Transcripts

1. Introduction: What's up? My name is Jeff Staple. I'm the founder and creative director of Staple Design and Reed Space. You might have taken my last class on Skillshare which was how to start a fashion brand. In this class, I'm going to talk about the introductions to sourcing and the introduction to sales, two extremely important aspects in terms of your brand development. So, selling things is how you're going to be able to keep creating new things. We'll discuss how you get things made, different ways that you can sell your items to the world, tying it all together between sourcing and sales. The reason why I think I'm very good at teaching this class is because I did it all the wrong way. Many of the things that I'm going to discuss are not even the things I myself went through the first time. They were the things that I went through the sixth or seventh time doing this. We've also got a contest that's going to be really fun. Get your sales materials together, get your sourcing right, get your sample set together, and present it to Reed Space, and we're going to pick one to be the newest brand in our collection. Gets you to see the finish line a little bit faster, so it's going to be really good advice, I hope. 2. Class Overview: So, chronologically speaking, in your brand development, as we went over in the first Skillshare class that I taught, it was about knowing and understanding what your brand is, developing your logo, and getting your designs together. So, now you've got your brand, your brand name, your logo, and all your designs. Great. I've seen so many brands that have, right here at this stage, die. That's it. They've got their name, their logo, and they've got great designs on paper, and then you don't ever hear another word from them. Why is that? It's because they haven't been able or wasn't able to take the brand to the next step, which is get stuff made and made beyond what their two hands can make. Actually bring it to a manufacturer, a vendor, a factory, and have stuff made in quantity, and then from the next step from there, get it sold. So chronologically speaking, the next step after you've created your brand and your designs is to get it sampled, and to get it made. The step after that is sales, selling it. You obviously need samples in order to sell. But, I'm going to go over intro to sales first even though it happens to be the latter step. The reason why is because sales and sourcing the way you get your stuff made are so interrelated and interconnected that I'm going to actually work backwards. So, I'm going to start at the finish line of where you want to be and then go backwards in time. This is something that I wish I had known when I was starting Staple. When I started Staple, I was probably like most of you, a creative person who had awesome ideas. I came up with the name, I came up with the logo, I came up with designs, and then I went along the path, chronologically speaking. I tried to figure out how stuff was made, I tried to figure out who was going to make it. After I got stuff made, then I tried to figure out how I was going to sell it. The problem is is that if you don't have the foresight to understand what's going on, you're going to be sitting on inventory right off the bat, and not knowing how you're going to sell it, not knowing how much it should cost, not knowing how much you should be paying for it, not knowing how much profit you should be making from it. All of these things are going to be hurdles along the way, which I tripped over many, many times. If I had known from the beginning that, ''Hey, let's look at this from the finish line and go backwards.'' You really create a much smoother path for yourself along the way. So that's the way we're going to start it for this class. We're going to start with an intro to sales, and we're going to start at the finish line and go backwards. 3. Methods of Selling: There are many different ways that you can sell nowadays. Let's go over some of these different methods of selling to the consumer. The new most innovative way is direct to consumer. So, this is online sales, selling through a mobile app. This is you the creator of the brand selling directly to the end user. You're eliminating stores, you're eliminating buyers, you're eliminating distributors, you're eliminating sales people. These are all in the old paradigm where we're different institutions and people that would handle your brand before it got to the end user. So, let's take for example a book. So, let's say you're the author of a book, you're the writer of a book. Back in the day, you would have to have probably a literary agent that would help you to put your book together and help you get it into the hands of sales people, then maybe the Barnes and Noble brick and mortar salesperson would be in touch with that literary agent and say, "Yeah this book sounds really interesting." Then put it in Barnes & Noble. Then Barnes & Noble would then have to sell it to all their regional distribution centers. So, Barnes & Nobles has a central headquarters then you've got all the regions going on, and then maybe a customer will walk in the Barnes & Noble's and buy your book. But look at all the different people that we had to deal with. We had to do with a literary agent, a distributor, a buyer, regional buyers. All of these people are taking a little slice out of your profit margin. The upside of it of course is exposure. So, it's like the difference between you setting up a lemonade stand and selling on the corner, you get to keep all the profits, but your exposure is much less. So, there's a given take to all of this stuff. So, the old paradigm is the one I just outlined. Dealing with sales people, trade shows, fashion shows, distributors. This is the old way of selling. The new way of selling as obviously direct to consumers, and the Internet is really allowing people to get to almost mimic the exposure that they might be getting with these big old distributors and sales agents. They can almost get it on their own through social media, through viral marketing, and through Google search engine, search engine optimization and things like this. You could really get a good highlight on what your brand is and what you're trying to sell. The thing is though regardless of which way you sell, you're going to need some collateral items that are standard for any which way you sell. Now, some of these are you need in an order sheet. You need a way for people to be able to fill out whether it's digitally as a PDF or manually on a pen and paper in order sheet. Order sheet usually consists of your style name, style number, and I'm going to show you examples of this, a brief description, the price that they're paying, the wholesale price, and then the price that you want the consumer to pay which is generally known as MSRP, and then you've got like a little column for your size breakdown. So, if you happen to be in apparel you'll have small, medium, large, extra large quantities for each and then a final quantity and then the final dollar total which I'll be showing you an example of shortly. Let's go over some terminology though. Working backwards again, MSRP. is the manufacturer's suggested retail price. This is how much something costs when you walk into a store, it's the retail price that you pay. Working backwards from that is what is called the wholesale price. Now, this is how much the store pays you the designer for that good. So, the difference between MSRP and wholesale, is the profit for the store. Now, working backwards from wholesale is cost price. Cost price is how much you the designer or the creator of this good is paying to get it made, all right. So, the difference between wholesale and cost price is your profit. So, let's run through an example. Let's say I make a T-shirt. I found the factory that can make my T-shirt for 10 bucks. Okay, ten bucks is my cost. I'm out of pocket, $10 for every shirt that I make. I find a store. The store says hey I like your Ts. I want to buy them. You typically will charge double or maybe a little bit more of you can get out of it get away with it double your cost. So, if my cost is $10 a T, I would like to sell that T to the store for $20 okay. So, the store is paying $20 for every shirt that I sell to them, but it cost me $10, so my profit is $10. Now, the stores pay $20. That's the wholesale price. Generally speaking, stores also want to double their price too and they also typically want to get a little bit more maybe a little bit more than double like 2.5 or 2.2. So, let's just say for math's sake. The store wants to double it, so the store will take it from 20 and then go to 40. Forty is that MSRP that I spoke about. So, when the customer walks in the door, he's paying $40 for a shirt which the store paid 20 for. So, the store's profit is $20. Then again going backwards from that your profit was $10 because it cost you $10 to make. So, the first thing you have to really get a grasp of, is understanding those three metrics, cost to wholesale to MSRP. Now, why is that so important, and why did I start with this? Because before you get stuff made, before you determine where you're going to make stuff, how you're going to make stuff, what fabrics you're going to use, you have to sort of foresee in the future, how much your goods will be being sold for, and where they are being sold at. That will answer all the questions of how you get your stuff made, who makes your stuff, and basically how good your stuff can be made. I'll give you an example. If you're trying to start a bag brand, and let's say you decide on the one end of the spectrum, I want to sell my stuff at the highest level department store money is no object, my bags can be sold for a $1,000, it doesn't matter. So, let's say you want your bags to be sold for a $1,000. That's great. Now, if you work backwards from that, really quick in your mind, you don't have to really do the specific math but just do the quick math. A $1,000 is your MSRP. That means the store is going to be wholesaling the bag at $500 the're going to be retailing it for a thousand so their wholesale's 500. That means at 500, you should be making your bags for around $250 a bag. That's how much it should cost you to make your bag. So, 250, 500 and a thousand. Now, you go to your manufacturers, or you look at your different options for making stuff. What kind of a bag can you get made for $250? So, can you make Italian leather? Can you make it in Italy? Can you make it in Japan? Or do you have to make it in China? Do you have to make it in Vietnam? These are all different things that are factors into how you're going to sell your goods. So, let's look at it at a different end of the spectrum now. Let's say you want that bag to cost $50. I'm sure a lot of us have bags that cost 50 bucks in the store. Let's work backwards from a $50 bag. $50 MSRP wholesale is $25. That means your cost should be around $12.50. Now, you asked the same question, what kind of a bag can I get made for $12.50? What kind of fabric are we talking about? Can I still use Italian leather? Probably not. I got to use nylon, or cotton, or canvas. Where can I get this bag made? Can get it made in Italy or Japan? Probably not. Got to go to China, or Vietnam, or Korea to get it made. Now, a lot of designers might say, "Well why would I ever want to go that low end?" "Well, why wouldn't I want to stay high end" I see a lot of young designers shooting really high wanting to be like the next Alexander Wang or the next Margiela which is great. That's how those brands get started. The difference is distribution. The number of people that can then buy into your brand. So, if you have a bag that's $2,000, you have to ask yourself how many people in the world are going to buy a $2,000 bag from a brand that they've never heard of? Who's my competition? If my competition is Prada, would they rather buy a Prada bag for $2,000, or a bag from a no-name company for $2000? So, you got to really be honest with yourself about out of a hundred people, if I took a hundred people off the street, and I said here's my back for $2000, how many would buy it? I think you have to really honestly answer that question. Whereas if you go the other way to scenario B. I have a bag. It's a $25 or $50 bag, how many people are going to buy this? I can guarantee you no matter what the design is, no matter who you are, no matter what your marketing is, more people mathematically speaking will buy the $50 bag than the $2,000 bag. It's simple law of averages. So, these are the differences that you have to look at. You have to be willing to sacrifice the number of bags you want to buy or sell for that cost price, or do you want to keep it low price and get it to more consumer's hands. This is why I'm starting from sales and working backwards, because the sales equation is going to answer all of your sourcing questions as well. 4. Tools of Selling (Part 1): So, whenever you're going to begin the selling process, there's a couple of things that you're going to need to have. I've outlined some of the ones that we use for Staple. First thing is a line sheet or order sheet. The terms are typically switchable, interchangeable, in the industry but the order sheet is basically what your buyers are going to use to tell you what they're ordering. It's very simple. Do not get into the situation where people are like, "Hey, I like your stuff. I'll take eight, three, five and two. Can you fulfill that?" and you're like, "Yeah." Don't do word of mouth. Keep it all in writing. Now, sure, you can write it on a post-it note or whatever but why not just do it legitimately and have everything filled out. So, it's got basic information, the most important one. I remember when I started out, we didn't have the bill to, ship to. So, we would have an order but forget to write who placed the order. So, we're sitting there like, "Who the hell ordered this?" First thing is who's paying for this order and where's the order going to. Okay, so that's the bill to and the ship to. Bill to is who's paying, ship to is where it's going. Now, we've got really specific info. So, we've got shipping method. How does this person want it shipped. Do they want it shipped in the US mail, UPS, FedEx, DHL? Do they want it hand delivered? These are all things that you should determine straight out the gate. Two very important things, the two most important things on an order form probably are ship date and cancel date. The person who's buying your product is in his mind thinking, "I'm going to be getting these goods that I'm buying at a certain time", right? It's common sense, if you place an order online, if you buy anything anywhere, you have a predisposed idea in your head of when you're going to be getting that. Even if they don't tell you, you think like, oh, 5-10 days and you have this, two weeks I should have this. Well, when this person places an order with you, depending on how big the order is, he's assuming he's going to get it by a certain date. Now, ideally, you shouldn't have this assumed. You should say, "Ship date is January 1. Is that cool?" Agree upon it. Cool. Okay. Now, the cancel date is your insurance in case things screw up and things always screw up. So, the cancel date is basically a little bit after the ship date and it allows you to say, "Hey, I'm running a little late with things. Can you give me this extra 15, 20, 30 days whatever you can negotiate." The cancel date is basically saying, "If I don't ship you, I know we said January 1st you're going to get these goods." If you don't get the goods by January 15th, which is the cancel date, you the buyer can say, "I don't want this order anymore", okay? Scary proposition because as the brand maker, you've probably paid for all or most of these goods to be made, right? You've paid the factory, you've bought the fabric, the zippers, the trims whatever it is that your brand is. You've paid for all these items and now you're hoping to sell it but the guy says "I don't want it, it's late." You're screwed, you're stuck with all this inventory. It's a scary proposition but these two things, the ship date and the cancel date will hold you to your word basically on when you're going to ship the goods. Terms is another big thing. Terms is how you want to be paid. So, let's go on one end of the spectrum. One end of the spectrum that's the best, the dopest method of payment terms, prepayment. That means dude, the second you give me your order, you're paying for the order even if it's going to take three to six months for you to get the order, I need the money now. Now, how many times are you going to do that? How many times are you going to go to someone and say, if someone comes up to you and says "Hey, can you do this job for me but I'm going to pay you later on." It's probably not going to happen, right? So, prepayment, although ideal, is very rarely gotten. It's unless your brand is like the hottest thing on earth right now and everyone needs it and is shanking people for it. It's going to be very difficult to get prepayment terms. Although, it does happen sometimes especially with international accounts. You can sometimes justify it by working, if you work with someone in a very foreign land, very far away, you could justify it by saying "Hey, I need to be insured on this, I need to make sure that we're going to get paid on this. There's no way I could chase you for it. So, I need prepayment." Some of them will accept that. So, prepayment is on one end of the spectrum. The other one that's fairly safe is called COD, which is an old term that means cash on delivery. Of course, it's not cash. COD just basically means payment on delivery. So, it means you've made your goods, you're going to deliver your goods now, and literally, you hand them the goods while they hand you the cash. It's a direct exchange, you get paid right away. Companies like FedEx and UPS offer COD service. So, even if you're shipping via UPS, the UPS man won't give the package to the person unless he gets a check for it. Now, sometimes checks bounce so it's not a fool proof method. You could even have COD with the checkbox that says a certified check only so that the customer even has to get a bank check. So, there's different ways to insure yourself, but COD is a pretty solid way. Other terms are what they'd call net terms. Net terms means that the buyer of your brand would like to take your goods and pay you later on for it. So, you've made a bunch of t-shirts, I want to take it from you, I'm going to start using them, selling them. I want to pay you a month from now, I'm going to pay you 30 days from now. Now, this is when it starts to get scary because now you're giving your goods away and you're just crossing your fingers and hoping that in 30, 60 days, they're going to keep their promise and pay you for it. Unfortunately, this tends to be the standard in the branding and fashion industry. Thirty days net is super standard. Most companies will ask for it. Most companies will also take the liberty of extending that to 45 days. Most companies will even go to 60 days. It's pretty abusive. But unfortunately, if you're a startup brand trying to get your foot in the door, these are the things that you have to deal with and these are the risks you have to take. So, COD, net terms. Now, on the other end of the spectrum, way on the other side of prepayment, the opposite of prepayment is what we call consignment. Consignment means you're going to give me your goods, I'm not going to pay for it. I'm going to put it in my store. If it sells, I'll pay you on what sells. Whatever doesn't sell, you've got to take it back. Get it out of here. That's consignment. Now, consignment is something I don't suggest unless you're really beginning and really needing to get your foot in the door especially in a store on account that you really want to get into that's really really hard to get into. So, imagine there's a store that's just in your mind, it's one of the best stores in the world. You got to get in. The buyer is sort of interested but doesn't really want to pull the trigger on your brand and take a risk on your brand. This is where you might want to pull out the consignment card and say, listen, I'll give you the goods on consignment. Again, what that means is a store is going to take your goods, sell it. If it sells out, you're going to get paid on all of that stuff. Awesome. If it doesn't sell one thing after a couple of months, the store buyer can give it all back to you without a penny. But at least you had your chance and you got a chance to try it out in the store. So, there's definitely pluses and minuses to those terms. So, those are the different payment terms. Again, on your order sheet, they should be listed out, agreed upon right away. You don't want to submit an order, get it to the store and then at that point discuss what the terms are. That's a big no. Once the person fills out the order, you should discuss what the terms are right then and there. 5. Tools of Selling (Part 2): Now, the rest of the order form is pretty standard to any order form you might see, even if you're ordering at a restaurant. What you would have is your menu items of goods, so it's all of your designs listed out. You should have maybe a little photo or illustration of your design, so it's easier to reference. You should have a style name or a style number. What that does is it basically makes it unique to that particular style. So, if you have a blue shirt, it shouldn't just be blue shirt because what if you make another blue shirt, how do you differentiate between the two blue shirts? So, it should be style number 1308B, blue shirt two, whatever you want to call it. You could call each one a different name. You can name each one after your favorite poet, whatever you want to do, just differentiate each and every style so that they are all separate from each other. There's a bit of a confusion that goes on between the term style and skew. A skew is generally an individual product in your collections whereas a style is the number of different designs you have. So, let me give you an example as it comes to fashion. If I'm doing three t-shirts, two button-downs and a cap. I have six styles. That's six styles. My line is six styles, but each of these items comes in two colors. Each of those colors needs a separate skew because when the person is ordering, you need to know whether they wanted the blue cap or the red cap. S, o I've got six styles, each thing comes in two colorways. I have 12 skews. That's how that works. Now, actually, if you even break it down to sizing, there's even more skews. So, if each of these six items come in three different sizes, let's say small, medium and large, so, now, let's say, I've got six items, two colorways in each, that's 12 skews times three sizes in each, that's 36 skews. So, in a very simple small collection of six styles, you could easily have lots of skewes. In this scenario, 36 skews. Now, why do you need to know that? Well, as the creator of this brand, you need to really have a grasp on how much inventory you're going to have. All of this stuff, this stuff that you're making, it has to be warehoused, it has to be organized, it has to be able to be packed and shipped. Even if you've got your friend helping you picking out orders and you get an order, you got to know if the guy wanted a red hat or a blue hat. Did he want a medium hat or a large hat? That he want a large in red and a medium in blue? These are all things that you've got to do to get the order right, correct? So, you have to have a grasp on your entire skew count, and you'll find that even in a very small collection, even if it's three styles, if you've got different sizes and different colors you could be having a lot of skews, and all of that needs organization. So, that's really the main difference between skews and styles. So, again, going back to the order sheet, you've got your style numbers here that indicate all the different styles that you have. Maybe a little description, chambray shirt, blocked two button-down shirt, cotton t-shirt, whatever it is, a short description. All the sizes and colors that your shirt or design is available in, and then a little blank box that gives the customer an area that he can write in the number that he wants. Going across, you've got your total quantity. So, if you ordered one, two, two, two, one, two, he adds that together and then now you've got the total number of pieces that he wants of that particular style. Then, you've got the wholesale price. Again, the wholesale price is the price that the buyer of the store will pay. So, you've got that, and then you do the multiplication. So, you take the total number of quantities that he ordered times the wholesale price, which gives you the total dollar amount order for that one skew. Then, you repeat that process through all your skews and all your styles. Then, when you get to the bottom, you then have an area where you total up all those and then you've got his order total. It might help on your order sheet to have an area where it's got the authorization and date so that the person who bought this can sign for it, to make it more official, so they can't go back and say, "I never placed this order." Just to have some insurance on your side. That's the nuts and bolts of what a line sheet/order sheet is. These things, in my opinion, they don't have to be super pretty. They could be made in Excel. This is not where you should be dedicating your uber talented design skills. This is nuts and bolts order sheet. This is like when you go to a restaurant and the waitress is sitting there writing your order in a notepad, that's what this is. It's just a record of the transaction that occurred. Where you can get creative and pretty, is in your lookbook. The lookbook and the catalog is where you are creating the message and the dream. You're selling the dream in your lookbook. So, this is where you can have fun with models, photographers, illustrators, set locations, photoshop effects. This is where everything is beautified and prettied up. The other thing is, if your collection is really big, if you've got a significantly large collection, lookbooks are good because you don't have to show every single style. You don't have every single sock and underwear that you make, does not need to be in this lookbook. Again, the look book is really just to create the image and the fantasy of what your collection is about. Whether if there's a message or if there's a concept of the line, the lookbook should be the thing that exhibits what that concept was. But it doesn't have to be the whole thing. It doesn't have to be every single piece. It could just be a selection of stuff. Ideally, a good lookbook has beautiful photos, but then it also has the corresponding style name or style number of what the model happens to be wearing. That way, they can look at those pieces and say, "Wow, this is a really nice sweatshirt. What's it called? It's called sweatshirt x? Okay. Let me look at my line sheet. Okay, there's sweatshirt x. There's the price. Cool, I will order it." So, that's how that works. Obviously, what people tend to do is they tend to put their home run heavy hitters in their lookbook. Your look book is your first impression. So, you want buyers to be completely wowed and you want their jaw to drop when they look at this lookbook, so that when they go ahead and look at your entire collection and your entire order sheet and line sheet, they're like, "Yeah, I'm going to pick up all this other stuff too. This is a really great line." So, that's generally how that works. Another nuts and bolts item that you might need is a credit app. A credit app plays into the terms a little bit that I spoke about before. So, credit app, basically just has all the vital information of that business or store that you're selling to: contact name, how long they've been doing business, their business name, their trading name, their bank name, their bank account number. These might sound like really private stuff that you're asking for but when it's a company, it's really not that private. It's totally fine to be asking if they're a corporation? Who their partners are? What bank they bank with? Three other companies that they do business with and their contact information? So, that you can contact them and check if they're good people or not. These are called trade references, so you can have that. Again, if this person that's buying your goods writes three other brands that you've heard of and you can now contact those three brands and say, "Hey, how was the dealing with the store? They're like, "Great. Paid on time. Awesome guy." Now, you'll feel much more comfortable about giving him those extended 30-60 day terms because you feel he's going to be trustworthy. If he gave you trade references and then they're like, "This guy is a deadbeat. His checks bounced on me left and right," now, you could go up and be like, "Hey, I can't give you terms, it's got to be COD. In fact, I've heard your checks bounce, so it's got to be a COD with a certified bank check. I don't even trust your business bank cheques." So, this is how the credit app can really help you to protect yourself. It's like an insurance policy. So, another very important piece to have. So, these three things, no matter how you're selling, should be in your arsenal. Again, to review line sheet, order sheet, lookbooks/catalog and a credit app. 6. Promotional Materials: The other great fun thing that you can have when selling your line is what's called promotional materials. A lot of you I'm sure have been faced with promotional materials. These are free stickers, free key chains, free coasters, a poster, a silkscreen print, whatever, a lanyard. These things, these tchotchke things really do help, because if you put yourself in the shoes of a customer or buyer, you're being inundated with new brands. So many new brands are touching on these guys hoping that they pick them up and carry them. Those little sticker, promotional item tchotchke things could be the one thing that just gets them to remember you over a different brand. It's the craziest thing, but sometimes a sticker just does the job. These buyers or managers of stores, they've got a pile of catalogs and lunches as we're looking through. They're just looking through left, right, one after another and trying to find one different thing. All of a sudden, one guy's got some cool key chain, or like a cool trinket, or like a little vinyl toy that he likes to put on his desk, and boom, that's the thing that made your brand differentiate from all the other brands and it's going to make it the reason that he bought your brand. So, promotional materials are a great way to help stand out from the crowd. The downfall is, of course, that promotional materials are really just giving away money. It costs you money to make these stickers, it costs you money to make these key chains. You can't charge for a sticker, really. You're going to be giving away these things for free. So, it's part of a marketing budget where you know the money's just gone. If it costs you $500 to make stickers, consider it as if you're placing a $500 ad in a magazine. Like it's just money out the door, you don't know if it's going to work or not, but it's good to get your brand out there, and it's something that needs to be done. So, definitely consider promotional materials as part of your sales arsenal. So, the most basic one is stickers. Stickers, super easy to make. A lot of people make them. Cheap to make. Easy to carry around and give away. People of all ages love stickers. So, stickers always work really well. When you can start to spend a little bit more money, we made a little key chain. We did this with our friends over at Kidrobot. So, we did a collaborative key chain that was a giveaway item. We did Staple pigeon M&M's, custom M&M's. Again, these are things that we pay for, we give away and maybe one day the buyer sitting there at his desk hating his life, and then he's like, "M&M's. Oh, Staple M&M's. Wow, that's right, I need to place a staple order." That's literally how it works, it's kind of crazy. Because our logo is a pigeon, we did this custom gold Staple binoculars for bird watching. So, this is definitely, this went to, we did a VIP seeding event, and this was part of the invitation that went to our VIPs. When you're dealing with VIPs, stickers probably don't mean much to a VIP. So, you got to give them something a little bit more blingy. So, we did these custom engraved Staple binoculars. Then this is a great item. This is what we send to our accounts. So, this is for a store to display in their store. To demark sort of the Staple section. This is almost more for the consumers. So, this is what's known as a POP. It's called the Point of Purchase. That's what it stands for. POP, and a POP is really something that sits in the store, that lets the customer know that, "Hey, we carry this brand and this is where it's displayed at." So, this is also good. Again, though, the negative of these is that this is a beautiful laser etched wood piece that we make, we pay for. These are expensive to make and we give them all away for free in the hopes that it drives sales. So, these are some examples of different promo materials. 7. Reps, Showrooms and Tradeshows: Okay. So, now that you've got your basic sales kit together, you've got the arsenal that you need to start selling. What do you do now? You have a couple of different options. I think the biggest question that you need to answer as the founder of a company and as a brand is whether you're going to go direct to retail or you're going to go wholesale. As I mentioned to you now you understand what it means to go wholesale. Wholesale is that pricing that somebody pays as a store for example, it's going to pay you for your wholesale price. Now, if you remember back at the scenario I gave you, let's go back to that $10 scenario where $10 is what it cost you to make something, $20 is what a store is buying it for you from, $40 is the MSRP, right? You're only making $10, not only, you're making $10 in this transaction. The store is making $20 in this transaction, customers paying for 40, right? What if we could eliminate that store. Okay, eliminate that $20 wholesale and now you're going from straight from $10 cost to $40 retail. Now you're making, you the owner are making $30 on each transaction. That sounds awesome. That is awesome. That's called going straight to the consumer, that's called no wholesale. Okay. So, you're eliminating the wholesale. What's the downfall of that? The downfall is that if someone has gone and set up a store, he's probably got hundreds if not thousands of people walking into that store every single day selling your brand, exposing your brand, promoting your brand. If you take that away, you as the store owner better have a complimentary way of replicating that same experience. How can you get your brand in front of hundreds if not thousands of people on a daily basis? There's many various ways to do that promotions, marketing, social media. There's different ways to do it now. Now you can have your own store online obviously with an online shop but there are methods now where you can eliminate that middleman that wholesale account and go straight to retail. So, the first thing you have to answer is whether you want to go direct to retail or whether you want to go wholesale. That's a philosophical question that I can't answer for you, there's pluses and minuses to both. Some really great brands don't do any wholesale. Louis Vuitton doesn't do any wholesale, Supreme, only recently started doing wholesale for like the first I would say decade of their business, they did not to wholesale. Bathing Ape another great brand, for the first decade of their business did not do wholesale only retail. So, there's some really great examples of only retail operations. The thing is it's not always that easy. There are many hurdles and many expenses that you have to go through in order to operate a direct to retail company. Wholesale a lot of the legwork is done for you in terms of spreading your name across a city, state, country, or the world. So, there's a lot of different ways to go about it. So, let's look at first the wholesale route. There's pretty much two ways you can go about when it comes to wholesale. You can have your own salespeople, you can sell it yourself, or you can have what's called a showroom sell it for you. Let's talk about what a showroom is. Showroom is generally a separate business that represents a lot of different brands. So, in this way, buyers go to showrooms and they usually have a very large base, a pretty good sized base where they represent anywhere between three to two dozen brands. They're representing and selling all of those brands. Now, if you choose to join a showroom, you become part of their family, part of their portfolio of brands. Again, as with most things and what I'm talking about, there's pluses and minuses to this. The plus is because the showroom has a built-in audience because they've got other brands and all those other brands of other accounts, they're already getting appointments, they're meeting buyers. People are going into their showroom all the time. So, you can ride that momentum, you could go along with that momentum and follow along with their inherent customer base. The negative of that is that you're sort of sharing the wealth too. You've got to ask yourself, how much attention can a showroom really give your brand, if it's dealing with 12 other brands? Is it really giving your brand all the attention that it needs? So, you've got to weigh these pluses and minuses. Generally speaking, the showroom charges a monthly rental fee. So, you have to pay a monthly set fee to be in that showroom. I think it varies probably by region but in New York City anywhere between one to $3,000 a month is how much you'd pay to be represented in a showroom. On top of that monthly rental fee, you typically have to pay a commission on sales. So, if that showroom gets you in order, a percentage of that order anywhere between 10 to 20% of that order has to go to the showroom as well. So, even if the showroom sells nothing, even if the show doesn't do any business for you, you have to pay that monthly minimum which generally called a rack fee. You're literally paying for a rack to hang your clothes on. So, those are the pluses and minuses for showroom. The other way is of course your own salespeople. So, you have a company, you probably already have a couple of employees, you probably already have a homie or a friend helping you out here and there maybe one guy is helping you with your books and your checks and one guy is helping you with maybe shipping some stuff. So, if you're a small company maybe you should look at the option of having an in-house salesperson. This is a full-time person or employee that sits inside your office and all he does or she does is sell your brand. That's it. It's great because you've got a dedicated person that is eight, 10, 24 hours a day, seven days a week thinking about how to sell your brand, right? That's awesome. What's the downfall of that? The downfall of that is that that person probably wants a salary. So, you've got to pay that person's salary, even if that person doesn't sell anything, you still got to pay that person's salary, right? The other thing is if that person is not a really experienced salesperson, what are his connections? What's his Rolodex look like? Does he know all the right stores? Does he know all the buyers? Whereas the showroom, probably already has all that figured out, the in-house sales guy might not have all those things figured out. So, again, is he the right guy for the job? You've got to weigh these pluses and minuses of whether you decide you want to go with an in-house salesperson or a showroom. Speaking on behalf of Staple, we've tried every which way possible. So, I've tried selling the line myself, me personally. I would highly, highly suggest that if you are creating the line, if you're the designer of the line, do not sell the line. The person who creates should not be the person who sells. Let me repeat that because this is something that I've learned the very hard way. The person who creates and designs the line, should not be the person who sells the line. Why? Because, the person who creates the line is the one who's sitting there blood, sweat, and tears 3:00 a.m, putting all his heart and soul into a design. Okay. You've just spent six, 12 months creating this thing you're so proud of it. It's everything that you've ever hoped for. Now, you're showing it to a buyer. The buyer looks at it, "No, I don't want it. Next." In one second, he just shat on your design and as a salesperson who's not connected to the design can accept that and move on. But in my personal opinion, I think anyone who has invested their soul into creating something really cannot handle the rejection of someone just saying, "Not interested. I don't want it." The salesperson is not being a jerk. He's just doing his job. The buyer is not being a jerk, I should say. He's just doing his job. He's not trying to insult you, he's just moving along and wants to see stuff that he's interested in and he's not interested in that thing that you created. It's fine, it's a fair world, but I think it's too hard for a designer to constantly take that small rejection. Every single time, it made me furious and it's the way that I did it for the first five years until I realized I really need somebody else in here to be the buffer. For me, I can't even look at a sales appointment happening because I put so much into it and if I don't see someone ordering the thing that I've created I'm, like, "What's your problem? What's going on? I spent so much time on this thing. Why aren't you ordering it." So, I don't even look at these sales appointments happening anymore. I just want to see the sales reports at the end after it's all gone down. Now that you've got your sales kit, now that we've talked about whether you want to go direct or whether you want to go wholesale, we're still on the topic of going wholesale, I think. You still want to try to get into stores, you want to get in the retail. The next step is where do you go. Well, there are what's called trade shows in this world and trade shows occur multiple times a year in various cities. Honestly, there's hundreds of trade shows all over the world going on all the time. Trade shows are basically a convention center or a large room where someone has organized a place where all these brands can get together and showcase their brands. It sometimes ends up being a bit of a carnival and crazy and chaotic but it is good from the buyer's standpoint because now, a store can go to one city one place for three days and see dozens, if not hundreds, of brands that they're interested in versus going to every single individual office that the store might be interested in buying. It's just not logistically feasible for them to do that. So, it's better for them to just go to one center, one convention center, one trade show center and be able to see all these brands that they might want to see in a short amount of time. So, it's definitely part of the industry and it happens multiple times a year. In the fashion industry, the biggest one is the one that happens in Las Vegas twice a year in February and in August. It revolves around the Magic Fashion Week and during this week, you've got the different names of the trade shows. You could Google these; you've got Magic, you've got Project, you've got Agenda, you've got Capsule, you've got Liberty. These are all really big trade shows. Each one has a different level of expertise so one might be dedicated to denim, one might be dedicated to outerwear, one might be skateboarder street wear-focused, one might be high-level contemporary focus. So, each of them has a different focus and you just look at the different brands that they carry and you see if you want to be hanging with those brands. This is a very key decision to make because you want to pick a show where potential buyers of your brand will go. You don't want to pick a show where you might love all those brands but your brand is nothing like those other brands. It's going to be a miss for you because the buyers that go to that show are going to be, like, "You have a great brand but it's not something that I would buy for my store so sorry you're not going to get an order." You don't want that to happen so you want to definitely choose wisely in terms of which show you want to go to. In Europe, the big show there happens in Berlin, Germany. It's called Bread and Butter, that's the biggest show in Europe. So, just do your research on what the big shows are. There's some advantage to doing small shows as well. Small shows cost less to do. They're a less investment but sometimes they get less foot traffic as well. But if you're an up-and-coming brand, that might be fine. You might be able to actually get more spotlight at a smaller show than showing at a big show where the big boys show. The other thing you could do is actually visit a trade show before you exhibit in a trade show. So, when I started the brand Staple, I would go to Magic in Las Vegas not to show my brand but just to go out there and check it out, see if it was right for me and my brand. These shows cost a lot of money. Getting a trade show booth is probably a minimum of $5,000, barebones, like $5,000. If you want to embellish it, add some design to it, make it look fancy, you're talking easily $10,000. You want to fly some of your boys out, help you out with the booth, pay for their hotels, pay for their air tickets, you're easily talking $20,000 to do a trade show. So, it is a hefty investment. That's why when I went, I went first on my own, no booth. I just put my samples in my backpack and I went out there and showed at Las Vegas. I know it's funny because I was walking around Vegas and I had a big backpack and I had all my samples in my backpack and I was just walking around hoping to be able to stop a buyer somewhere and be able to show up my line. So, I made little postcards and catalogs and I was passing them out and if someone caught interest, I would just whip out my backpack right then and there and show all my samples. When I did it, the first time I went, I realized that at these big trade show conventions, there's tens of thousands of people walking around. It's like time square on New Year's Eve, it's crazy. But eventually, everyone's got to use the bathroom, right? Everyone's got to use the bathroom eventually, so I would camp out and stand by the bathroom, in front of the bathroom doors. As people came out of the bathroom, they were away from the crowd so they're at a bathroom, and then I would hit them with the flyer, hit them with the catalog, and I was actually showing a lot of people the line right then and there outside of the bathroom at the convention center. That was in 1997 and these days, security at these trade shows have gotten a little hip to that. So, now they're very weary of people trying to show their line without paying for a booth. So, it's a little bit harder now to be guerrilla but I'm sure you guys can think of some creative ways of getting around the system. But it is a good idea to go to visit a trade show first, check it out, see the scene. Even just for networking, it's really good. For the most part, those are free. Just make yourself a nice business card with your logo on it so that you look professional, that you don't just look like someone off the street but that you belong to the industry. Generally, these shows will let you in just based off of a business card. 8. Seasons and Deliveries: So, the next thing I want to talk about as it pertains to sales is seasons and deliveries. Fashion has a calendar and it's a calendar that is slightly different than the regular calendar that we operate from. Generally speaking, fashion calendar is divided into four sections: spring, summer, fall and holiday. My guess is that the reason why we chose these is because it follows along with the seasons changing and the weather changing. As the seasons change, the weather changes. As the weather changes, your clothes have to change So, summertime, you need new shorts, you need a new short sleeve shirt. Wintertime, you need a new heavy coat, you need new pants. These are, I think, the reasons why fashion works along these calendars. So, you've got spring, summer, fall, winter or holiday, as it's called. The number of seasons you want to do as your brand is up to you. You can do one collection a year, where you showcase just one set of designs for the entire year. The limiting part of that is you got to ask yourself how can your one collection sustain the entire year. In other words, if you're a store, if you own a store and I'm stocking your brand, I'm just going to have your one collection in there for 365 days, it's never going to get stale, it's never going to feel old, it's that timeless. Maybe, but probably not. So, that's why people maybe then go to two collections. Maybe you do a fall/winter. So, you do one that is warm weather and then you do a spring/summer, one that's lighter weight. So now you have two collections. So again, put yourself in the shoes of a store owner. I own a store. I'm stocking your brand. I've now got your designs in my store for six months. After six months, then that goes away and now I've got fresh designs in six months. Keep extrapolating that story out by multiple collections. So now, instead of two, let's go to four collections. You have four: spring, summer, fall, holiday. Now, if you're a store owner, every three months I'm seeing new designs from you, which is exciting. New designs sell. Customers walk into a store, they want to see new fresh designs, right? You guys all shop. When you walk into a store do you want to see old stuff? No. You want to see new stuff. So, that's how store owners feel, too. They want to get new stuff from you. If you keep going on with that, you can keep having more and more deliveries. I mean, if you look at brands like The Gap or Abercrombie & Fitch, they've got 40 summa deliveries a year. Meaning, every 10 to 15 days, they have new designs going in, which is why they're so successful, because every time you walk into those stores you see almost a completely new store. So, that's really the end of the spectrum. That's really the extreme of where you can be. I think most brands, most mid-tier small, independent brands can successfully operate on four seasons: spring, summer, fall, winter. Now, the important thing to realize with these seasons is that stores buy for these seasons way in advance, usually about 6-12 months in advance. So, for example, right now, as we're doing this taping, we're in December 2013. Our stores that buy Staple have already decided what they're going to buy for spring/summer of next year. That means what you're going to see in the stores from January all the way to August is already determined. The stores have already seen our samples, they've already placed their orders and we're already making those goods. It's already set in stone, all the way up until the middle of next year. The stage that we're at right now in December is we're not determining what the store is going to see in fall and holiday. So one year from now, we're now determining what they're going to see. They haven't quite ordered yet but that's going to happen next month. Next month is when they're going to see our fall and holiday collection and then place an order. Now, this sort of ahead of the curve thinking is pretty advanced. I'll be honest, it took Staple about 10 years, it took me 10 years to get on this calendar. You can actually, so you might ask what were you doing the first 10 years? Well, the first 10 years I was operating what's called at once. So, whatever I was showing is what you can buy right then and there for the store. So, there wasn't any advanced timing. I was just creating what was being sold at the time. So in other words, let's backtrack to September of this year. Ten years ago, I might have at September been saying, "Here's my designs, it's available in three months. You can have it right away, basically." The problem with that is that stores have a budget for what they're going to buy and if you wait too long, they've already spent their budget. So, go back to that scenario of me 10 years ago. It's September, I'm showing my line and I'm saying, it's available now, you could have it in a month or two, key word is do you want to buy it? The store might say, "Man, this is really, really great stuff, but unfortunately because other brands that are more established and bigger showed me their December stuff last year, I've already spent that money. That money is already gone. I don't have any more money to spend for this year." You're going to here that excuse a lot. It's not an excuse, it's a reality. They've already spent their budget. The store buyer is now thinking of what he's going to buy for next year. So, how do you catch up? How do you figure out how to get ahead of the game? Some brands just skip a season. Some brands just take what they're going to make in September of 2013 and just be like, "Screw it. Let's just call it September 2014 and let's just skip over a year, so that we're ahead of the game." Of course, if you do that, you're also missing out on all the sales that you can get in 2013, but early on, if you guys are just starting out right now, I say get on calendar. It's really important. Get ahead of the game. Don't be so concerned about getting your stuff out there right now. Get that budget. Get that money that the buyers have to play with. When a buyer walks around with a fresh budget, his job is to spend all that money. Don't you want to be in front of him when he's ready to spend all that money versus getting the crumbs at the very end? It's a really big difference. I really suggest getting on calendar. Then the other thing is what I alluded to when I talked about the ship and cancel date. Ship and cancel date is really important, too, because you want to ship on time when the buyer wants the stuff. This is something also that I learned very recently is that those who ship first are the ones who win, because, think about it again, it's very simple stuff but I don't know why it never really comes into my head, but it's common sense. If you're a kid, you walk into a store, you're a young person, you looking to shop, you want fresh stuff, right? You don't want to see old stuff. Whatever's first and fresh is probably the stuff that you're going to buy. So, the store sees it as like, "Wow, Staple's selling. He was the first one the ship. It's selling, selling, selling. I need to reorder Staple," and you're going to get reorders. I've heard stories that because we're so good at shipping, we get our reorders in before our competitors get their first order into the store. So, we're making double order before the first guy even got his stuff into the store. That's what shipping on time and shipping early really means. It's really, really important. The other end of the spectrum that you don't want to be at is shipping late. Forget about the cancel date. I mean, the cancel date, you're screwed. But let's say you ship at the tail end of the cancel date, like a week before the cancel date hits. Now, it's like he's marking stuff down, he's putting stuff on sale, he's doing two for one sales. So, your brand new stuff's going into the store and then right away hitting a sale and it doesn't look good for your brand, and it doesn't give your brand enough time to sell, you only have another week or two before he needs to clear out all that merchandise and get the new collection in. So, it definitely is really important to get your stuff in early. Don't get your stuff in late, it's a really big mistake. So, the other thing that you want to have probably on your line sheet is a bit about your policies in terms of returns and payments. Here's an example. I remember one time I shipped an order out to a store, a couple boxes, and they got the order. It was all good. They're selling it. I think maybe three months later they said, "Hey, we got your order but there was like five shirts missing from the order." Like three months after they got the order, and it's like what are you supposed to do at that point? No way. You guys obviously probably lost the five shirts. We didn't mess it up if it took this long to figure it out. But you don't want to have that argument with your accounts. These are your partners, you want to be able to work with them. So, you want to have all that stuff outlined in your order sheet and line sheet. You want to have something to the effect of, "Hey, all claims to this order must be made within seven days." So, if there's something damaged, if you want to return something, if there's a shortage, you got to let us know within seven days, otherwise you're agreeing that it's all good. Something like that to really protect yourself. Also with exchanges, you want to have that all stated. If you want to have a policy where it's no exchanges, all sales final, you can't return anything, you can say that. People might negotiate against you on that, but you want to be able to say maybe exchange only but no returns. That protects you a little bit, so then they can only exchange it for the same thing if it's damaged. So, you want to have all of these terms also listed out on your order sheet to protect yourself. 9. Price First, Make Later: So, now we're going to start into the introduction to sourcing, and this is where we're going to discuss how you get your things made and produced. If you went through the first lesson, which is the introduction to sales, you're going to first of all understand that I went backwards from the end, right? So, sales is the finish line, that's the last thing you do. You obviously have to have stuff made before you can start selling stuff. I did that on purpose because I wanted to show you how these things are interrelated. The first thing that I want to tell you is to price first, make later. Okay? Price first, make later. Now, that's one of the reasons why I started with sales, because I know that as creative, as someone who has just finished designing a whole bunch of great stuff, obviously the first thing you want to do is get out there and find someone who can make all your stuff. Just get out there and get it made. I did the same thing. I had designs, I had ideas, I went out there and I just wanted to get the stuff made. I didn't think about how much it would cost me to make, I didn't think about how much I could sell it to a store for, nor did I think about how much a customer will be paying for it at the very end. So, these are the terms that I went over in the last lesson, costing, wholesale, MSRP, these were not things that I was thinking of, that I should have been thinking of, and that's why I'm imparting it to you. You have to be able to price your things first before you can get them made. Pricing it will determine how you get it made and what materials and how high of a finishing level you can use when you're making the clothes. So, the first thing you need to determine is, you need to really think about where you see your stuff being sold and who's hanging with your stuff, that's a term that's in the fashion industry particularly. But sometimes people will ask, who do you hang with? Like who are your friends? Who do you hang with? If you're in a store, if you can imagine your brand in a store, who's sitting to the left and to the right of it? Who's over here and who's over there? Who are your complimentary brands that you're hanging around with? That's a great exercise to go through because those brands already exist, they already have pricing, and they already have a consumer base. So, now if you look at who you're hanging next to, you can almost determine now what your pricing should be. You've never walked into a store, it's very rare that you walk into a store where you see a $36 T-Shirt hanging on a rack and then right next to it you see a $2,000 shirt. They don't usually hanging next to each other, they might be on a different floor, they might be in a different store, but they're never really hanging next to each other, and there's a reason for that. It's the way shops are merchandised, just the way they're organized. So, when you're thinking about how you price your brand, you really want to think about who you're hanging next to and use those brands as research in terms of how to determine how much to charge for your brand. So, first thing is figure out where you're hanging, how much you want to be, how much you want to cost to pay for your outerwear piece, your shirt piece, your bottom, your accessories, whatever it is. You want to figure out how much you want it to be and see if there's any complimentary brands that you can learn from. From there now, you can determine how you make the thing. So, the first that you got to do is, choose your vendors wisely. Unfortunately, there is no way that I can just tell you, "Hey, you want to get some made? Use this factory, go ahead, they're great." It doesn't work like that. There is no real shortcut to figuring out how to get vendors. I mean, when I did it, Google didn't exist yet, so I was literally flipping through yellow pages looking for vendors. Nowadays, you have Google, you have a site called Alibaba. Alibaba is a great source, it's almost like Google just for factory, so Alibaba is a source for like, you type in whatever it is that you want to get made, salvage denim, corduroy button downs, whatever it is you type it in and they show you vendors all over the world that specialize in that product. They've got ratings and a scale and a recommendation system. So, you've got all these different services that are at your fingertips in order to find different vendors. The finding of the vendors is not that difficult. You can easily spend the day and get a list of 20 to 100 people that you can contact to make your stuff. The tough part is deciding which one you're going to work with, and prepare yourself, have patiences, because you're going to be dealing with a lot of really interesting strange people when you go on this journey of trying to figure out who you work with. One thing that I find is you really have to be able to put yourself in the shoes of other people. Just imagine you own a factory and you own a facility that's making stuff, you're already making things for people, you already have clients, you've got machines going, it's a dirty business, this is a very dirty business. You've got low-paid people or like blue collar workers that are just making goods at a sewing machine, there's stuff dust flying through the air, toxins, smells, stitches, it's a mess. All of a sudden, your phone rings and some dude calls and says, "Hey, I got a brand and I want you to make my brand." I've never heard of you, you never heard of me and now you want me to stop the presses and make your stuff. It's not that easy and you got to understand that this guy or whoever you're talking to is most likely going to be very apprehensive about working with you, which is very different than any other business. Any other business, if you're the customer and you call that business, they should be wanting to do business with you. You call a restaurant, they're like, "Hey, would you like to come here and eat?" But in manufacturing, for whatever reason because it's an old school thing, it's just not the case. Ninety nine percent of the people that you call in manufacturing are going to be apprehensive to work with you. You're going to have to almost sell them on the reason why they should be working with you and they should be accepting your work. It's just the way the cookie crumbles, but you got to have the patience to and the wherewithal to figure out how to at the same time, can sell them on the fact that they should do your manufacturing work, but also at the same time hold your ground and be able to instill and get your stuff done the way you want it. You don't want a power play to happen where you're so begging for this factory to do your stuff that they just are doing it by any standard means, they're taking shortcuts that are unacceptable to you, you can't accept that stuff, you have to really hold your ground but at the same time not jeopardize the relationship. Right now at Staple, at this point in our company, we probably have about eight factories that specialize in different things that are doing work from us. Each of those factories that we work with is a relationship, it's a two-way street, it's almost like having a spouse or a girlfriend. If you're mad at them, you got to figure out a way to say it so that it's not insulting and doesn't take pride away from people. Again, I go back to the restaurant example. If you go to a restaurant and have a bad meal, you could just be like, "Manager, this meal sacks, I want it for free." No problem. But in manufacturing, it's a whole different thing. You got to be able to massage egos and navigate politics in order for them to continue to do your work and still get the product and quality that you desire. So, the hard part of finding the vendor is really being able to work well with someone. Find someone that you gel with in terms of personality and work ethic and go from there. Prepare yourself, there's going be a lot of trial and error. There's going to be most likely scenarios where you've chosen to work with a vendor or a factory, you're doing work with them, you've maybe done a couple of seasons with them, and then something happens, some disaster happens and all falls apart and you got to find another one to start from the beginning, that happens all the time in fashion. It's just the reality of the game. So, it really just requires a lot of patience to find the right partners to work with. Once you found those right partners, cherish them like your family members. Send them Christmas gifts, buy them bottles of champagne, whatever it is to nurture that relationship, they're like your new husband or wife. 10. Working with Vendors: Hopefully, you found a vendor now that you've entrusted to work with. Let's talk about how you can prepare to work for that vendor. The first thing you want to do is have a conversation with the vendor to see how they like things presented to them. Generally speaking, there's a spec sheet or what's called a Tech Pack. A tech pack is your instruction sheet on how you want your thing to be made. Whether you've got a shirt, or a candle, or a notebook, whatever the product is that you're making, you need the instruction manual for how this thing is made. This tech pack should be as complete as possible. Tech packing is an art form all unto itself. The better you make your tech packs, the faster you're going to be able to see your product come to fruition the way you want it to be seen. The worse your tech packs, you'll probably still get there but it's going to take multiple rounds of revisions for it to get there because you keep overseeing things and hence the factory oversees things and then you get it on the next round but then the next round you forgot this other thing. So, a really good tech pack answers all the questions, it answers all the Q and A's and it gets to the bottom of what really needs to get done which is get the product made. Now again, patience is a virtue, because I've seen tech packs that look like a nuclear bomb instruction manuals. Like, they are the most detailed intricate technical packages that you could possibly see like every single square millimeter of a garment is accounted for but the factory still makes a mistake. What you need to understand is that for most things that you're making especially in fashion and apparel, it doesn't matter how talented you are, it doesn't matter how great the factory is, it doesn't matter how amazing your tech pack is. What it comes down to is that there is a person with two hands at a sewing machine making your thing and depending on how good or bad of a day that person had, it will reflect on your item. If that person had a really crappy day and now they're making your thing, you might have a really crappy bag. No matter how great your instructions are, no matter how great your fabric is, no matter how great the boss of that factory is, no matter how great of a designer you are, it just comes down to someone making your good. So, you have to have that patients in your mind, that people are making this stuff and it's never going to be super perfect exactly the way I want it. Maybe sometimes we'll get something perfect but to hit a 100 the entire time, the entire run, it's just unrealistic. If you can't handle that, honestly, you should not be in fashion because in fashion it's going to happen. You're going to get, you'd order over 1,000 shirts and out of those 1,000, 20 of them the button will come off or the stitch will break off and it's just the nature of fashion that's it. Garment making, bag making, any kind of product that you're making has all these variances that come along with it and so you need to be patient enough to accept all those different variables. Let's look at what a tech pack might look like. Now, I've got a tech pack here and I'll be able to show you some details of these later on. But again, tech pack is your instruction manual. So, on the cover of the tech pack, we go back, you've got your style number name. All right, so it references back to the style number that's on your order sheet, and then you've got an overview of what the design looks like. Just a sketch of what your design might look like. We do all these in Adobe Illustrator, but I know fashion designers where this is a sketch. This is like their initial sketch rendering. As you flip, a tech pack is a multi-page document. Again, the more detailed the better. You've got all the call outs in terms of where placements go for everything, different colors, your labels, and logos, things like the size of your pockets, things like fabric, and where the patterns go, buttons, trims, zippers, if there's a logo on the button, all of that, how big the button is, how wide the button is, all these little details, secondary labels and trims. Then the hang tag. What goes on the hang tag, which card comes first on the hang tag, which card come second on the hang tag, do we use a rubber band, do we use a rope, do we use that little plastic clear thing to hook the hang tag on. All of these things have to be accounted for. These are all decisions that are being considered. What does your small label look like versus your triple extra large label? These are all the differences that happen. Different colors of labels, embroidery details. So, this is a multi page document all for just one shirt. This would be, if you had a six style collection, you would have six of these packets, one for each design. If you had five T-shirts you'd have five of these, one for each design. If you're thinking about doing a T-shirt, something as simple as a T-shirt, there's so many considerations that need to be made. For example, not just the design but how far from the top of your neck do you want that design to go, how far from the inside do you want it to go. If it's on a black tee versus a white tee, how do the colors change on that. There's so many different variables even just for a very simple T-shirt that a technical package or a tech pack will be able to answer those questions. When you're dealing with a factory, you want to ask them how they want their tech packs on, what's often really simple is to just say, "Show me a customer that you've worked with before and let me see the tech packs that they've got", and then that way you can kind of get an idea of what information needs to be prepared. Prepare everything both as a print out and digitally so that they can download a PDF or something like that and then submit all of that to them. Then go and ask them for questions on how it goes from that point. After you've submitted this material, how long does it take for the first sample to be made. The first sample, which is often called the prototype sample or first proto, is the first time the factory has made an attempt at making your thing. Now, again, the first time you have to have a lot of flexibility and leniency here. They're probably going to mess up on a lot of things. They're just getting to know you, they're just starting out with this design. It's like sculpture, they're like molding a piece of clay and it's not going to be perfect right off the bat. They're going to get it half of the stuff right, half the stuff wrong, they're going to show it to you. Don't get mad, don't get frustrated, just be like, "I understand. This might take you two, three, four, five, maybe even six rounds of revisions to get it the way you want it to be." So, these are the prototype, each round as you just put a number to it. First proto, second proto, third proto, it's always good to save all of your different prototype samples, so that you can see the progression of how it goes. Eventually, you're going to get to a sample that looks pretty good. It's still not perfect, but it's something that we called the photo sample, P-H-O-T-O. Photo sample, in generality means that this piece is good enough to be shot. You could put it down and take a picture of it and no one would know the difference of whether it's perfect or not perfect. Sure, when you put it on it might not feel right here maybe there's a stitch that's too long, maybe the bag handles like a inch longer that you wanted it to be, but for the purposes of taking a picture, it's fine. It's called a photo sample and it means you're about 90% of the way there. Generally, after the photo sample, the factory should be able to get it right after the photo sample. Not all the time. I've had situations where we've gotten one, two, three, four sample rounds each one better than the next great. Now, we're at the photo round, great photo sample. One more sample we've got it good and they go all the way back to the first step and it's like, "What were you thinking?" Like, it's going to happen again. Maybe that woman had a bad day at the sewing machine, maybe she got into a fight with her husband. Who knows what the hell happened, but sometimes they go backwards and it's frustrating, but it's part of the game again. So, you've got your photo sample. And with that photo sample, you could do a lot of fun things. So, with the photo sample you can now make your lookbook, you can make a catalog, you can make your line sheet, you can make your order sheet, you could even give it to a stylist. You could do marketing and press around it, you could do a lot of things with a photo sample before they even got it right. So, the goal is to get it to that photo sample. After the photo sample, what you're going to want, assuming you're doing a trade show and you have salespeople, I discussed in the first video about either getting a showroom or salespeople or doing the trade show, you're going to need a sample to do that sales transaction with. Now, there are some companies that don't do samples. Some companies just sell off a piece of paper. In my mind, in my opinion, I think if you're asking for someone's money, you got to at least show them what you're making, that's my opinion. Some people think I could sell it off the CAD, this is a CAD, a computer aided design just a flat piece of artwork, but I like to make samples for people. So that next sample after a photo sample, is called the SMS or the salesman sample, that's what SMS stands for and a salesman sample is perfect. A salesman sample is your production, that's what the garment going to look like in the stores. It's technically what you're handing to your salesman to say, "Sell this shirt" that means when the salesman is holding that sample in front of a buyer, he's telling the buyer, "This is exactly what it's going to look like, this is exactly what I'm going to deliver to you." It's called the salesman sample. Now, you need a salesman sample for every salesman that you've got, for every trade show that you're doing. So, let's say you're doing three shows in Vegas, one in Germany, and one in Japan, you're going to need five samples. It's probably cheaper to make five samples than it is to ship one sample around the world all over the place, get it damaged, get it lost whatever just make five of them and then you're safe. So, those are different ads you got proto, photo, SMS, those are the different stages of sampling. In terms of a timing standpoint, it's crazy but you're going to want to almost allocate about 30 days for each round of samples to be made. So, from the time you deliver your tech pack to the factory to the first sample, this might take the longest because they've got to figure it out for the first time. So, this might take 30 to 60 days, say 45 days, a month and a half. From there you're going to get the first one. There's going to be mistakes. You have to get those mistakes changed, right? So, from there, you're going to make the changes and then you're going to ask for a second proto. The second proto is going to take about another month probably. So, now you're at two three months already. Hopefully they get it right on the third try but if not you've added another month, every time is about another month, same goes for the photo samples, same goes for the salesman samples. So, as you can see, if you do three rounds of protos, one, two, three, photo and then salesmen, that is five months right there of sampling time. So now, let's say you want to deliver this in September, you can see how easily now you need to be half a year to one year out in advance to have all your designs prepared, so that you can actually have in time for the store delivery. Six months is what I just outlined for three protos, a salesman, and SMS, that's why a lot of brands budget out a full year, a 12-month release. So that way they have plenty of time to get the samples right, then they have plenty of time to do the marketing and the sales of it go to the trade shows with it. Still with enough time so that the buyer has budget left in his account to spend money on your clothes which is something that I went over in the first video about having available budget to buy. So, you want to have all of that stuff well in advance and it generally takes about a year and a half advance time for that to happen. In terms of costing, let us talk about costing of this stuff now, so when you've given your tech pack to a factory, they're going to review it, they're going to take a look at what's involved and then based on approximately how many you are going to make, they can give you a price on it. So, you're going to say here's what I want to make factory, how much are you going to charge me for this? And the factory will say, "How many do you think you'll make?" And what I generally start with especially when I was small was I would say, "What are your minimums?" You want to know what the minimum amount the factory will make is and that varies greatly. Some factories might make as little as 30 to 50, they might not even have minimums. Other factories might say you've got to make a thousand minimum, so there's a huge difference. So you've got to just ask the question, and based on your number, the factory will give you a price per unit. So, they'll say "Okay, this shirt you're going to make 300 of them, I'll charge you 10 bucks to make each one". So they give you a price on that. The sampling cost generally speaking as a rule of thumb is double that cost price. So, if the factory says this is good to on production costs $10 each, each sample is going to cost about $20, that's generally the rule of thumb. So, think about it though every time you do a round of revisions, it's double your costs 20, 20, 20, 20, 20. If you need five salesman samples, that's 20 times five, so you can see how the sampling process can get really expensive hence, you could also see why it's really important to have your tech packs on point the first time around. If you have the bomb tech pack going in and the factories like, "Hallelujah, I understand everything here" and they get it right on the first try, you just made a sample for 20 bucks and it's one and done, that would be awesome, that never happens, that never ever happens but you want to be able to get it close. Sometimes we get perfect samples and two tries which is amazing, if that happens that's really amazing. So, definitely protect yourself by trying to make really good tech packs and then go through the sampling process but control your costs at the same time. 11. Production Example: So, I'll just give you an example of a design we did. This is one of the shirts that we've developed for the season, and it's a really great design. It's a long-sleeved button down shirt, where it's distinct characteristic is this camouflage design that we developed using pigeon bird feed. So it's camouflage made of bird feed. Now, we sent this to the factory, gave them all the different prints and all the graphics and all the details, and then submitted it, crossed our fingers and waited a month. About a month later, we got the shipment from them, and this is what we got. We got a black shirt. Okay. It doesn't look anything like this. Now, at the first sight, you might be like WTF. What the hell is going on over here? But the factory included notes, and they included a lot of notes, and a good factory will do this, they'll include notes that are attached to the garment. They'll say "We know this is not the right fabric, we just wanted to get the fit right, we wanted to make sure the sleeves were right, the cuffs were right, the body was right." So, disregard the fabric. But as the designer, it's hard to disregard the fabric. I didn't want a black shirt, I wanted this camo shirt. So, you got to learn patience again and just be able to be like, "Okay. I understand this is a work in progress, this is something being developed, and we're going to start here." So, we got the fit right, gave them all the comments on the fit, and then on the second round, they came back with this. Wow, it kind of looks like what we want now, so it's getting there. But I can see why the factory wanted to do this because what's the point of getting this print right if the shirt fits like hell. The shirt feels like crap when you wear it, doesn't matter how good the print is. So they wanted to get the fit right first, and then they went on because they felt confident that they could get this print done. So, this is an example of how a sample development might go for you guys. 12. Costing: So, let's for a second talk about costing. Really important information that you have to have here. If you remember let's zoom out a little bit and go macro. So, if you remember from the first video, I spoke about MSRP. That's the cost that someone pays as they walk into a store. Going from there and you've got wholesale, that's the price that the store pays. Go in there and you've got costs, that's the price that you've paid for the garments to be made. This is where I'm going to focus in on right now for the next few minutes, cost. Costing now is made up of dozens and dozens of different factors. These factors all make up and add up to how much it costs to make your garment. So, you look at a regular men's button down shirt as a really simple thing. I mean you've got fabrication, you've got thread, you've got stitching, you've got buttons, you've got snaps, you've got zippers, you've got hang-tags, you've got the poly bag that it packages in, you've got the tissue paper that you throw away whenever you open up the thing. All of these different factors, you got the labels, you've got the cuff label, the size label, the washing instructions label, all of these things are maybe they might only be pennies, but they add up, they constantly add up to the final cost of your piece. You need to have understanding of this cost, and you need to break it down for each garment that you have. It's really important because when you understand your cost, you can then determine how much you're going to charge for it. Now it's a two-way street if the customers and the buyers of stores are like, "Your shirt's great but it's way too expensive." You need to then figure out how to make your stuff for less money, so that you can actually make money by maintaining your design. Oftentimes you can save money on reducing the cost of a design in ways where the customer doesn't even realize it, it's very minute things. Again, it depends on the philosophy of your brand, there's definitely brands out there where it's like, no holds barred, no cost spare, we're going to spend the top level dollar on every single thing, we don't care. That happens, that's fine, you're going to definitely reduce the number of people that you can sell to, but I find that the fun creative challenging part of making a clothing line is making great clothes that people can afford. The way you do that it's having a mastery of your costing. So, I find that organizing your cost is best done in Excel, which is a spreadsheet program, numbers is the Mac one, but there's different programs that are a spreadsheet that basically can keep all the calculations for you, so you don't have to keep it in your head. I used to keep it in my head, which is crazy, but here's an example of what a costing sheet might look like. So, essentially what we've got is designs going down one side, these are all your styles, and all the different colorways that it comes in and then going across the top is all your expenses. These are all the things that you're going to spend in order to make this one shirt. So, let's look at some of these things. The first column that I have going across the top is minimum quantity, so depending on the item, and depending on the factory we are using, this is where I will put in what my factory requires me to make. If he says I got to make a 100 piece minimum, I am going to put 100 pieces in there. Okay, the next thing is the fabric cost. So, the cost of the fabric itself. There's different places where you can buy fabric, there's fabric suppliers. There's jobbers that will get the fabric for you, but fabric is generally charged in yardage, and you have to buy certain number of yards of fabric. So, I will put the price per yard in this area here. Now the next thing is the next few ones are all relating to freight and shipping, which is a cost that a lot of people forget. A lot of people just sometimes think about how much does it cost to make my thing, but then they air freight it in, they FedEx it overnight in and then at the end of the year they're like "Hey, where did all the money go?" It went to FedEx. So, I factor all that in here. Depending on where you make your stuff, will determine how much you pay for shipping. If you make your stuff really far away in China or overseas, you got to consider freight, duties, shipping. Basically what duties are, when something is shipped in from internationally, they tax it, America taxes it, so you've got to add that in as well, and then the actual shipping costs. So, duty and freight are two things that you got to factor in. If you make your stuff in America, you don't have to pay duties, but you probably have to pay UPS ground or USPS for shipping, and it's probably a lot cheaper and quicker. That's the advantage of making stuff domestically in America is saving on duties and shipping. There's a miscellaneous column where I'll usually added in like five percent or something like that, just for miscellaneous. From that point, you've got what's called the landed price or it's called LDP Landed Price. LDP is how much it costs for the entire thing of the making, cutting, sewing, fabric, all of those things, the buttons and trims, added together that's how much you're garment costs. After that, you will then add in other things that are related to sales. So, if you remember what I said about a salesman or a showroom, let's say you've made a deal with a showroom, where you have to pay the showroom 10 percent on sales. I'll put that expense into the garment as well, so that way the customers are paying for that expense too. So, I put in salesman commissions in there and those types of sort of sales related expenses into the garment. Then after that, you then have your total cost. Now from their, you can then figure out the cost of your goods, then I've put in the calculation for the wholesale, so that's how much the store is going to pay for it, that's the wholesale price. Then I put in times two, for the retail price. So, then I know how much the store is going to be charging for it. Then that way now you could see if you've made because you've got a spreadsheet going, you just do the math now, if you make 100 of these things, you'll see how much is going to cost you to make? How much the store is going pay for it? How much top-level gross, how much will all the customers if all the customers bought all the garments, how much money they'll be in your pocket at that point? So, you could see it all broken out onto a spreadsheet like this. Every brand is going to have a different spreadsheet, obviously if you have a jewelry company or a Art Supply Company or bad company they're all going to be different, but it's important for you to just break out every single cost you possibly have onto a spreadsheet, so you can see now if a customer comes back to you, and says "Hey, I would buy this but I need it to be $5 cheaper." Well, instead of just recklessly saying "All right, I'll give you $5 discount on each one," don't do that, go into your costing sheet now and say "All right, if I remove this button, change that button to a Velcro. Do this fabric instead of that fabric. I now, and maybe I'll instead of air freighting it, I'm going to ship it by boat, I can actually take $5 off the cost of this," and then so when I give them a $5 discount, it's not really a discount it's actually costing me $5 less, that's the smart way to do it. I used to do it in a way quite honestly where if someone asks for a discount and I really wanted to be in their store, I would just be like "All right, I'll give you a discount I'll figure out how it works out on my end," but when I actually work it out, it doesn't work out, and I don't end up making money. So, the smart way to do it is to break it down on a costing sheet like this. 13. Protecting Yourself: When you've decided which factory you're going to work with, it's very important that you protect yourself as well. If you remember in lesson one when we were discussing about the order sheet and the line sheet, there was terms that you were going to give customers and accounts. It was the thing that I was talking about of prepayment versus COD versus NET 30. This goes along the same lines with the factory that you are going to work with as well. The factory that you've chosen is going to try to give you a set of terms. Very likely, if they've never heard of you before or if you are a brand new start up, they're going to want either prepayment or COD. What that means is that once you give them your order, once you give them your tech pack and you say I want 100 of these shirts, they're going to say, ''Okay, pay for all of them right now before I get started.'' Or they might say, ''Pay for half right now and pay for the rest later.'' Or they might say, ''I'll start making them when you pick up the goods pay for it.'' That's COD. When I say protect yourself, each one of these things is a negotiation and you've got to deal with it in that way. I like to be fair to both parties. I understand that there's risk on my part and there's risk on their part. I'll give you an example. If the factory comes back and say, ''I need all the money upfront before I start making this.'' Well, all the risk is on you. The factory is getting paid 100 percent then they're hopefully going to start making your stuff in a timely manner. But let's say they make it late or let's say they don't make deliveries, or let's say they mess up on all the designs that they do and they destroy your fabric and you start kicking and screaming, ''Hey you messed up my stuff.'' The problem is you've already paid them for all the goods. So, you have no negotiation tactic at that point. They could just be like, ''You know what, take your business somewhere else. We've already tried to do our job and that's it.'' I've been screwed that way many times. So, pre-payment is definitely not a fair way to go about it. It definitely puts all the power in their court. Now, let's talk about the other side of that, which is Net terms or COD. Net terms if you remember is they make all your goods, they send it to you and in around 30 days you're going to pay the bill or COD. COD means they've made all the goods, you're going to pick it up and the day you pick it up you hand them the check. Now, let's say you agree on COD. You go there the day you pick it up and on the way to the factory that you're going to pick up the order your customer calls you and says, ''Hey, you know what? We're going to cancel the order, we don't want it anymore.'' Okay, that's a disaster, but you haven't paid for anything yet. So, you could be a jerk and you could go to the factory and say, ''I don't want the order anymore. I'm not going to take the goods but I don't want the order anymore.'' Now put yourself in the factory owner's shoes. He's paid for the making of these. He's paid the people to make it. He's paid for the stitching, the yarn, the labor. He's already out of pocket on it. Now, he's sitting on clothes. He's not a designer. He's not a salesman. He can't sell these things. He basically has boxes of garbage now that he's not getting paid on. So, it's not fair to do it that way either. So, I personally really just try to be fair about it with everyone and I say, "Listen, I'll pay you step by step along the way." So, I'm going to give you the tech packs and let's start the job. I'll give you for example, I'll give you 25 percent of the total job right now. I'll pay you 25 percent. Then when I start seeing first and second protos samples, I'll give you another 25 percent. So now, I've given you half. Then now, as you're making the photo samples and the salesman samples, I'll give you another 25 percent. Now you've got 75 percent. So, you've got three-quarters of the job in and he's getting three-quarters of the job paid for. Now, at that point, you've already developed the rapport with the person because you've already been working with them. Now, you can make the call and say, ''Hey, you know what? I really trust this guy, he's a really stand up guy. I'm going to pay you the rest of the 25 percent that's remaining and then you just deliver the photo samples when you can, even the final samples.'' Or, if you still feel like it's a little fishy, you can say, ''Once the photo samples are done and I pick them up, I'm going to give you the remainder of the check and you'll be paid up and I'll have everything that I want.'' That way you've got your hands held together and you're going along the process together. Quite honestly, if the factory frowned upon that and its like, ''No no no, I don't want to do it that way.'' You really got to ask yourself why he wouldn't want to do it that way. Why wouldn't the factory want to do it that way? It's totally fair. It's almost like if he doesn't want to do it that way or doesn't even come close to those terms, it might be fishy. The 25 percent number is arbitrary. I mean it could be 10, 10, 10. It could be 33, 33, 33. But I just like the idea that you guys are in it together, you're both taking risks, you're both going to make money and you just go hand in hand together. I like that way. I personally don't like it where one guy has to take all of the risk. So, you should try to find factories that will be able to comply with you on that. That's the goal. As you're going along the manufacturing process, one thing that you want to consider is what you're going to do with all the stuff after it's been made, and I've seen a lot of my friends have brands where they're getting stuff made, they're all excited and the factory calls and says, ''Hey, we're done with your stuff. It's 198 cases. Where do you want it to go?'' It's like, ''Oh my God! Where do I put 198 cases?'' They start calling their mom for their basement stuff. You should figure out somewhere along the line pretty early on where all the stuff is going to go. Is it going to go to a warehouse? A storage area? Don't forget that after the stuff comes in, you've got all these boxes of stuff. Even if it's not 100, even if it's 12 boxes whatever it is, it's got to go somewhere. The stuff has to go somewhere, and when it gets to that place, someone has to open all those boxes and make sure it's not filled with bricks. So, you've got to open it up and make sure that it's your shirts, it's your designs and it's the way you want it done. It's to your quality control. Its to your compliance. So, something's got to give where all of that stuff has to be stocked in there. Now, let's assume you got all the stuff, let's assume you've checked all the stuff. Great, everything looks good. Now, you've got to fulfill the orders. So, at that point you have to have enough space and room and enough workspace so that you can separate all those things out and be able to ship them. That's a whole another subject matter but I do want to give you the insight that at this stage, you don't want to be trying to figure out where you're going to put stuff after it's done and sitting at the factory, because I've heard of stories where the factory will say, ''All right, we'll keep your stuff here while you're trying to figure out where we ship it to but everyday you keep it here we're going to charge you $X hundreds for every day that we keep it here.'' They have the right to do that, you're taking up their property. So, you should have all of that stuff figured out, of where it's going to go, where it's getting warehouse, and make sure you have enough room at that warehouse or facility for you to pack and ship your orders out. To wrap up the intro to sourcing, price first, make later. Don't forget work backwards from where you want to be, where you want to be hanging with, that will help determine what kind of factories you can use. Choose your vendors wisely. Really figure out who you're going to trust to work with. Have patience, lots and lots and lots of patience. Preparation for the vendors is super key. The better you make your tech packs, the less rounds of samples you're going to be needing to do and the less money you're going to have to be spending. So, take the time to do your tech packs correctly. Again, the tech packs are the instruction manual for how your goods are going to be made. Protect yourself. Payment terms, don't forget to not get your head too deep into making payments that you don't have to make and hence giving