EXPORT DISTRIBUTION CHANNELS & PRICING Three common distribution options for handmade and folk art products

moving from an artisans workshop overseas to the end consumer in the US market.

Artisan/Producer

Exporter

Artisan/ Exporter Importer/ Retailer End Consumer

Importer/Wholesaler

Artisan/ Exporter

Retailer
End Consumer

End Consumer

International Folk Art Market-Santa Fe Prepared by ByHand Consulting

EXPORT DISTRIBUTION RESPONSIBILITIES CHECKLIST: ARTISAN/PRODUCER: o CREATIVITY innovating designs, materials, techniques o Purchases raw materials o Organizes production o Maintains QUALITY in production o Meets production deadlines EXPORTER: Export logistics: o Handles international payments o Labels and packs products for export o Arranges international shipping o Completes export documents (airway bill, packing list, commercial invoice) o Has knowledge of export regulations o Collects products from artisan workshop and transports to port of exit o Provides oversight on quality control Marketing & Customer Relations: o Manages relationships with international buyers o Cultivates new customers o Coordinates custom design projects for buyers o Develops marketing materials (catalogue, website, company/artisan profile) o Market products (export trade shows, showroom, hosting buyers, etc) IMPORTER/WHOLESALER: o Imports products into US and has knowledge of import regulations o Pays for international shipping and import costs o Warehouses inventory o Packages product for distribution to the retailer o Ships to retailer o Provides customer service to retailer o Market products (catalogue, website, showrooms, trade shows, sales staff) o Develops custom or proprietary products RETAILER: o Purchases from wholesaler o Pays for shipping from wholesalers warehouse to retail store o Maintains store, develops mail-order catalogues and/or online store o Provides customer service o Liquidates unsold inventory CUSTOMER: o Purchases and enjoys the product o Pays sales tax o Pays for shipping from retailer to customer

Santa Fe International Folk Art Market prepared by By Hand Consulting

EXPORT PRICING TERMS Ex-Factory or Ex-Works = price of the product as it leaves the artisans workshop (artisans price). FOB (Free on Board) = price of the product as it leaves the port of exit (airport or shipping port) of the exporting country. This price includes all domestic transportation, packing, export fees and taxes and all the responsibilities of the exporter (exporters price). Landed = cost of the product when it arrives in the importers warehouse, includes costs of international shipping, import duties, US customs clearance and transportation to importers warehouse. Wholesale = price at which the wholesaler sells to retail store, includes margin to cover all costs of wholesalers responsibilities (wholesalers price). Retail = price at which the end consumer purchases the product, includes shipping costs from wholesalers warehouse to retail store (retailers price).

Santa Fe International Folk Art Market prepared by By Hand Consulting

EXPORT PRICING MARGINS & FORMULAS These are approximate formulas and margins for the first distribution channel shown on page 1. They are intended as a reference, and not definitive formulas, for distribution channels of handmade products made by artisans overseas. Ex-Factory + Cost of Exporters Responsibilities: = FOB - internal transportation - packing & labeling for export - export documentation & fees - wire transfer fees - all export marketing & sales (travel, trade shows, catalogues, website, showroom) 20-50% 1.2-1.5 = = FOB FOB Landed

Ex-Factory Ex-Factor FOB

+ x +

International shipping & insurance = US Customs clearance & import duties Transportation to importers warehouse 15-40% 1.15-1.4 Cost of Wholesalers Responsibilities: - warehousing & fulfillment - marketing to retail stores - product development 100% 2 = = =

FOB FOB Landed

+ x +

Landed Landed Wholesale

Landed Landed Wholesale

+ x +

= =

Wholesale Wholesale

Cost of Retailers Responsibilities = Retail - shipping to retail store - maintaining store, mail-order catalogue, online store - promotion of store & customer service - buying trips 100-150% 2-2.5 Wholesale x 2-2.2 = Retail = = Retail Retail FOB x 6-8 = Retail

Wholesale Wholesale

+ x

FOB x 3 = Wholesale

Santa Fe International Folk Art Market prepared by By Hand Consulting

EXPORT PRICING MARGINS & FORMULAS These are the margins and formulas used in distribution channel #2 (middle one) on page 1. This is intended as a reference to common margins used for handmade products made by artisans overseas. Ex-Factory + Cost of Exporters Responsibilities: = FOB - internal transportation - packing & labeling for export - export documentation & fees - wire transfer fees - all export marketing & sales (travel, trade shows, catalogues, website, showroom) increased because you are selling to more retail stores 50-100% 1.5-2 = = FOB FOB

Ex-Factory Ex-Factory

+ x

FOB

International shipping & insurance = US Customs clearance & import duties Transportation to importers warehouse 25-100% 1.25-2 = =

Landed

FOB FOB

+ x

Landed Landed

Landed

Cost of Retailers Responsibilities = Retail - shipping to retail store - maintaining store, mail-order catalogue, online store - promotion of store - customer service - buying trips increased because working with overseas vendors rather than US 150-200% 2.5-3 FOB x 4-6 = Retail = = Retail Retail

Landed Landed

+ x

Santa Fe International Folk Art Market prepared by By Hand Consulting

PREPARATION FOR COMING TO DALLAS: DETERMINING YOUR PRICING Prices in Dallas will be one of the following options: US Wholesale Artists with US distribution will write orders at US wholesale prices. FOB Artists without US distribution will write order at FOB Country of Origin prices. Immediate Sales For artists with US distribution, your immediate delivery price (cash & carry) will be US wholesale + 10% for IFAM handling fee. For artists without US distribution, your immediate delivery price will be your landed price (FOB + international shipping and customs clearance) + 10% for IFAM handling fee. For Artists exhibiting at the Dallas Market Center with IFAM, the following guidelines may help in calculating your prices: 1. Identify which distribution channel your products will take to reach the US market. You will probably be in one of the first two diagrams or some combination of each. 2. Review the responsibilities checklist to determine what costs need to be factored into your pricing. 3. Calculate the ex-factory/ex-works price for your products. 4. Calculate your export logistics (internal transportation, packaging, labeling, export documentation fees, etc) and export marketing (costs of doing trade shows, marketing materials). Factor into your margin for FOB and determine the FOB price of your products. 5. VERY IMPORTANTEstimate the international shipping costs on an average size order ($500 order). Determine what percentage this costs is in relation to the FOB value of an average order. For example, if an average export order includes 10 items and is a value of $500 and if the shipping is $100 then the shipping is 20% of the FOB value of an order. This is a very useful estimate to offer buyers. 6. Calculate the landed costs for all items you are selling on site (immediate delivery) at the Dallas Market Center. The landed costs should be your FOB costs plus international shipping.

Santa Fe International Folk Art Market prepared by By Hand Consulting