at a particular wholesale price, but selling the same products through their website, on Etsy, Folksy or at craft fairs for less than double that wholesale price.

Let’s just say it. Undercutters are pretty much screwing their stockists over.

Want a quick example? I’m a shopkeeper, so let’s pretend I’m buying your widgets for a wholesale price of $5. That means the very least I can afford to sell them for in my own shop is around $10.

That price of $10 allows me to do three things.

First, I can claw back the cost of buying the widget in the first place. Most of the remaining $5 will go towards the expenses and overheads associated with running my shop. Lastly, a small part will be profit. That’s the bit that means I can afford to wear clothes, live in a house and feed my cat.

But, hang on. You’re selling exactly the same widgets on Etsy for $6.50.

You, my friend, are an undercutter.

Why do shopkeepers get cheesed off about this? Well, it’s pretty simple. You’re trying to have your cake and eat it.

Undercutters want the large volume of sales and increased exposure that comes with wholesale, but they also want to maximise turnover through their own retail channels by offering their work at an attractively low price.

Your stockists can’t possibly compete with that. Running a shop is expensive. Selling your work at a markup of less than 50% usually isn’t viable for us. When you do it, you make us look bad.

Customers don’t make buying decisions based solely on price, but it’s a major factor.

If a shopper sees a necklace she likes in my shop for $20, but then goes on Etsy and finds exactly the same necklace for $12, which one is she likely to pick?

When it becomes clear that a supplier is undercutting their prices, most retailers will immediately ditch them. Why be loyal to someone who isn’t showing loyalty to you?

Undercutting is the fast route to a faltering wholesale business, angry retailers and a bad reputation. Yeah. Told you this would be scary.

Want to make sure you don’t undercut your stockists? It’s pretty easy.

When you sell your work directly to the public, don’t charge less than double your wholesale price.

That’s it.

Does this mean that you might have to increase your Etsy or Folksy prices when you start selling your work to shops?

Yep.

How about the prices on your own website, and the prices you charge at craft fairs? Do they have to go up too?

They certainly do.

If your current retail prices aren’t at least double your wholesale price, they’ll have to go up when you start selling wholesale.

Now, you might find this idea rather unsettling. Horrifying, even.

Increase my retail prices? But my Etsy sales will totally drop off!

I make a large proportion of my income from craft fairs – if my prices go up, my customers will abandon me!

People will think I’m a money-grabber!

These worries are understandable, but they’re based in the idea that what you sell, how you sell it and the people you sell it to are all fixed, eternal things.

They’re not.

Your business is an evolving entity. Old customers are falling away and new ones are taking their place all the time – you just can’t see it happening.

Your best customers, the ones who’re really tuned into what you do, aren’t going to be scared off by small, or even pretty large, price increases.

If they want your stuff, they’ll find a way to get it.

When your prices go up, you’ll also become visible to a whole new type of customer – the ones for whom your work has been far too inexpensive up to now.

The wider point here is about being prepared for change. Not scared witless by it.

When you start selling your work to shops, the winds of change are going to whistle all the way through your business – maybe even into places you didn’t expect, like your retail pricing.

Make sure you’ve got your thermals on.

Clare Yuille — Indie Retail Academy

Clare Yuille is a shopkeeper, writer and retail coach for creative types who want their wholesale business to go whoooosh. Want to sell your work to indie retailers but feel overwhelmed, out of your depth or, erm…completely paralysed by fear, doubt and self-criticism? Clare’s blend of insider knowledge and expertise will help you simmer-the-heck-down, plot your course and experience so many biz-related epiphanies you’ll actually enjoy pitching your work to retailers. She takes away the eeeek! and replaces it with aaah.

Ready to get moving? Download her free Indie Retail Starter Kit