How you source product determines the ceiling of your marketplace business. It affects your margin, your ability to stay in stock, your product mix flexibility, and your exposure to supply chain disruptions. Yet most marketplace sellers spend more time optimizing their ad bids than they spend thinking about their supply strategy.
There are two fundamental sourcing models: buying through distributors and buying direct from brands. Each has real advantages and real limitations. The right answer for most serious marketplace operators is not one or the other. It is a deliberate combination of both, structured to match the realities of the categories and brands you carry.
How Distributor Sourcing Works
When you source through a distributor, you are buying from an intermediary that has an established relationship with the brand. The distributor buys in bulk from the manufacturer, warehouses the product, and sells it to retailers, including marketplace sellers, at a markup over their cost.
The Distributor's Role in the Supply Chain. Distributors exist because manufacturers do not want to manage thousands of individual retail accounts. A brand that sells through 500 retailers would rather manage 5 distributor relationships and let those distributors handle the rest. This is especially true in categories like grocery, health and beauty, and pet, where the number of SKUs and the frequency of orders make direct brand-to-retailer relationships operationally expensive.
Common Distributor Categories. The major distribution networks in the US include broadline food distributors like UNFI and KeHE for natural and specialty grocery, beauty and personal care distributors, supplement and health product distributors, and general merchandise distributors. Each category has its own set of players, pricing structures, and account requirements.
What You Get from a Distributor.
- Access to a wide product assortment without individual brand relationships
- Established supply chain with regular delivery schedules
- Credit terms (typically net 30 to net 60)
- Lower minimum order quantities per SKU compared to brand direct
- Consolidated shipping from a single source for multiple brands
What You Give Up.
- Margin. The distributor's markup reduces your gross margin by 10 to 25 percent compared to brand direct pricing
- Control. You are dependent on the distributor's inventory levels and allocation decisions
- Exclusivity. You are buying the same product at the same price as every other account, which means your competitive advantage is entirely operational
- Brand relationship. You have no direct connection to the brand, which limits your ability to negotiate, access new products early, or coordinate on marketing
How Brand Direct Sourcing Works
When you source brand direct, you buy from the manufacturer or brand owner without an intermediary. This typically requires a formal account application, minimum order commitments, and a demonstrated ability to represent the brand appropriately.
Establishing Brand Direct Relationships. Brands evaluate potential direct accounts based on several criteria: your marketplace presence and sales history, your ability to maintain price integrity (MAP compliance), your operational quality (fulfillment performance, customer service standards), and your alignment with the brand's distribution strategy. Not every brand will approve every applicant, and the approval process can take weeks to months.
What You Get from Brand Direct.
- Better pricing. Eliminating the distributor markup typically improves gross margin by 10 to 25 points
- Access to the full catalog, including new launches and exclusive SKUs
- Direct communication on production timelines, formulation changes, and discontinuations
- Co-marketing opportunities and brand-funded advertising support
- Priority allocation during supply-constrained periods
- The ability to build a genuine partnership that deepens over time
What You Give Up.
- Higher minimum order quantities, often full pallet or full truckload minimums
- Longer lead times, especially for products manufactured outside the US
- More capital tied up in inventory
- Administrative overhead of managing individual brand relationships
- Less flexibility to test new products at small quantities
The Tradeoff Matrix
The decision between distributor sourcing and brand direct is not binary. It is a spectrum, and the right position on that spectrum depends on the specific brand, the category dynamics, and your operational capacity.
When Distributor Sourcing Is the Better Choice:
Testing new brands or categories. If you are evaluating whether a brand will perform on the marketplace, distributor sourcing lets you test with a small initial order. You can buy 1 or 2 cases of 10 different products and see which ones gain traction before committing to a brand direct relationship with minimum order requirements.
Tail-end SKUs with low velocity. For products that sell 5 to 20 units per month, the minimum order quantities for brand direct do not make sense. You would be sitting on 6 to 12 months of inventory for a product that may or may not maintain its current velocity. Distributor sourcing lets you replenish in smaller quantities that match actual demand.
Brands that do not offer direct accounts. Some brands route all retail distribution through their distributor network by design. They do not have the infrastructure to manage direct accounts, or they have exclusive distribution agreements with specific distributors. In these cases, distributor sourcing is the only option.
Rapid assortment expansion. If you are building a catalog across multiple brands in a category, distributor sourcing lets you onboard new products quickly without the lead time of individual brand applications.
When Brand Direct Is the Better Choice:
Core catalog items with strong velocity. For your top-selling products, the margin improvement from brand direct pricing has a material impact on profitability. If a product sells 200 units per month and brand direct saves you 3 dollars per unit, that is 7,200 dollars in annual margin improvement on a single SKU.
New product launches. Brands prioritize their direct accounts for new product allocation. If you want to be first to market with a new product on the marketplace, you need a brand direct relationship. Distributors typically receive new products 2 to 8 weeks after the brand's direct accounts.
Supply-constrained products. During supply shortages, brands allocate to their direct accounts first. Distributors get what is left. If a product goes out of stock at the distributor, you are out of stock on the marketplace. With a brand direct relationship, you have more visibility into supply issues and better positioning for allocation.
Brand partnership opportunities. Co-funded advertising, exclusive bundles, early access to seasonal items, and brand-sponsored promotions are only available through brand direct relationships. These opportunities can significantly improve both margin and sales velocity.
Building a Combined Strategy
The most resilient supply strategy uses both models deliberately. Here is how to structure the combination.
Tier Your Catalog. Categorize every SKU by velocity and strategic importance. Your top 20 percent of SKUs by revenue should be sourced brand direct wherever possible. Your middle 40 percent can be a mix of brand direct and distributor. Your bottom 40 percent should be distributor-sourced unless there is a strategic reason to hold a brand direct relationship for the full catalog.
Use Distributors as a Backup. Even for brand direct SKUs, maintain an active distributor account as a backup supply source. If your brand direct shipment is delayed because of a production issue, you can bridge the gap with distributor inventory to avoid a stockout. The margin hit on a short-term distributor purchase is much less costly than the ranking loss from going out of stock.
Negotiate Based on Data. When approaching brands for direct accounts, bring data. Show them your marketplace sales history, your current sell-through rate on their products (sourced through distributors), your advertising capability, and your operational quality metrics. Brands are more likely to approve direct accounts when the applicant demonstrates an established track record and a clear growth plan.
Plan Replenishment Cycles. Brand direct orders have longer lead times. Build a replenishment calendar that accounts for the ordering lead time, production lead time, shipping lead time, and prep and inbound lead time. For most brand direct relationships, you need to place orders 4 to 8 weeks before you need the inventory in the fulfillment center.
At Oxalis Supply, we operate both sourcing models depending on the brand and the situation. For brands that engage us as their authorized distribution partner, we work directly with the brand on supply planning and allocation. For brands sourced through distributor networks, we maintain relationships with the major distributors in our categories and manage replenishment against marketplace demand. You can review the full scope of our operational capabilities to understand how this works in practice.
The Authorization Question
One critical dimension of sourcing strategy is authorization. The marketplace ecosystem has a serious problem with unauthorized sellers, and brands are increasingly aggressive about controlling their distribution.
Authorized Distribution Matters. If you are sourcing through a distributor without explicit brand authorization to resell on a specific marketplace, you may face intellectual property complaints, listing removals, or account-level enforcement actions. The legal landscape around first sale doctrine and marketplace distribution is evolving, and brands have more tools than ever to enforce their distribution policies.
Building an Authorization Portfolio. For brands where you have a direct relationship, get explicit written authorization for the marketplaces you sell on. For distributor-sourced brands, understand the distributor's terms regarding marketplace resale. Some distributor agreements explicitly restrict marketplace sales. Violating these terms puts your account at risk.
How Oxalis Approaches This. We operate as an authorized partner for the brands in our catalog. This means every brand we carry has explicitly approved us to sell their products on the marketplaces we operate on. This authorization protects us from IP complaints, gives us standing to enforce against unauthorized sellers, and ensures the brand has confidence in how their products are represented. If you are a brand looking for this type of structured distribution partnership, or a marketplace operator looking to formalize your supply relationships, we should talk.
Margin Is Not the Only Metric
The sourcing decision should not be made on margin alone. The total value of a sourcing relationship includes:
Reliability. Can you count on consistent supply? A brand direct relationship with a manufacturer that has frequent production issues may be less reliable than a distributor that maintains buffer stock.
Speed. How quickly can you replenish? Distributor orders may arrive in 3 to 5 days. Brand direct orders may take 4 to 8 weeks. This affects your inventory carrying cost and your ability to respond to demand spikes.
Information. What do you learn from the relationship? Brand direct relationships give you insight into the brand's roadmap, production capacity, and competitive positioning. This information has strategic value beyond the transactional margin.
Flexibility. How easily can you adjust? Distributor sourcing gives you more flexibility to shift your product mix. Brand direct relationships may come with minimum annual purchase commitments that reduce your ability to pivot.
The right sourcing strategy balances all of these factors against your specific business model, capital position, and growth plan. If you want to evaluate your current sourcing structure or plan a transition from distributor-heavy to brand-direct, request a Snapshot and we will walk through the specifics.
FAQ
Is it worth going brand direct if I only sell 50 units per month of a product?
It depends on the brand's minimums and the margin differential. If brand direct pricing saves you 5 dollars per unit and the minimum order is 100 units, you are improving annual margin by 3,000 dollars with only 2 months of inventory commitment. That is usually worth it. But if the minimum order is 500 units at 50 units per month, you are sitting on 10 months of inventory, which creates storage cost and obsolescence risk. Run the math for each specific SKU rather than applying a blanket rule.
How do I approach a brand for a direct account if I have been buying through distributors?
Lead with your track record. Show the brand your sales data on their products, including units sold, marketplace ranking, and listing quality. Demonstrate that you maintain price integrity and that your operational metrics are strong. Brands want to see that a direct account will add value to their marketplace presence, not just buy product at a lower price. Having a professional, brand-compliant listing and a history of positive customer reviews on their products significantly improves your chances of approval.
What happens if a brand revokes my authorization or changes their distribution strategy?
This is a real risk and one reason to maintain distributor relationships as a backup. If a brand decides to go exclusive with a different partner or bring marketplace sales in-house, you need a transition plan. The best protection is maintaining a diversified catalog so no single brand represents a disproportionate share of your revenue. A general guideline is that no single brand should account for more than 15 to 20 percent of your total marketplace revenue.
Can Oxalis help brands that want to use both distributor and direct sourcing models?
Yes. We work with brands in both capacities. For some brands, we operate as their exclusive authorized marketplace partner with direct supply. For others, we source through authorized distributor channels when that is the brand's preferred distribution model. The operational execution, including prep, fulfillment, listing management, and advertising, is the same regardless of the sourcing model. Apply to work with us and we will discuss which model fits your situation.