Producers: Watch retail spouse well being carefully
Previously, my EDI colleague Brandon Pierre wrote about how retailers need to involve manufacturers and suppliers in their brick-and-mortar store planning. Even if they don’t involve vendors in discussions, they can at least plan around capabilities. Retailers can help themselves by collaborating and sharing their sales data with their manufacturers. Sharing information such as where products are selling well and who is buying them helps manufacturers optimize seasonal planning and product development. It can also help with recommended promotions for related products and allocate inventory to increase sell-through for a retail partner.
Where, then, does this leave brands and manufacturers?
When retail partners fail
With uncertainty looming in retail, manufacturers should pay close attention to retail partner health to see how healthy their customers are. If a large retailer files bankruptcy and drops out of your customer portfolio, you may not be able to make up that volume with your remaining customer lineup. As discussed in the RSR study, Retail Insight: Moving Beyond Omnichannel, after Sports Authority shut its doors and it’s suppliers felt the pain in their own profitability, it’s clear that no company is too big to fail.
When retailers fail, the impact has a ripple effect down the supply chain. First, the supplier or vendor will find themselves with a loss of sales due to the retailer’s departure, and that could result in an excess of inventory in the warehouse. Next, if the supplier or vendor is unable to find another retail trading partner quickly enough, they may have to halt orders from the manufacturer until they can find a place to send the products they already have. When that happens, the manufacturers will also find themselves losing sales with the potential for excess inventory and nowhere to send it. The ripples might be felt beyond even the raw materials suppliers on whom the manufacturers rely.
If the manufacturer is paying attention to the retailer partner’s health, there may be some ways they can help the retailer make more sales. They could provide additional data to the retailer that reveals sales opportunities. Manufacturers could point the retailer to new products that might sell well with their customers. However, if a retailer is doing poorly and may be headed down, one of the best ways for a manufacturer to protect their profits is by seeking new sales channels, such as finding new retailer partners and initiating new sales channels like selling directly to consumers.
Recovering lost retail partner sales
Though manufacturers and brands should take the health of their retail providers seriously, they might want to hedge their bets. One way to do that is for brands to become retailers themselves. Past success stories, such as Apple, Samsung, Nike, Columbia Sportswear and Coach leather goods add to the argument for this strategy.
Retail store closings is one reason for brands to consider selling directly to consumers, but that’s just one example of why direct sales might be beneficial to manufacturers. Nike and Coach were two companies who realized they were competing with some of their retailer customers in the same geography. Some retailers began private labeling competing products from similar factory sources and sourced new producers. Larger manufacturers opened their own stores and e-commerce sites to gain back market share by bypassing the retailer shelves and going directly to consumers.
Some manufacturers are moving to sell directly to customers at retail price. This trend may lead to a stronger manufacturer-as-retailer channel, but it’s hard to do it all yourself, especially when you consider the expectations of the modern consumer. There are reasons you started working with retailers in the first place: their strengths complement your own. The health of your retail partners is critical, because this is still where the bulk of purchases are coming from, not the one-off end-user sales.
Considerations before selling direct
Retail sales also may be an option for smaller manufacturers, but there is a lot to consider before growing that direct-to-consumer channel. Do you want to compete with retailers? Would simply finding new retail partner channels help you reach your goals? Or do you want to add a new revenue source beyond selling to retailers? How would you like to sell directly to consumers – through e-commerce, brick-and-mortar stores, marketplaces such as Amazon, social media? Additionally, each choice will have unique marketing, technical maintenance, staffing and other challenges that you must address.
The logistics of the new sales channel will also need to be taken into account. You’ve probably built an entire operation for sending out pallet loads and box loads, so are you ready for addressing the fulfillment challenges of single item shipments? Drop ship fulfillment requires a different kind of warehouse operation and dedicated staff whose sole job is to pick and pack those items.
Study the issue from an organizational perspective, and determine the best course of action to safeguard your company against shifting retail tides. Would it pay off to put the resources, energy and effort into selling directly to consumers? Or should you focus on improving production, collaborating better with retailers, finding new retail trading partners or adding new methods of distribution? How about all of the above?
Manufacturers: The health of the retail store can have a direct impact on whether your business continues to grow or suddenly finds itself without enough distribution channels. Monitor retailers’ health and share information with them to help ensure their success – your success could depend on it. At the same time, be careful you don’t put all your eggs in one basket. Adding further revenue streams through different methods of distribution and sales could keep you growing, even if a retail trading partner stumbles.
Since 2011, EDI Here has teamed with Retail Systems Research (RSR) to annually survey hundreds of retailers, suppliers, distributors and logistics firms to understand their outlook and strategic focus for the coming year. Download the complimentary research report to see how your 2017 plans compare with your peers. And, if you’re looking to move quickly on your 2017 initiatives, contact EDI Here to help.