Understanding Retail Fees

When a brand enters retail for the first time, there are several costs and fees they may encounter. While they can be jarring for those new to the world of physical retail, such fees should be accounted for when determining a product’s unit economics. The specific costs can vary depending on the retailer, the product category, and the brand’s negotiation power; here we give a quick outline of some potential costs and fees a brand might face:

  1. Slotting and Listing Fees: These are fees charged by retailers to place a new product on their shelves. Slotting specifically refers to a fee that retailers charge for the privilege of being on-shelf, while listing fees in principle cover the costs of adding new SKUs to retailers’ systems. Slotting fees can be substantial and are usually, but not always, one-time payments. They are often levied per SKU, and can range from several hundred to ten thousand dollars or more depending on the product’s category and placement within the store. Although originally devised in the 1970s as a way to cover the extra effort of stocking a new product, slotting fees have since evolved into dedicated revenue streams at many retailers.

  2. Freefills: Retailers and distributors may require brands to provide free product, known as a freefill, in lieu of or in addition to the initial wholesale order. Some retailers will ask for freefills when your product “kicks out” another, with the freefill quantity chosen to compensate for lost sales of the unsold inventory. In other cases, freefills are part of standard policy for new brands. Brands also sometimes choose to offer freefills as an incentive or promotional tool.

  3. Tradespend: Tradespend usually serves as a catch-all term for various marketing and promotional costs which are mandated by the retailer or distributor. This can cover anything from periodic discounts and bundling deals, to end cap displays, joint advertising efforts and in-store merchandising. These are usually done on top of a brand’s existing marketing efforts and at the brand’s expense

  4. Pay-to-stay Fees: Some retailers charge pay-to-stay fees to keep a product on-shelf if it does not meet certain performance goals. These fees do not always come in the form of straight cash fees, but can be levied as increased mandated tradespend or freefills.
  5. Returns and Allowances: Retailers may negotiate return policies and allowances for damaged or unsold products, which could result in additional costs. These often fall under the umbrella of RTV (return to vendor) clauses which are negotiated with the initial wholesale agreement. Check out our article on RTV and consignment for a more in-depth look.

  6. Training and Demo Costs: Retailers sometimes require, as a matter of store- or department-wide policy, that the brand train sales staff on how to market and discuss their products. Brands therefore have to cover the costs of travel, free demo products, and possibly additional temporary or permanent sales staff. This is especially common in beauty and skincare at department stores, and retailers like Ulta and Sephora.

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