Selling Private Label on Amazon: Best Practices

Transcript

Colleen: All right. Well, hello, everyone. Thank you for joining us today for our webinar on Selling Private Label where we will share some best practices specific to Amazon sellers. My name is Colleen Quattlebaum. I'm the Customer Success Manager for eComEngine and I'll be presenting in collaboration with Rachel Greer, an ecommerce compliance expert and the owner of Cascadia Product Testing Solutions. If you're selling private label already or maybe you're considering expanding your business to private label, then this is definitely the right place to learn some helpful tips from an Amazon insider.

Colleen: Many of you joining us today were invited because you are currently eComEngine customers. First, I'm just going to start out the presentation by sharing a brief overview of how our tools can help support private label selling, then I'll turn it over to Rachel where she will share with you the nuts and bolts of selling private label. Some of the items that she will touch on are: legal considerations and risks for selling private label on Amazon, how to get the best prices for testing and certification for your private label product, how to use product testing and inspections to ensure that you have the right quality and that regulatory requirements are met. She will also discuss the costs associated with product testing and inspections, as well as some tips on how to reduce those costs. And then she'll also share the risk for non-compliance in the worst case scenarios with Amazon and how to avoid those risks.

Colleen: At the end of the presentation, we will definitely open it up for questions from you, so feel free to enter questions in the control panel over on the right-hand side of your screen. So as you think of them, again just write in those questions and then Rachel or myself will answer those and address them at the end. We will be recording this webinar. I'll be sure to send out a follow-up email with a link to the webinar so you can watch it again or feel free to share it with anyone else. This webinar is scheduled for about 45 minutes. We are including a few special offers at the end of the presentation, so please stick around.

Colleen: Again, I'd like to just give a brief overview of who eComEngine is for anyone who is not aware. We are a software engineering firm headquartered in Richmond, Virginia. We've been providing innovative tools to Amazon sellers for almost 10 years now. Our mission is to help merchants grow revenue, increase profitability, and become more efficient. Our main specialty is cloud-based easy-to-use Amazon-centric tools that we deliver for small, medium, and large internet retailers worldwide. We're constantly researching market trends, reviewing customer requests so that we can enhance our offerings and really meet your needs. But most specifically, our tools help Amazon sellers to manage their feedback with FeedbackFive, restock their stores with RestockPro, and decide what products to sell with our tool called MarketScout.

Colleen: Since you're either selling private label already or you're considering selling private label, I'll just highlight a few features related to our tools that are related to private label before I turn it over to Rachel. In FeedbackFive, this is the leading feedback management tool for Amazon merchants, including thousands of merchants out there. Many of you on this call are currently using FeedbackFive. It does provide personalized automatic feedback requests with many different options for targeting and excluding orders from email solicitations. It really simplifies the process to remove negative feedback.

Colleen: You can create SKU tags. If you have private label items, then you can create tags specifically in those emails. Then, you can also include links to product-specific documents. If you want to include some specific information or instructions about your private label product, you can certainly do that by linking to a document specifically in those email solicitations. You can also solicit for product reviews, which is certainly helpful when you have private labeled items. We do have an email campaigns feature that's coming soon, so please stay tuned for that. We're hoping to roll that out here fairly soon. It will create a lot of flexibility and customization options for your emails so you can create product-specific email campaigns. For private label, I think that's going to a lot of value with the email campaigns feature.

Colleen: FeedbackFive does support many different international market places, which are listed right there. We have professional email templates in each language. You don't need to be fluent in other languages, we do have those templates prepared for you. FeedbackFive, for all of the market places, you can link with one login so that also makes it very easy to manage feedback across multiple marketplaces.

Colleen: Then, our other two tools, as I mentioned, are Restock Pro and eComSpy. Restock Pro is an inventory management system, which provides suggestions for what to restock and when based on your sales velocity. You can create purchase orders for offshore suppliers in Restock pro. You can also manage supplier lead time. If you have maybe a China supplier that's going to take longer, then you can certainly factor in that additional lead time in your Restock Pro settings for that supplier. That may be of value to you as well.

Colleen: You can also calculate expected profits and conduct an offshore supplier versus domestic supplier analysis through our Supplier Performance Report. And then, the last tool that I'll touch on is eComSpy, which provides some insight intelligence on the FBA market. If you're considering adding more items to your inventory, especially with the holiday season coming up, or maybe you're looking to make a purchase from an offshore supplier and you want to do some research before you buy, then this is a good tool to evaluate those items before you make that decision.

Colleen: Now, to get into the heart of the webinar on selling private label, I will turn it over to Rachel Greer. Again, she is the owner of Cascadia Product Testing Solutions. She truly is an Amazon compliance expert. She has over seven years of leadership experience working directly at Amazon and she's managed all different aspects of the product compliance team there. Again, I'll turn it over to Rachel so she can share her expertise and dive into the ins and outs of private label.

Rachel: Great. Thank you, Colleen. What is the reason why a company such as yourself might choose to work with my company, Cascadia Product Testing Solutions? The first is that we're focused on efficient outsourcing and data management. We do not believe in making everyone follow the same process that's always been followed with compliance, which is paper this, paper that, more paper. We're focused on doing things automated as 2015 away as possible, not 1995.

Rachel: We support all Amazon marketplaces globally. If you have a private label product that's been doing well in the US and you want to take it to Europe, that's something that we can support with, same thing with going to China or Japan or India. Some of you may also be aware that the .mx marketplace just opened and Mexico can be a completely different place to import into. They have a very different compliance regime than the US and Canada. So just being successful in the US and Canada does not in any way guarantee success in Mexico.

Rachel: As Colleen mentioned, I was at Amazon for seven and a half years. The first department I was in was in the fraud in seller performance team, so I'm pretty familiar with the kind of issues that sellers face. We have a lot of folks who've come to us for issues around suspensions or warnings, or just overall practices from suppliers that they're working with or potentially other competitors sellers. And then the last five and a half years that I was at Amazon, I was in the product compliance team and launched restricted products group. Some of you may have seen those notices going out on a regular, semi-regular basis depending on which categories you're in. In the last couple years in compliance, I managed the private label program for Amazon for the compliance private label program, and then the global imports program.

Rachel: Working with CPTS gives you access to experienced consultants who have background with Amazon. In total, we have about 20 years of experience with Amazon, which is, as I say working at Amazon can be rather stressful, so like in dog years and it's like seven times 20, or something like that. Based on our location in Seattle, we have a lot of access to folks who are local who may be able to help with more information if something happens to your account, or if you have questions about the best way to solve Amazon.

Rachel: And then, of course, the last thing that is a benefit for working with CPTS is getting direct access to account managers at lab. A lot of times, if you only have a couple of items to test, you may not be seen as being worth the account manager's time and it can be hard to get any sort of pricing or information from the lab without having that access to an account manager.

Rachel: Okay. Some more information as to my personal background and what brought me into this business as a consultant. I managed the AmazonBasics program for quite some time. As you can see, if you've ever looked at AmazonBasics on the Amazon.com website, it's primarily home-office type accessories, but there's a bunch of other things that it covers now as well. So, furniture items, a lot of pet products now. There's a large variety of products that we worked on.

Rachel: As an example, the team that work on this would just find something that would be a potentially successful product and they would send it to us and say, "Hey, we want to make this thing." It's not so much about knowing the ins and outs as an engineer of the product, it's really about knowing how to do the research, how to evaluate the risk of any given product, and then how to work with the suppliers who do know the details of engineering, who do know the details of how those laws are applied in each location.

Rachel: Some of you may also be familiar with the Amazon services approach to selling in other marketplaces. Amazon has made the approach to selling in other marketplaces logistical much easier; and they'll continue to make it much easier. The area that isn't easy is the compliance aspect of this. So it's made very clear in the terms and conditions and the guidance information that you, the seller, are responsible for all liability for the product. If they get stuck in customs, even though Amazon will send you a message saying, "Hey, would you like to sell in Europe?" they're not going to help you make that possible from a compliance perspective. If you are seen to have broken compliance requirements in the UK or in continental Europe and regulators go to Amazon and complain, even if Amazon invited you to do so, they're not going to be like, "Oh, well, we're sorry," they're just going to shut you down. So making sure that you have met your legal liability if you do choose to use the Amazon services approach for selling globally is very important.

Rachel: Even if you're selling in the US, there are a lot of laws in the books, some of them are enforced, some of them not so much. Overall, the US is a pretty easy location to import into, but even so, regulators will contact Amazon and while Amazon is extremely picky about who they give out customer information to, in fact, it requires a subpoena from a judge to get customer information typically, with seller information, there is not that protection. If a regulator asks about a seller's name and email address for a particular product they're interested in, Amazon will immediately give it out. So even in the US, if you are private labeling, you are legally liable for your products and you want to make sure that they meet requirements.

Rachel: Okay. Let's talk about risk. When you are looking at risk, there are a variety of kinds of risks that you may face. The first one is really regulatory and safety. That's any sort of laws that are in place, any sort of safety violations that can occur. Safety violations could be things like a corded item where the metal that's used to the cord is too thin and causes a fire, so that may be something that cause a person to be in an unsafe situation. There's also the question of good quality, so it works a couple times and it breaks. Or if you have a product that you're selling well a couple of times and then it starts going down, so then you want to make sure you have a secure supply chain. And then, of course, any sort of thing to do with Amazon, you want to protect that star rating, you want to get ahead of any kind of Amazon audits that they might run to make sure that your products are safe.

Rachel: Let's start doing a little bit of a deep dive into those risks. The first thing I'm going to talk about are the various legal risks that you might face. From a regulatory perspective, just as a couple examples, nearly every product type in the US is regulated in some way. That doesn't mean that all products are risky, it means that you face a different level of risk with different levels of products.

Rachel: The most risky product that you can face in US right now are dietary supplements and children's products. Those are the top two that are going to be a potential problem. As far as dietary supplements, the highest risk products that you can possibly sell is something for weight loss or for male enhancement or for sexual wellness, because most of those are adulterated products and highly unsafe as well.

Rachel: Another area that can cause some problems are items that are regulated by the Federal Trade Commission. So, things like truth in advertising. Making sure that you're labeling is correct, making sure that if it says made in the USA it actually is, making sure that it doesn't have a legal claims like it cures cancer or something like that.

Rachel: There are over 40 different agencies in the US alone and they all regulate products in the marketplace. Say, mother of pearl, I mentioned dietary supplements, items that are for sale to be used in a car, items that are up for sale to be used in a boat. All of these are regulated by different agencies with different approaches and different ways of enforcing the laws that they're responsible for. Knowing the risks for the products that you're going to sell is the very first step.

Rachel: The second area of legal risks that can be problematic, that is the issue of patent/trademark law. Even if you're private labeling, you can run afoul with patent and trademark law. A lot of manufacturers overseas, especially in China, are not that concerned with the patent and trademark protections in the US. But you need to be because you live here and you're selling here, and Amazon will enforce them.

Rachel: One example on Alibaba is I recently was a... it was like a little handheld pedicure device. It was the Scholl's brand that they were trying to copy. It was the exact shape of all the Scholl products, the kind of fat handle, it's aqua colored blue. That shape and that color is trademarked and the device itself is patented. So even if you change the color and put a different branding on it, it could still violate a patent and, in that case, be subject to patent trademark infringement and Amazon can ping you for that and potentially suspend your account.

Rachel: Lastly, safety risk. One example of a potential safety risk is anything electrical. One issue that we knew of was the issue of holiday lights. One example for Christmas lights is, if they are done with very thin wires, they can light on fire and then your tree can burn down. Obviously, if the tree burns, then the house might burn as well. Safety issues like this may be a result of not meeting an industry voluntary standards. So not regulated, not legally required, but if they aren't followed, then that opens you up to a potential civil liability lawsuit.

Rachel: In the US, these are a very common way of enforcing product safety laws. There's only 500 employees in the CPSC, Consumer Product Safety Commission, which is responsible for most consumer products in the US, and half of those employees are at ports. But the US imports billions of products a year so only these 500 employees to do all that work. So most of the enforcement that's done is actually through litigation by lawyers.

Rachel: This is actually a pretty significant issue as well that you might face when engaging in certain kinds of products. If your private label product is something like a plush pet bed, then probably not going to be a significant safety risk. But if it's something that has electrical wiring, then that may be something you want to look deeper into.

Rachel: Okay. Now that I've scared you thoroughly with all of the legal risks, let's talk about some of the branding risks. The number one branding risk that you'll face is the issue of quality and sourcing feeds into the concerns about quality. Buying sight unseen is very cost effective because you don't have to have it shipped to you in US, you don't have to have it shipped to a warehouse in the US, you can have it directly shipped from the manufacturer overseas directly to Amazon FCs.

Rachel: But note that Amazon doesn't look at any of your stuff, they're not going to evaluate it. Just going through SBA doesn't mean that you're going to have anyone looking at your stuff. They just load it up and, unless it's obviously damaged or busted up, they're not going to do anything about it. You won't find out if there are any problems until the customers start complaining. As I'm sure many of you know, any sort of customer complaint is taken seriously by Amazon. If you have a consistent state of customer complaints, that can result in warning or suspension.

Rachel: One of the ways to solve this problem is to evaluate your factories that you're using, both as an overall factory, how good of a quality product they can produce, and also do an evaluation of each shipment that you buy from them. Obviously, it work for test products when you're first starting out, it's more when you start having 1,000, 2,000 units or more of a particular product that makes it worthwhile.

Rachel: Okay. Customer feedback and reputational risk. When you're selling a private label product, the primary benefit is that you have sometimes up to 40 or 50% margin, which is great but you're not going to be able to maintain that margin unless you have good feedback from customers. Either you are selling it at such a low price that they think it's absolutely worth it regardless or you're providing them a positive experience through good packaging or good customer service and they give you good ratings. But any case, the customer feedback reputational risk is a very important one if you're doing private label where your brand is really what's helping you move this inventory.

Rachel: If you have a test product that went really well, you got a sample in, you really liked the sample, you approved the sample, the first shipment goes through, it sells really well, you have great feedback on it, you keep ordering from the same supplier and, say, down the road you start seeing that your ratings are going down. Well, why might that be? Oftentimes suppliers will change their suppliers without telling you. The say they can't get the normal plastics material, raw materials that they get so they go into the marketplace and try to source them from someone else who maybe is using a more inferior type of plastic or maybe they're mixing their plastics with recycled plastic. Unless you have agreements with that supplier or you're doing regular inspections of your product, you don't know what they're going to be doing.

Rachel: The other thing that is really common, if your supplier is one that has other large business they work with, if you're not inspecting or doing any sort of quality control with that supplier, what we've seen is that those suppliers will then take the rejects from inspections from other companies and then dump them into your shipment, because you're not checking. Again, their goal is to make money, their goal is to not lose money, so if they have leftover units of inventory that they know they can pass off to you, then that's something that they may definitely choose to do if their goal is to make money.

Rachel: Okay. What are the kinds of account issues that you might face? One of the things that has happened on a regular basis are evaluations from compliance and from product quality to make sure that the products that are being sold on Amazon are authentic and are compliant. You may have heard of the audits in the jewelry store, these are the most extensive audits that happen on Amazon. That's when Amazon will actually buy some items off of the website, ship them to a third-party laboratory, and evaluate the product to make sure that it's exactly as listed. But these audits do happen in other departments as well, usually reacting to a customer complaint.

Rachel: So it can help you to be very on top of customer complaints reviews on your products, making sure that it's, not just the seller reviews that you get, but also the reviews on your products. If someone writes and says this thing is fake or this thing lit on fire the first time it's plugged in. That may be an indicator that you want to take down the products while you investigate what's going on rather than continue to sell. If you have significant enough account issues with Amazon, as many of you know, that will result in the warning or suspension. Once you get started selling on Amazon and start seeing those lovely, lovely 40% margins coming in, the last thing you want to do is lose your Amazon account.

Rachel: Okay. Those are some of the risks that you face. What are the industry best practices in private label compliance? Well, what Amazon actually does for their own private label compliance is the same thing that nearly every large company does, which is using product testing, the third-party laboratories inspections, quality audits, and social responsibility audits. Product testing. There are some testing requirements that are mandated by law. All children's products must be tested by a third-party accredited laboratory. It is not possible to test those in-house. It is not possible to just accept what someone else says. They must be tested and certified by you, the private labeler. There's no way to get out of that.

Rachel: If you're selling anything for children, even if it can be marketed to children, like a junior size of a basketball, for example, it must be certified for sale in the US, if you are the private labeler. It used to be that if you weren't the manufacturer or the importer that you can get out of this, but the law recently changed, only a couple years ago, that the private labeler is also responsible for anything that they sold in the US. So if you're selling any children's products, this is the number one area where you can get tripped up, is by not having your own product testing.

Rachel: Most children's products is pretty simple, it's just lead testing, costs about 40 bucks, not a problem. Depending on the product, it can cost quite a lot more. As you might imagine, cribs or any sort of sleeping items, any sort of feeding items, those are going to be ones that are more highly regulated.

Rachel: Inspections. I mentioned as we were talking in a couple slides ago, that's when you send a third-party inspector directly to the manufacturer. This is when you can't go yourself. For a lot of you guys, it's probably not worthwhile, probably not cost effective to travel to China every time you want to buy something from the manufacturer. That doesn't make any sense. You can work with a third-party inspection company to send inspectors out. They'll use a checklist or you can work with them on creating a checklist that includes Amazon requirements like the packaging and labeling requirements and fees. They'll evaluate the packaging, they'll evaluate the product, and they'll get back to you with a full report with pictures and everything so that you know that the product that you're getting is exactly what you paid for.

Rachel: The reason you want to do this in China at the factory rather than shipping it to yourself first is, first, your time is more valuable, for one thing. For another thing, they can make the fixes right there and you don't have to take responsibility for the package or the shipment until it meets your specifications. Most of the suppliers that you'll work with when you're doing importing are FOB suppliers, which means that you're responsible for the goods as soon as it crosses the bow of the ship. If you do the inspection prior to it going to the ship, then you don't have to take possession unless you feel comfortable with that. It's the best time to evaluate the shipment and to know that you're getting what you're paying for.

Rachel: A quality audit is usually done when you're further along in your process and you're doing much larger orders, or you want to make sure that the 5,000 units you're buying or the 8,000 units you're buying are actually going to all be consistent in quality to where you don't have a significant slip in trade, potentially problems with defects, returns, lower star ratings.

Rachel: Quality audit will give you the assurance that the vendor can actually, the supplier can actually provide you with the quality of goods that you expect. So they'll go in, if it's based on ISO 9001, they go in and they evaluate the consistency of the production, whether they have checklists, whether they approach things in a consistent manner, how do they train people. The more complicated stations like the welding station, do they have training for the welders, do they have a certificate certification program for the welders?

Rachel: In some parts of China, the turnover rate annually is over 40% because the difference between this factory and that factory is 10 cents an hour, but it may be enough to cause a worker to jump ship to this factory or go to that factory. If you have a factory with a 40% turnover rate, year-over-year, you could have a completely different level of quality unless they have a very consistent procedure for training and maintaining the quality of their goods. And that's what a quality audit will get you, is that assurance, or the lack of assurance, that the factory that you're working with can actually produce spec on a consistent basis.

Rachel: And then, the last thing is social responsibility audits. The way I like to define the difference between quality audits and social responsibility audits is that, for quality audit, your goal is to get a really well made quilts that's consistently made each time. That the customer knows that, if they buy a quote in February, it's the same as if they bought it in September. A social responsibility audit is to check that those quilts aren't being made by children, that if there's a fire everyone can get out of the building, and that no one's working overtime that they aren't getting appropriately compensated for.

Rachel: You end up seeing these social responsibility audits as people have more visible brands. Also it's becoming more common in the textile industry just because of how much press has been generated with the recent issues in Bangladesh and Pakistan with the collapsing buildings with all of the textile workers in them, and then story is about them not being able to get out because the windows are barred, and so on. So that can be problematic if you want to sell goods and have people be like, "Oh, made in Bangladesh, I don't know about that." And being able to say, "This is ethically sourced. Here's our social responsibility charter, here are the kinds of suppliers we work with," being able to say that can sometimes help your brand image. But again, that's usually not when you're selling out, that's usually when you have a brand image to protect.

Rachel: Okay. Now, what if you're just starting out? These are best practices, this is what companies who have the money and the resources to do the work. What about if you're just starting out and you really don't have those resources? You're just trying to get started on Amazon, you don't know what the requirements are, but you know that you don't have the money to pay for them? Well, what you want to do is you want to source products that have a very limited regulatory scrutiny and from suppliers where you can have the goods shipped to you so that you can do that quality inspection and evaluation yourself.

Rachel: What's an example of this kind of product? Well, pet beds are one of the best ones that I can think of where it might pain some of you who are pet owners and pet lovers, but there is no US government agency or really any agency in the world that's completely dedicated to protecting the welfare of pets in your home. The FDA in the US, the Food and Drug Administration does evaluate facilities that make pet food and pet pharmaceuticals because people have been known to eat pet food and to use pet pharmaceuticals and the Food and Drug Administration is responsible for the health and welfare of the American people. But that's the only reason they're looking at it.

Rachel: If you have something like a pet bed or pet collars or cute little pet Halloween outfits, these are the kind of things that are extremely low risk, no regulatory scrutiny whatsoever. The only issue that you're facing is quality, and if you have it shipped directly to you before you send it to Amazon, then you'll know if it's good quality or not. This is what I recommend starting out, is working with a provider, such as my company or with a testing lab and deciding which products make the most sense, because they are not going to get you into trouble from the very beginning.

Rachel: The last thing you want is to buy your test inventory and got so well because it's a small shipment got through, then you set up a big order you really want to get this stuff moving on Amazon, that gets stuck in customs or Amazon starts asking you for documentation. This is the last thing you want to happen.

Rachel: Okay. What might all this cost you? If you do start out on your own, well, then it's costing you your time on your efforts. But if you start working on products that require more certification or where you're doing bigger and bigger runs that you're more concerned about the quality, or you just don't have the time to ship to yourself anymore too many products, if you're doing product testing, I mentioned that lead testing can cost only $40, sometimes less, if you have multiple units, you can get a discount, but it can cost up to 5,000 or more depending on the complexity of the product. If you have an electrical product that you're buying from the supplier and they don't have certification, then don't buy from that supplier, they should be doing it for you. Those are the kind of things that cost around 5,000. You don't want to do a certification yourself, you want them to be doing it for you.

Rachel: The same thing with anything that has wireless technologies and the testing costs anywhere from $5,000 to $10,000 depending on the size of the unit. This is not something you want to pay for, this is something that the manufacturer should be doing themselves for their customers.

Rachel: Inspections usually cost anywhere from $300 to $1,000. It depends on the size of your production runs. One person for one day is about $300. If you have, say, a shipment of 5,000 or 10,000 units, then it can cost about $1,000 because you have multiple man days to inspect the shipment of that size.

Rachel: Audits cost between $750 and $1,000. Again, this depends on the size of the facility. We worked with suppliers before that have five or six outbuildings where they can produce your products they can't guarantee that they produced in Building A or Building B because the audit needs to cover all of the buildings. So in that case it can take a couple days, so this is $750 to $1,000 a day.

Rachel: Then another cost is, if you do start growing this program, it could be that you outsource your compliance to a company like ours, or it could be that you hire someone in-house. Obviously, those costs will increase your overall overhead in selling private label.

Rachel: Okay. We've talked about all of the costs that go into private label, what might this do to reduce your overall costs? Now private label is the most attractive way to sell on Amazon for very good reason. You can easily achieve 40% margins. For the products that we work on, we routinely see between 30 to 50% margins. If the product doesn't have at least a 30% margin, it's probably not worth working on for you as a private label because the risk is too high.

Rachel: What you can do to reduce costs is by being compliant. You don't run the risk of having a port seizure. So customs and border patrol have the authority to seize your goods. They have the authority to destroy your goods, if they don't meet requirements. If you can't prove they meet requirements, they can destroy them after 30 days. They have to give you a notice that they're destroying them, but they can destroy them. There's also the potential for civil liability, as I mentioned before. There's also the potential for prosecution by one of the US government regulatory agencies. The CPSC has the authority to fine up to $15 million for civil infraction.

Rachel: Those ones I've primarily seen with some of the bigger companies although the parent company Black & Decker recently got sued for a few million dollars, and that was one of the smaller lesser known companies that I saw being sued. Most of them are like Burlington Coat Factory, Kohls, Roth Stores. The smaller ones, the ones in hundreds to thousands of dollars are the ones that are usually getting sent to the smaller companies. But they do have the ability to charge up to 15 million.

Rachel: The other thing they have the ability to do is charged criminally. Probably no more than four to seven people a year get charged criminally in these kind of cases. But, obviously, reduce your costs in terms legal bills, in terms of the cost of having to defend yourself against something like that if you are just compliant upfront.

Rachel: Another way that it can help you is in...just cost effectively managing your supply chain. It can be tempting to go with the cheapest supplier just because their cost per unit is cheapest, but if they're not the best supplier in terms of being able to consistently produce on time, package appropriately, and make sure that you don't incur fees with Amazon or you don't incur poor customer reviews, those are our secondary costs.

Rachel: So you have to have a good balance between what your top line profit will be between the overall revenue that you get your cost after goods sold, and all the other costs that get built in. What's your defect rate? How many returns are you getting? How many items do you have to market unsaleable because the factory that you're working with didn't have a consistent level of quality for the product that you're selling.

Rachel: Worst case scenario for any given product is really a recall. Any given day the CPSC is issuing between one and seven recalls. The cost of a recall can be significant because you need to, not only recall everything you currently have in stock, but also contact every single customer for their refunds or help them destroy the products. If CPSC actually want people to get the product returned, that can be very expensive. Even if you don't have a full recall, CPSC also has the ability, as does the FDA, to issue a stop sale, which means that they may not force you to do recall, but they can force you to stop selling the item and then you've wasted all of the investment that you have in that particular product.

Rachel: Okay. Private label can be very risky. You are legally liable for those products; going global, it can be even more risky. Because, in the US, it's one of the least regulated countries out there in terms of product safety, it can be very easy to get something going and selling well in the US, and then realize that you have problems taking it anywhere else. But again, when you're facing 40% margins on a particular product, the risk makes it attractive even so. If you want to reduce your risk and still make those margins, that's the sweet spot. You want to be able to sell without having to worry about having port seizures each time you have a shipment or what's going to happen. You don't want to have to worry about customer safety. You really, really don't want to have to worry about Amazon shutting down your account.

Rachel: Working with an experienced consultant can help you reduce the potential for these risks. No compliance program is 100% safe because working with a factory is never 100% compliance, there is no way to guarantee compliance. But you can overall reduce your risk for something that you can live with, whether that's just a couple of times a year double checking or if it's a full evaluation if you're selling something for, say, infants and you'd want to be doubly careful with what you're doing.

Rachel: When you work with the testing provider, they are the most cautious in their approach. Testing providers are in the business of making money off of their services. They will give you a protocol that list every potential test that can possibly be required for this particular product. It is not necessary to do all the tests. But they have teams of lawyers, they have an obligation to give you the most accurate information possible, and then your obligation is to figure out what your risk tolerance is. If you have zero risk tolerance, of course, then do the full testing that the lab recommends. For a children's toy, it can cost three or four grand in the US and in Canada.

Rachel: If you have a greater risk tolerance, say, if you're just selling a piece of furniture, for example, the only thing that's really regulatory is making sure that the paint isn't full of lead. You don't actually have to do quality testing on a piece of furniture, although I highly recommend it. If you're selling a piece of furniture, you want to make sure that it can actually hold the people that it should be holding.

Rachel: But that again is your risk tolerance. What are you willing to take on in terms of a burden of risk? What risks are you willing to take on in terms of potential loss of your Amazon account? You can make this less risky and still make the kinds of margins that everyone wants to make in private label?

Rachel: And that's the end of my presentation. If you have any questions, please let me know. Colleen, I'll hand it back to you.

Colleen: Great. Thank you, Rachel. As Rachel said, that concludes the presentation portion of the webinar. We will be sending out a full recording of this presentation. We'll make sure to follow up with an email by tomorrow with that recording for everyone. But we do still have a few more minutes so we will go ahead and start taking a look at some of these questions. While we're doing that, I will go ahead and just share with everyone a couple of the special offers so you can jot those down if you would like. We have some free trials for the eComEngine products, as well as 30% off first five hours of consulting services with Rachel's company.

Colleen: Rachel, it looks like we have a question here about the legal requirements for kitchen utensils. So, nothing with wires, but just basic kitchen tools. What do you have to share about legal requirements with kitchen tools?

Rachel: The issue with anything that touches food is that FDA does require that the products that touch food and, therefore, may then contaminate the food that are being eaten, be generally recognized as safe or considered non-toxic. If you have something like a plain wooden spoon, plain wood without any treatments, without any varnish or sealants or anything, either generally recognized as safe or GRAS products, so if it's 100% wood, you're good to go. Not a problem. But it does need to be something that you know doesn't have any treatments, the ones that is non-toxic and so on.

Rachel: Basically, anything that touches food, anything that in the normal course of use would be used to cook or to hold or to transfer or to eat food with, would need to be either recognized as safe, generally recognized as safe, GRAS is the acronym, or tested to be non-toxic. Toxicology tests can be quite expensive, so hopefully the product is GRAS. There's a variety of plastic compounds that are GRAS. There are about four different lists of GRAS compounds out there, none of them are recognized by the FDA as official. There isn't any official list of GRAS compounds, but there are a few out there that you can start with.

Rachel: Really what it comes down to is, if you don't know what's in your products, then you don't know if it's safe or if it's got some sort of compound that needs to be tested for toxicity.

Colleen: Okay. We have another similar question about cosmetics. Would that be pretty similar to the consumables that you're speaking of or are there different requirements for cosmetics?

Rachel: Cosmetics are even higher in terms of the requirement. Cosmetics are right below supplements. Cosmetics manufacturer, supplier should be registered with the FDA because the way that the products need to be manufactured needs to be in a safe fashion, primarily for the purpose of microbiological contamination. Any product that's intended for ongoing contact with the skin needs to be, not only non-toxic, but also not full of bacteria, so whether it's purchased it needs to be bacteria free. The primary consideration there is making sure that your manufacturer is registered with FDA. If you are manufacturing it yourself, then you need to register with FDA. There are some basic rules to follow in terms of testing your workstation, keeping things clean, making sure that there isn't the possibility for bacterial growth.

Rachel: The other aspect for cosmetics is that all ingredients need to be approved by the FDA, if you're making things with ingredients that have already been approved. There are lots of ingredients that have already been approved, so there's not too many unique ingredients out there that are used in cosmetics anymore. But if it hasn't been approved yet, then it needs to be approved. There's also a list of specifically not approved ingredients by the FDA. One that some people find surprising is coal. So, the stuff that the Egyptians' thick Cleopatra type eyes. A lot of coal that's made is highly toxic. Some of it's been tested to be made of half lead.

Rachel: So depending on what you're making. If your private labeling from a large manufacturer, they should be able to provide all this information to you. If you're doing it yourself, you definitely need guidance. It can be difficult to navigate the FDA's page, they're one of the least technologically proficient US agencies. It's kind of hard to navigate their website and what the requirements are. And they do have the authority to completely shut you down. So the FDA is one of my less favorite agencies to work with.

Colleen: Okay. We have two questions that came in about insurance coverage for private label products. Do you have any recommendations for insurance coverage for different categories or any insight the?

Rachel: I'm obviously not an expert in insurance and I'm not a lawyer, but what I'd recommend is doing more than the usual like a typical business insurance, such as, if you have a business that's selling stuff, if you're a private labeler, because you can be sued for the safety of your product, that's the point at which I'll work with a qualified insurance agent explain the potential risk for them so that you can have that insurance coverage as well. It does increase your premiums, but it's definitely worth it depending on the kind of products you have. Again, if you're selling pet beds, there's only one time I think of that a pet bed was recalled and it's because it was an electrical pet bed. So any electrical product for pets that's what counts as high risk. But if it's just a stuffing inside of clothe, you'd probably find there's not likely going to be anything...no one's choked to death on the pet bed.

Rachel: Really think about the kinds of products that you're selling, bring that to your insurance agent's attention, say, "Here's the situation. Here's the kinds of issue that I might face. I am a private labeler. What is the recommendation that you have for insurance in case of liability losses?"

Colleen: Okay. Is it safe to assume that if you're using a supplier or a factory in the US, is it safe to assume that they are compliant with US laws, FDA, OSHA, et cetera?

Rachel: No, it is absolutely not safe to assume that. In the US, you have a couple of problems in the US which are pretty common. First, not being HACCP compliant, that's H-A-C-C-P, for anything that's FDA regulated. Your factory has to do the same thing as I just described, making sure there's no bacterial contamination and so on. If you look at the warning letter pages on the FDA's website, there are many, many warning letters going out and these are all to factories in the US complaining about rats in the factory or complaining about insufficient biological contamination procedures, they should be swabbing, testing on a regular basis. If it's food product, it needs to be swabbed after everything, run sometimes multiple times, during the run, depending on the size of the run. So, it's not safe to just assume that.

Rachel: As far as OSHA and other occupational safety issues, the most common thing that you'd face in the US that could get some of your supplier shutdown as a potential financial risk is undocumented labor. That's a pretty common problem in the US with food manufacturing and textile manufacturing.

Colleen: Okay. You've mentioned that there's definitely high risk with products that have electronics or electricity running through them in some way. What about components like a USB adapter or a laptop adapter, are those pretty high risk as well?

Rachel: It depends on the size of the wiring that you're looking at. If it's just a USB cable, those are not very high risk at all. Usually there's only enough heat generated they just melt the connectors. So the risk there is really that you sell a product that melts and then people freak out and don't want to buy your product. That's a pretty significant reputational risk.

Rachel: A laptop adapter, on the other hand, has a significant amount of current flowing through it. The laptop adapter itself is typically rated to be able to handle up to 240 volts, so that's a pretty significant amount of electrical current. The laptop adapters are recalled every two or three months or so by nearly everyone. It's expected to have recalls on these things because if they go wrong, then they set fires. It's usually to do with insufficient insulation in the adapter box and wires get hot because that's electricity, that's what they do, and can spark fires.

Rachel: The biggest one that I recall was a Dell recall a few years ago where they had to recall nearly half of their adapters. And this is Dell, it's a big company. They work with reputable factories and even they had problems.

Colleen: Okay. Last question and then it looks like we do have a lot of specific questions, so we'll definitely make sure everybody has Rachel's email address that you can contact her directly. But here's one, if you don't have a label at all on your product and you're importing goods without any brand, what is the liability to not have any label on the product?

Rachel: The US is a great country to import into because there are three requirements for a label. The first being the country of origin. So you need to have country of origin somewhere on a label, whether it's a sticker or whether it's on the box, it doesn't really matter. But there needs to be a country of origin, there needs to be the manufacturer or brand name. With sown on labels, you can do that using an RN number, which can be gotten from the Federal Trade Commission. For other products that's fine, just use a sticker, so like if you have a particular brand name that someone can look up. And then the product name you're importing. That's it. That's all that's required for products in the US. So something like that is pretty cheap to get from your supplier. They're used to being requested for this. Don't be shy about asking for something like this. If they don't know that it's required, then it's not a supplier you want to work with.

Rachel: Again, it's very simple to import into the US. You just have to have some sort of brand information either your brand name or logo or manufacturer name, the products name, and quantity, unless it's quite obvious. For example, if you're selling something that lists 30 items in it, then quantity should be 30 items. Or if the product weight is relevant, so if you're selling cereal box, you [inaudible 00:50:47] it's got ounces of actual cereal in the box, that's required, and then the country of origin.

Rachel: I know they're all required by Federal Trade Commission labeling guidelines. To give you an idea, if you're going to Mexico, there are 13 different labeling requirements going into Mexico. So, the US is nice and easy.

Colleen: Okay, great. Well, thank you, Rachel. On behalf of eComEngine and Rachel at Cascadia Product Testing Solutions, we do thank you all for joining us today and we wish you success with your business. We will make sure to send out a follow-up email again with the complete recording of the entire webinar, as well as Rachel's contact information so you can certainly direct any more specific questions to her. Again, thank you very much.