In March 2024, Yohan Jacob, founder of Retailbound, joined Terry Arbaugh, Chief Commercial Officer of SEACOMP, for an engaging discussion on navigating the complexities of retail strategy. Retailbound, based in Chicago, specializes in helping emerging product brands successfully scale into retail, offering expertise to companies that may lack the time, resources, or experience to do so effectively.
This insightful conversation unpacks the challenges of scaling hardware products into retail and highlights actionable strategies for success. Together, Terry and Yohan explore key topics that every hardware startup should know when scaling into retail:
The Importance of Detailed Planning
Success in retail begins with meticulous preparation, as large retailers like Walmart or Best Buy evaluate more than just sales numbers—they consider customer reviews, return rates, and long-term performance.
Choosing the Right Retail Partners
Finding the right retailer match is critical. Not every retailer is suited for every product, and factors like pricing structures can significantly impact a partnership's success.
Operational Readiness is Non-Negotiable
Beyond the product itself, startups must meet logistics, warehousing, and customer support requirements to build retailer confidence and maintain strong relationships.
Mastering Pricing Strategies and Cash Flow Management
Pricing for retail involves balancing profitability and competitiveness. Startups must understand retailer-specific pricing models and plan for cash flow challenges, especially those unique to scaling hardware products.
Navigating Retailer-Specific Logistics Requirements
Each retailer has distinct packaging, labeling, and compliance guidelines. Following these requirements is essential to avoid costly penalties and maintain good standing with retail partners.
Watch the full video to gain insights and practical advice for successfully launching and scaling a hardware product into retail.
- 2:03 Why a solid retail strategy is important for hardware startups
- 5:25 Pricing strategy of wholesale vs retail pricing
- 12:32 Retailers payment terms (when will a retailer pay you?)
- 18:30 Cash considerations when manufacturing your product
- 21:48 Retailer delivery requirements - check the routing guide!
Transcript
Terry
Hello and welcome. My name is Terry Arbaugh. I'm joined today by Yohan Jacob of Retailbound. Yohan, please give us a little bit about you and maybe tell us a little bit about Retailbound.
Yohan
Thank you. Thank you, Terry, for having me here. So my name's Yohan Jacob. Been in the retail industry for over 30 plus years.
Not that you have the wrinkles or lack of dark hair I have. Started my career working in Southern California. San Diego, being exactly, selling products to retailers, launching in all different sizes. Made my fair share of mistakes on my own as, more on this podcast, but learned to be successful. And I got my MBA here in Chicago and became a very large retail buyer for two different billion dollar retailers.
Lastly, I’ve seen my fair share of the good and ugly by the large merchant. I saw a lot brands, which is smaller brands which were struggling to not just to sell to me but to work with me. Right. So I started calling it Retailbound about 16 plus years ago to help innovative product brands learn how to scale into retail. Our company Retailbound since 2008 has helped countless entrepreneurs in about 35 countries.
Again, retailers like a Best Buy, Apple, Walmart, Target, QVC and so forth, yeah and that's a little bit about Retailbound and myself.
Terry
That's awesome. Thank you. So 16 plus years ago which overlaps with about my tenure here at SEACOMP. Right. And some of the things that we've talked about Yohan, with our customer overlap, you know, we design and manufacture electronics.
So when companies, particularly startups that are trying to scale a hardware product into retail, there are a lot of things you've got to really think hard about and plan well in advance. And so that was some of the things I wanted to talk about today. Right? So maybe I'll start with a broader question and I'm going to ask it kind of the flip side of the coin.
So why is having a solid retail strategy important for hardware companies? And the other way to look at that is what should’ve you tried to avoid learning the hard way?
Yohan
Yeah, well I learned the hard way, obviously. I think I tell you some horror stories, but it's very important if retail is your end goal, right, is it’s important that you plan accordingly.
Right. You can't just wing it, or fake it until you make it as you hear in the industry, right? We have about a third of our clients come from crowdfunding Indiegogo, Kickstarter. Hey, I raised $1.3 million in Kickstarter, Indiegogo. That's made sure to fall all over themselves, to have my break. Just because you did well on Indiegogo, Kickstarter or maybe doing decent on Amazon, does not mean that Best Buy or Apple or Walmart may be interested.
My daughter is a sophomore in high school, taking her college entrance exams very soon. ACT, SAT. Colleges like Stanford or Harvard, the ACT/SAT is just one data point they look at. Same for retailers, they look at certain data points: in your sales. Right. And how successful you are. They look at reviews, look at returns.
Right. So it’s really important before you reach out to a retailer, you have a plan, right, that hey, who are the right retailers for me? Not every retailer makes sense. If your product is a consumer electronic product, maybe Best Buy, better fit because they're more that early stage innovation. Where a Walmart or Target is more at the end of the innovation curve right.
Margins, right, again some retailers are very margin heavy like QVC or a catalog like Sharper Image. Where some retailers take a little less margin like a Costco or a Sam's Club.
So part of your plan of attack as a hardware startup is A) what are the right retailers that make sense for me, 2, my margin, you know can I afford to sell to retailers right, 3 distribution. Yeah and you can't just drop ship from China, by having warehousing or fulfillment to ship to those retailers. And final last thing I think a lot of young hardware brands kind of forget is post-sales support. A lot of our clients before they meet with us, they spend so much time on that the product and the packaging and all that kind of stuff, they forget about the last thing is the support, how do you support your customers?
You know with the retailers then. Because like myself, I buy a product from Best Buy, take it home, it doesn't work. Now what I do, right? Do you have a phone number, do you have a web chat, do you have FAQs, do you have videos? Those are things you really need to have in place, Terry, before we start, knocking on doors and wasting a retailer buyer’s time, by the way.
Terry
Yeah, that is fantastic. And I'm going to try to unpack a couple of those things because just in a two minute answer, you said that's years of that's years of experience and knowledge that, you know, a hardware startup going into retail for the first time. If you don't know a lot of these a lot of these things.
You're in trouble from the beginning. So let's go back really quickly just on the margin. You know, kind of the pricing. Just give us a quick sense from a from a manufacturing cost. So if you're the startup and you're buying a product from a manufacturer like SEACOMP, you know, let's say it costs $25 from us, what would that typically retail for on the shelf?
You know, what's the kind of the wholesale pricing and the retail pricing? Give me kind of your sense of what that markup looks like.
Yohan
So I get that question asked a lot and unfortunately, there's no exact answer because some retailers, some mass buyers are willing to make less margin because maybe it has a subscription. For example, I have a couple of clients who are in consumer electronics, right, now that they have,
It may be it's a smart camera, So they have a subscription service in the bag. So it’s called the rate of return. We will sell the hardware cost, give or take and make on the back end right. So typically you look at it, you know, probably between four to six times, your FOB cost is where you should be at. So if you’re at $25 cost, And by time I landed into the US, it’s something, I mean it's $35 right. Well the margins you know run the retailer right maybe you’re at 149, right, 199 depending on the product. Right. If you're a consumer electronics product, right, margins are a lot less versus if you are a product in soft lines, you know which is a lot more margin.
Right. So but typically, our clients on the FOB cost or landed cost calls right it could be between 4 to 7 times the retail price would be in. When we do pricing for our clients, we do bulk weight from tops down and bottoms up, to figure out what is the optimal price to offer to a retailer to make sure they're making money as well as the retailers as well.
Terry
Yep, that's a great answer. I know you get that question a lot, obviously, and we get that question quite a bit. You know, as well. And I think the yeah, the basic answer without the subscription kind of really generally at the cost of $25 from us, you know, you wholesale it for 50, the retailer sells it for 100, is kind of a very generic answer.
But just like you said, there are so many more variables and nuances to that answer.
Yohan
That add more complexity. Right. Retailers like me, they buy one of two ways. They buy net net, is Walmart. I want the lowest cost, Terry, so you think fifty dollars is the lowest cost possible. Great that's my cost just onto Walmart. Target, on the other hand, their competitor down the street, they have theirs is mostly a cost plus, I mean, they want some back end rebates.
It could be marketing, one is rebates, effective allowances and so forth. Right. So instead they're talking about 50 maybe it's 60 bucks give or take, right. Minus the discount. Now net net is still 50, but invoicing Target at 60, but probably $10 worth of rebates that you're going to be will be going to Target on the back end every single month or every single quarter by the way.
Yeah. So we work with our client to make sure that those rebates that they may ask are in our pricing model to the to the clients are not surprised when Target says, hey listen, here's our cost, we want 5% NDF, to say pull up, I’m saying defective, then their head starts spinning around.
Terry
Right right now it's really interesting. And I think just to pick up on one point you made earlier, you know, going from that cost wise, you go from bottom up to top down.
And that's actually really good advice for hardware companies when they're working with us as well. Right. If they're coming and having a company, any company design a product and then manufacture a product, especially in the design and engineering phase, when you're able to have influence over what your costs are, what component selection, materials selections are, if you know that the category of product you're making, if it's not at 149 on the shelf, you're not going to sell it.
We better have that conversation early to know this backwards math that says, okay, well, at 149, then at the most, you know, the retailers want to get going to want to buy it for 75, 80, maybe with some rebates on the back end. And so therefore, I need to buy it from you, Terry, for X, Right.
So when we start looking at engineering and component selection, our costs need to be in this range for our business model to ultimately be successful. Right? So looking at it both, both directions is really, really important. So that's a great point you made.
Yohan
You also, I think, Terry, add another layer of complexity on price. I can talk forever about pricing, that you also want to look at competition.
Now fortunately the clients we work with are in categories that aren’t very saturated. It's always a Bluetooth speaker or a wireless headphones, those are very saturated categories and very tough on pricing because how low can you go right. Most of our clients, and I assume same with yours, are unique. They have patents, IP, and trademarks usually first to market, right? The challenge sometimes when you are first to market, and new product no one has probably heard of before, or no one has ever seen before, what should the price be?
Should it be 149, 189? If you're a Bluetooth speaker, you kind of have an idea of okay, we know how many bluetooth speakers are out there. What is the competitive features and benefits and what's the price? Right. That’s the sort of challenges. Regardless if you're a commoditized product or you're a priced first to market, I always say you're going to retail, always price high because of what, what do you mean, you price high, you always come down, right?
So if you're hey, I want $99 or probably $109. Let's start at 129 retail. Why? Because there's room for doing promotions, right. If by chance costs go up, Terry, if you’ve been in the business as long as I have, right, raw materials, chip shortages, UPS strike whatever it may be, right. Then you have enough buffer, right, to help those cost increases by being at 129.
If they really sell a little slow. You can go lower. If you start at $99 and all of a sudden, costs go up. Then tell the buyer, hey I was $99 these last six weeks, I didn't really do my pricing correct with Terry and Connor. So I got to raise my price to you Best Buy right. It’s one of the toughest discussions to have. To tell them, Hey, I need to raise my price. Mostly, they’ll say, Look too bad, you gave us this cost, that's what were going to stick with for a while.
Terry
Yeah, that's right. Those. Yeah, those. Those retail buyers aren't real flexible. Right from that standpoint.
Yohan
Right. They're not. If there was an official retail buyer's guidebook, on the first page there would be one word: No.
Terry
Let's stick on you know kind of the cash and the money side of this Right. Pricing is obviously really, really critical you know costing pricing every this it's one of the first things in every conversation we have right now what's going to cost me how much is going to cost me.
Right. So it's not just the unit price discussion when you're talking about, you know, manufacturing or scaling retail, payment terms. When do retailers if you're a hardware startup and you've got a consumer electronic product and you're scaling into retail with the Target Walmart at Best Buy at Costco, when can you expect to get paid from them after you as the customer, have delivered products to one of these big retailers?
When are they going to pay you? How long do you need to plan for on that cash cycle?
Yohan
It's a great question that I don't get asked that often. So typically, retailers' payment terms, generally speaking, range from net 30 or 30 days to net 90, 90 days, right? Generally speaking, 60 be the average of the large retails like a Best Buy or Target.
A lot of the ones you just mentioned are net 60 terms, right? Some retailers may offer early payment discounts like 2%, 30 net 60 means that they pay your invoice in 30 days or less, Terry. They get additional 2% off the invoice. Some retailers like QVC are net 90 and some retailers, and don't fall off your chair, more on a more retails like PepBoys or Autozone, they are a net 365. But generally speaking it's net 60 is an average for the larger retailers, smaller retailers probably net 30.
No retailer, and I get this question asked once in a while, will they pay me upfront? No they will not pay you upfront for your product. You basically, you pay your factory wherever it is, the ship RPO once it hits our boats or docks or storage wherever that may be, the clock starts ticking, then hopefully 30 or 60 days, I'll get paid.
Now, by the way, one more little caveat: consignment. So some retailers is, Best Buy Canada, what they are, or Staples US for in-store we'll use the word called consignment. Consignment basically means that the retailer will order the stock from you say 100 units, they're not going to pay you for 100 units in 30 days, 60 days. Consignment is, I'll pay you, if it sells.
So I send 100 units to Best Buy Canada. Now we sell 20 units in the month of March, they will pay me for those 20 units in March or in 30 days. Right? So the another thing you’ll need to think about as you're doing your retail strategy and pricing, that consignment, which is a word that some retailers use to be a means of negotiation, if you really want to get into that retailer’s doors and want to make a name for yourself.
Terry
Yeah it's a way of them then making you take a bet on yourself right like we'll put it on the shelf but we're not buying it. If you're confident this will sell, we'll give you the space to test it out and we'll pay you if we sell it. Yeah, that's a tough one.
Yohan
And a retailer do it a because they have the leverage and that they can. because they can.
You know you're, right, a young startup in San Diego, I have the leverage right, You need me more than I need you, so want to be in my store or my website? I want consignment. With consignment at least a good of a consignment and that's why I went to the payment terms, with consignment you get paid sooner. Typically payment terms for Best Buy Canada, if you were a terms vendor for Best Buy Canada, it'd be 60 days. Yeah. If you're a consignment vendor at Best Buy, this is why I went into this tangent, there your payment terms are 30 days so you actually get paid sooner on consignment. If it's sold. For terms, better it may be longer by the way.
Terry
If it sold.
Yohan
If it sold, correct. If it sits on a shelf for 30 days and then you get paid in 30 days, your right back even, but be sitting regardless of if its terms or consignment. These retailers like a Best Buy or a Walmart. I tell our clients, this is why they hired us, is that we actually do more marketing and merchandise for our clients. That that's why all for all of this I'll create a platform for you guys. I'm not going to spend your time marketing your product. Now I have Sony, I have Microsoft, I have HP, I have Amazon.
Why would I spend my time with a merchant to spend time trying to market a one SKU brand down in San Diego. Right, Right. So usually the retailer wants the brand, the small hardware startup, to do the marketing, so it's PR, it's influencer, it is paid search, it's Facebook ads, to be truly the best buy, to get to the website, drive the sales, get repeat PO's, right.
And once Best Buy sees that, Terry, then they will invest their time and money in helping market a young brand. But it's up to the hardware startup to start the marketing machine to driving sales and then the retail will give them the gear.
It is really interesting. And on the payment term side, there's obviously some more layers and levels to it as well.
You know, a lot of these larger companies, they might pay you net 60, but it might be an AMS type situation. So they'll run checks once a month, for example, and we see this quite a bit. So they'll say, it's net 60 as long as we received your invoice before the 15th of the month during that, then will receive it.
And if we receive it, you can show that it's been delivered, but we haven't received that into our system yet. So that, that might be another week before it gets officially received.
We're pretty good luck. Lucky for us, you know, we were over 150 retailers in the U.S. and Canada, one of the largest agencies in North America. We know which retailers play those games. And again, we treat our clients' money like our money.
Terry
No, that's great. And just really quickly, the other side of the cash management discussion. So, yes, you have the retail side with payment terms and everything else on the front end.
If you had mentioned it on the front end with a manufacturer, we may have components for a custom product that might be, you know, 20, 30, 40 weeks at times. So, you know, manufacturers have to go out and spend money and buy materials, buy components early. And if you are a startup and you don't have a credit history, you don't have, you know, payment terms or receivables, insurance, you know, all of those things, quite often then you're paying a manufacturer upfront before they ship your goods.
If you're trying to reduce your cost as much as you can, then you're shipping those goods if it's from China potentially on the ocean. So you're adding you know, 4 to 6 weeks transportation. Now, then you deliver to your retailer and then you've got their 60 days terms. Right. So one of the things we try to advise customers is making sure they're planning for these really long, really intense cash requirements, not only to design and develop and tool and build and certify a product, but to also scale it and sell it into retail and be able to support those customers with the marketing efforts and the returns, support and all of the other things you mentioned. It is a beast of a financial puzzle to solve in addition to everything else you're trying to do as a business.
Yohan
Yeah, well, what we tell our clients is that not to, to ease their fears because you know, hey we want to work with you, is the best way to go about is to order a $1,000,000 tomorrow? Of course not, right. That the risk to be lot less, especially when working us our, our philosophy is start small you know or we call it a slow burn so if we got engaged with a brand, we know it would take so many weeks to secure the parts, tape the part, get the product put together, ship it from China to the US, right, all that stuff, you know, it could be a very timely, costly venture. Right. But again, it might not be ten, but it might only be 100 units. 500 Units. Right. Versus 5000. So yeah, you still got to wait. But we're not asking you to build 10,000 units today. It's a much smaller number because again, retailers don't have unlimited stock room space. So it was online or even in store, that I minimize their inventory today.
That's one of their goal. They need to turn the goods. Yeah. So what are forecasts? You know, Terry, you believe you need to build, 200 units a month. That’s it, right? Doable. Versus 20,000 a month then based on sales and other things or ramp up you get enough lead time to do that by the way.
Terry
Right yeah, it's interesting.
And one of the things that one of the conversations we're having now is, you know, I think we have a factory in China. We're opening a factory in Mexico. The difference, just there in terms of time to market, time to shelf from a factory in Tijuana, which is an hour from where I'm standing, versus our factory in China, that is a really big difference in times, right?
So it could be, again, 4 to 6 weeks faster getting to the customer and starting those payment terms clock. So there's a lot of those considerations to be made. One more quick I say quick topic, but one more topic. I think the theme today has just been around the complexities of scaling a hardware, a consumer electronic product into the retail environment and really talking about all the different challenges and experiences that you have that it takes to be successful in that world.
One other area just to touch on, while we're having this conversation, Yohan, what are some of the requirements for delivery of products? So I've heard a lot of different stories and I'm sure you've got a million of them. The requirements for packaging and labeling and pallet size and all of the requirements that the retailers might put on you for your deliveries to be acceptable.
And what penalties or what downsides may happen if you don't follow those requirements? Can you talk about that just a little bit?
Yohan
Every retailer again is a little different in how their requirements for receiving or what they require from pallets and barcode label, that kind of stuff.
I always tell our clients that regardless of the retailer, it's very important to make sure that their team reviews, what we call the routing guide. Every retailer has a, I call it a bible. It could be one two pages to 100 pages because it shows you the do's and don'ts. Say you don't ship with this barcode label or UPC label, it's not in the master pack right.
That inner case pack. Whatever it may be, you get charged. And typically the retailers may give you a pass the first time, if your warehouse is making the same mistakes that, like shipped in less than full case packs, ships the wrong upc so that it didn’t end up in the right carton markings. And so forth. You will get penalized, and those penalties will eat into your profit margin. But every retailer has varied requirements, and I always stress, is that if you had a specific answer, that check with your retailer and ask for their routing guide and they will tell you what is acceptable. When I pick a retailer, what may be acceptable for Target, maybe it may not be so by Best Buy.
No, absolutely. And we've seen where you've got delivery windows as well. Will they'll accept your delivery got to between these dates, Can't be too early can't be too late without also true.
Part of the routing guides on delivery dates. Now some retailers get more complexity maybe on cost accounting or retail accounting. So we're seriously holding, one of these I worked for, we were on retail accounting. So if Sony shipped out we said we want the product delivered on April 1st but they delivered the product on March 30th. Right. That caught our books. We own the inventory for 30 days. What, what are you saying, it came on March 30th, not March 1st. So it's very important you ship by the date that the retailers give you on their PO because that's also part of their penalties. If you're running late, you want to make sure you give enough heads up to the buyer.
They can change the delivery date. But yeah, they have a specific window. If you miss that window, now you get penalized. But it also affects the retailers P&L, you know, making sure that they are on retail accounting versus cost counting by the way.
Terry
Yeah. Fascinating. I feel like we've barely scratched the surface and we talked about a lot. We talked about a lot of things.
But, you know, I think understanding just the complexities of how this world works is really, really valuable. And I think it really highlights the need to hire and work with qualified, experienced people, especially in the startup world. Usually you're going to have, you're going to have one shot on goal right as a start up to be successful.
So if you, you know, kind of step into some of these unforced errors or fall into some of these pitfalls, you know, it could mean it can mean the end of the business, right? So working with companies like Retailbound, hopefully working with companies like SEACOMP, can help you be successful. So Yohan, I really appreciate your time.
Yohan
We call it blind spots, we don't know what we don’t know, right and so it's very important for a hardware startup and retail is still a great choice for most brands. We hear retail’s dead, since covid. No retail, it's changed it's more, 70 percent of sales are still done offline, they may research online but buy in store.
I always tell our clients who are interested in retail is, tell me why do you want to go into retail? One, it is street cred. Well, it seems that you're a brand. I mean, you now can go to China, an iPhone case, part of Amazon. That's not a brand, right? Get building, your product, launch it at Best Buy, in store, online.
Now you're a brand but two, besides the street credit legitimacy of getting into a retailer like a Best Buy, that you know gives the customer, me and you, more choices of where to buy. If I sell my iPhone case and I sell it on a website or Amazon. Great. That’s only a small number of customers. Now if I have Best Buy, Apple, I have Costco and QVC, I have widened the audience range right and giving half as much where I'd like to buy online, in my store or I can't wait three days I could buy it right now at Best Buy, so we will tell clients that retail is a viable option for many of them if you're interested because those reasons by the way.
Terry
Yeah, yeah. No. Fantastic. Really valuable. Really insightful. Thank you so much for your time this morning, Yohan, appreciate it.