Working in wholesale I once had a colleague who said to me: “After working in wholesale I never want to pay retail again.” The mark-up from wholesale to retail is so great that if one knows what that mark up is then they often feel a sense of consumer outrage.
Imagine then how vendors in China feel when they see the mark up from production cost in China to retail cost in the US. For many the mark up is a shock. And who can blame them when a picture frame made in a factory in Shenzhen for $ 5.00 ends up in a London retailer for $ 250.00. For this reason the GOLDEN RULE in wholesale is never to let your overseas vendors see your retail pricing. Because if they see the retail pricing then they will naturally want a bigger slice of the pie. For brick-and-mortar wholesalers this is not hard because many do not publish their pricing online and most have longstanding vendor relationships so costs can be controlled.
However, for online businesses who have all their retail pricing on their website, and who source via alibaba, keeping retail pricing confidential when sourcing in China poses an entirely different challenge. Yet many online businesses that come to me are not aware of this challenge. Most assume that costs in China are what they are and that vendors in China just want the orders and acquiesce in the steep mark-ups from first cost to wholesale to retail. There is a kind of cultural arrogance at work here.
The fact is vendors in China do care about the mark-ups. When I worked in the China office of a major US textile company, people in the office would sometimes see the retail pricing – for example if we were printing the price tags in China – and they would express their feeling of exploitation and displeasure to me. I always felt a little embarrassed about this but there was nothing I could do but try to explain to them that there were a lot of costs along the way from the factory in Shanghai to the flagship store in NYC, and that the company we were working for did not pocket all of the difference.
For this reason if you are an online business and want to negotiate a cost with a first time supplier then you should exercise a little sensitivity and try to use a third-party so as to keep your company info and pricing confidential. Of course, if you place an order with a vendor they will learn who you are and see your pricing eventually. But the point is that your relationship with your new vendor will start from a much lower first cost than would likely have been the case had they known your retail pricing to begin with.