Stockist Exclusivity and Zip Code Protection: How Close is Too Close?

Once you start getting momentum with your wholesale growth, it’s common to run headlong into this problem: how much exclusivity to offer your stockists. 

WHAT IS STOCKIST EXCLUSIVITY?

Stockist exclusivity, zip code protection, and neighborhood exclusivity all refer to the same concept -- a maker committing to NOT sell wholesale to stores that are “too close” to a store they already sell to. What is “too close”? It depends on the preferences of each maker and each store owner, as well as on the unique characteristics of the particular town, city, or neighborhood.

Usually, the problem comes up in one of the following ways: 

• You’re writing your Wholesale Terms and want to make clear what you offer stores regarding exclusivity

• A new store places an order with you but says they require zip code protection -- and you are not sure whether it’s wise to commit to it. 

• You have two stockists in the same town and one of them says they’re concerned that the other stockist is too close. 

In our coaching with makers, we’ve found that these situations can create a lot of anxiety. Most makers want to act with integrity, as well as treat stockists well and fairly. But no maker wants to limit their future wholesale success by making poor decisions about exclusivity in the early days. It doesn’t help that most of the conversations about exclusivity happen “behind closed doors” and many people (both makers and store owners) are hesitant to share their real parameters.

So today we’re pulling back the curtain around all the hows, whys, and details of stockist exclusivity -- hopefully saving you a lot of headaches and tense conversations in the process. 

HOW CLOSE IS TOO CLOSE?

Despite what people may imply, there simply is no single standard around stockist exclusivity. How close is “too close” depends on the density of the area (how many stores and businesses are packed into a single mile), the preferences of the store owner, and the parameters of the maker.

Sometimes a maker or store owner will imply that their preference is the standard, but don’t let their confidence (or indignance) intimidate you. Stockist exclusivity is always a balance among different considerations and as the maker, you can decide what you’re comfortable with. If an exclusivity request is too limiting, you can let the store owner know in a friendly and understanding way that you aren’t able to meet their request (even if that means sacrificing the sale.)

That said, there are some common approaches you should know about so that you can decide what is right for you. 

Common approaches to stockist exclusivity: 

1. Neighborhood (or block) protection.
   Most stores will have concerns if you sell wholesale to a shop that is in the same small neighborhood -- for instance on the same block. That doesn’t mean that every store will be worried about it, but it can be a good measure of courtesy to avoid selling to a store that is just blocks away from another store. 

2. Driving distance or straight line proximity.
   One way to calculate distances between shops is by calculating driving distance, or even “straight line” proximity (what some people call “as the crow flies.”) This is how we do it at Wholesale In a Box. As far as what that distance should be between stockists -- that’s a matter of individual comfort.

3. Zip code protection.
   Some stores request -- and some makers actively promote -- “zip code protection”, meaning that you commit to not selling to another store within the same zip code. This can be more or less limiting, depending on the density of shops within that zip code and the size and shape of the zip code area itself. 

4. Specific shop limitations.
   Some stores request that you not sell to specific shops -- as in the case when they have a direct competitor in the same city or neighborhood. 

5. Active vs passive approaches.
   Some makers state in their Wholesale Terms that they promise a certain level of proximity protection for stockists (an active approach, regardless of whether the stockist requests it). Other makers take a more case-by-case (passive) approach, deciding what exclusivity they’ll grant based on each store’s request. Either approach can work. Often, it makes sense for makers who are newer to wholesale to take a case-by-case approach in the early days and then establish a more universal policy once they have a good feel for what is best for them.
   
   
   

HOW WE HANDLE STOCKIST EXCLUSIVITY AT WHOLESALE IN A BOX

As we’ve explored above, everyone’s definition of “too close” is different. But at Wholesale In a Box, we generally recommend maintaining a 2.5 mile driving distance “buffer” around each of your stockists. Of course, this depends dramatically on your particular product, the regions and stores you’re focusing on, among other things. But if you’re looking for a conservative buffer to use as a rule of thumb, that is a good one to start with.

Why we use driving distance rather than zip codes: Early on, we considered using zip codes as our protection criteria. But that doesn’t work well in some very rural areas… it doesn’t work well in very dense urban areas… and it can create a situation where two shops are very close but happen to be in different zip codes. So we calculated the distances between hundreds of stores and found that if we use a driving distance (as you can find on Google Maps) of about 2.5 miles between shops, it creates the best protection between shops in a variety of town and city types. And the vast majority of the time, it also protects zip codes.

Further, a driving distance is very easy to calculate in Google Maps, as long as you have the addresses of the two stores you’re comparing.

For instance, this is that distance for the shop Philomena & Ruth in Waterloo, IL: 

Another thing to consider is keeping track of any special requests you’ve committed to, wherever you are tracking your stockists. For instance, if you use a CRM as we help you set up in Wholesale In a Box, you can add a note about any proximity commitments you’ve made so that you’re clear and organized with those limitations. 

HOW TO HANDLE EXCLUSIVITY REQUESTS FROM STORE OWNERS

Now that you have a better sense of what the general expectations and practices are around exclusivity, you may be wondering how to handle actual situations or requests from store owners. Of course, your own intuition and business strategy should be your ultimate guide. But here are some thoughts on common situations to put in the mix:

• A store requests exclusivity within a certain radius or zip code.
  This is the most common thing that will happen. When a store requests exclusivity, think about what other shops are within those bounds that you might realistically sell to. Ask yourself, “If this shop is a good buyer, would I feel alright sacrificing sales to those other shops?” If your answer is “yes,” then the store’s exclusivity request is likely a fit for you, and you can commit to it. If your answer is “no,” consider negotiating the bounds of the exclusivity a bit or perhaps even foregoing the sale. 

• A store makes a specific, demanding, and seemingly unreasonable request.
  Most store owners are incredibly kind and reasonable when it comes to their requests of makers. But, like all human beings, some store owners are unreasonable. We’ve pretty much heard it all when it comes to strange or unduly demanding exclusivity requests. (For instance “you can’t sell to anyone else in the state” or “you can’t sell to anyone else in the town, regardless of how long it’s been since I’ve purchased” or “the pieces I buy must be exclusive to my store and not be sold wholesale anywhere else.”) Each store owner has the right to request what works for them. But it is not your responsibility to meet every request. When a store owner makes an unreasonable request, I recommend simply replying with something along the lines of, “I so appreciate your interest in the line and your support. Unfortunately, [insert request] is a bit more exclusivity than I’m able to do for our stockists. I’d be happy to [insert exclusivity you would do] -- but I certainly understand if that’s not a fit for you. 

• You’ve given a store some type of exclusivity and then they stop buying from you.
  This happens frequently. And it’s something that you should address in your Wholesale Terms so that you don’t have to make delicate and after-the-fact pronouncements once the situation arises. In your Terms, just define a period of time after the last order (e.g., 12 months) after which any exclusivity agreements no longer apply to stockists. State it in a warm and friendly way -- but having a boundary in that way makes it much easier to maintain good relationships later. If this situation does come up “after the fact” and you need to address it with a stockist, we recommend emailing them to let them know that you’d like to sell to X stockist and ask them whether they’d prefer to place another order or whether you should move on to that other relationship. 

Your willingness to grant exclusivity requests might evolve as you grow. And that’s OK. Some of your earlier agreements may well be more limiting than those you maker later in your wholesale career. Be flexible and try to meet stockists’ needs. Realize that their store offering is one of their competitive advantages and it’s ok for them to protect that. But also stand firm in what feels fair and wise to you.