How Manufacturers Become Direct-To-Consumer Sellers Through Marketplaces

While manufacturers make might products ranging from luxury handbags to jackets, they may only get paid a small percentage of the final retail price for those items. A brand might sell a given product for $100, according to Italic CEO Jeremy Cai, but a manufacturer may only get a small fraction of that amount. That is, a manufacturer might have a cost of goods sold of $16 and sell it to a brand for $20, which, in turn, might sell it for that $100 price tag. “In the beginning, it’s OK as a manufacturer to operate like that,” Cai told PYMNTS.com in an interview, but he added that rising labor and rent costs make it a hard space for manufacturers to excel.

Cai said the premise for his consumer marketplace Italic is that a high-quality product doesn’t have to cost a lot to sell because it actually doesn’t cost a lot to make. He noted that the main people in the supply chain who benefit from the sale of a product are actually those on the front end like brands, retailers and distributors — not manufacturers. But his company seeks to level the playing field by providing another sales channel for manufacturers, while taking care of processes such as customer support and fulfillment for them.

While Italic does not identify the manufacturers that sell items on the website, the site purportedly features suppliers that make products for well-known brands. Products on the site currently run the gamut from handbags to leather jackets as well as other selections. And, going forward, Cai said the platform plans to launch eyewear, home goods, beauty items and skin care products. In all, the site offers the kinds of products that would be found on some other mass merchant websites, but it operates on a different business model.

The Business Model

Brands typically purchase products from the manufacturer before they sell them to consumers. As a result, they may assume inventory risk the second they buy those items. (That is, the chance that the products won’t sell or will fall in value.) But Cai said, “We don’t take inventory risk. We don’t buy inventory.” In his company’s case, the manufacturer who sells the product to the end-consumer through the company’s marketplace takes on the inventory risk.

To access Cai’s eCommerce website, consumers first sign up for a membership and join the waitlist. And, while the company’s website says that is offering complimentary memberships for early signups, they normally come with a charge. Cai said the reason for the company’s memberships is that structure also lets him sell at factory price points — and the company has limited amounts of inventory to sell. And, also for that latter reason, once consumers become members, they are limited to buy two items per month.

When customers place their orders, Cai said that his company does not drop-ship most of its products to them. Instead, the products for sale on the website are housed in the company’s warehouses. (For handbags, in one case, Cai said that the company has them in stock in different parts of the world.) After placing their orders, consumers can receive items in a few days — and sometimes sooner. And, when it comes to the sale proceeds, Cai’s marketplace takes a commission on each sale.

The Market For Unbranded Goods

On the consumer side, Cai noted that over the past decade the consumer market has experienced a change: the market has evolved from a point where shoppers could only buy high-quality products from brands to a world where they can turn to direct-to-consumer (D2C) brands that they have never heard of before. That is, shoppers might have bought suitcases from an iconic label in the past, but now they might buy them from a company without as strong a name that they came across online. In a future world, he sees people shop for their emotional purchases from brands.

For that reason, Cai said he’s not making the statement that brands are going away. But, that said, he believes that the more rational, value-conscious and frugal-minded purchases will be made by consumers through private labels or a brand’s unbranded counterparts. Either way, Cai believes that the quality or craftmanship won’t be all that different from products sold under brand names and those that aren’t. The overarching concept, then, is marketplaces may be able to provide high-quality products to customers — without the brand name or a large premium through marketplaces.