Ad Industry, Business Oct 01, 2013

In the Future Everyone Will Sell Direct (Probably)

The Wholesale Challenge


This morning Jamie Quint (the founder of Lookcraft) posted an article titled “Goodbye Wholesale Brands.”  His central point is that the next big shift in online retail will be wholesale brands (companies that currently only sell to consumers through a network of independent retailers) starting to sell direct-to-consumers.

It’s an article well worth reading, and it identifies a few of the obstacles that have kept wholesale brands from selling direct-to-customers in the past.  Things like technical challenges and inventory risk that have been partially alleviated by the maturation of e-commerce and the availability of more agile manufacturing and delivery methods.

These are real challenges, but in my opinion, not the central challenge.  What I see as the central challenge is what Quint calls “channel conflict,” the possibility of a wholesale brand competing directly with its retailers.

Try And Buy A Trek Online

Let’s look at a real world example of how this works.  Bicycles give us one of the most entrenched examples of wholesale-only brands in existence.  If you’ve ever tried to buy a new Trek or Specialized bicycle online – you probably haven’t had much luck.  That’s because those companies are rigorous (to put it mildly) about making sure that the only way to buy one of their bicycles new is through an authorized, physical dealer.  And to do that, you have to go into the dealer and pick up your new bicycle there.

Obviously this is good for dealers because there’s no competition (apart from other physical dealers) for the products they sell.  It’s also good for Specialized and Trek, because they can decide where and how their products are sold.

Now imagine if tomorrow, Specialized or Trek decided they’d sell new bikes online directly through their website.  Every sale that happened directly through their website would be a sale that didn’t happen at a dealer.  Essentially, those brands would be competing directly with their dealers.

Retailer vs. Manufacturer Competition
That’s the essence of “channel conflict.”  For new brands, it’s not too much of an issue.  By simply promising their dealers that they’ll level the playing field by not competing on price,  most new companies can start off selling both through dealers and directly online.

For existing brands that got their start as wholesale-only and are considering selling direct online, the stakes are higher.  If you’re a successful wholesale-only brand, you owe a good chunk of that success to your partnership with your retailers.  And those retailers will likely see selling direct as a betrayal of that partnership.

We know of more than a few brands who have chosen the Specialized/Trek route.  Promote their dealer network and turn their backs on direct e-commerce.  The challenge is that many consumers would rather click “buy it now” than drive down to a store, and some percentage of sales are lost by not having that option. In fact, some percentage of Trek and Specialized sales are lost directly to other manufacturers because those manufacturers let customers buy direct online.

There are solutions. Some manufacturers are doing creative things like sharing the revenue from online sales with their retailers, and even enlisting retailers to fulfill direct online orders. But none of these solutions are quick or particularly easy to implement.

Quint’s article may have glossed over what I feel is the central challenge of wholesale-only manufacturers going direct, but I agree with its conclusions wholeheartedly.  It may not happen tomorrow or even next year, but I’ll bet before too long you’ll be able to click a “Buy it Now” button next to a Trek.

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