The battle of retailers vs manufacturers

One of my posts sparked an exchange as follows:

As a retailer, I generally won’t do business with manufacturers who will sell directly to the end user. I have no reason to -there are too many other companies out there from whom I can buy my product. The last company I dropped not only sold to one of my customers at a discount but also told them what my wholesale price was! Makes you wonder who’s in charge, doesn’t it?

Another person added:

too bad you have that attitude. You probably have missed a lot of sales by not carrying some great lines because of your fear. A LOT of my stores have GAINED customers because I send them their way through my site…If you have a good relationship with your vendors, then the trust issue shouldn’t even be an “issue”.

As I responded to these comments, I realized that a very important issue was brought to light that warranted an entire post. First of all, I have much more experience as a retailer than as a DE and because of that, I have a frame of reference that might be different than what many readers here have. To qualify that even more, most of my industry dealings are in what is considered contemporary apparel. So if you’re like Kathleen and you have experience in western wear, or another niche, I can’t relate as much and my experience may differ vastly.

To start off, I want to say that retail is a tough business made more difficult by the management of cash flow. Retailers are always trying to find merchandise with a high sell through that they can turn frequently to get the most out of their cash. Profit margins are also a very sensitive issue because retailers are already dealing with an average gross profit margin of 50-54% for apparel, which becomes even lower if markdowns are necessary. Considering that there is a percentage of merchandise that just doesn’t move at all, retailers are really dealing with a lower average gross profit margin than even that.

The concerns of most retailers still boil down to turnover and profit margin, those two are key. A retailer must resell what they’ve bought in order buy more stuff and make a profit for themselves. If you’re a retailer with great products, that’s great but turnover and profit margin are the most important. If your product merchandises well, that’s great too but turnover and profit margin are still the key. Even the concerns of cosmetics retailers (who usually have the highest margins) often boil down to turning their inventory faster and taking fewer markdowns. So, when this first comment was posted:

there are too many other companies out there from whom I can buy my product

I could immediately relate. I have never known an established retailer who didn’t have more than enough product lines to choose from to put in their store. What’s more, it’s usually the case that there are more lines and more great items within a line, than a retailer can afford to stock. Retailers have a lot of choices and buyers have to buy carefully and selectively because in most markets, there is no shortage of great merchandise.

I have a few DE friends and we’ve discussed why a store turned down their line or the objections they get and more often than not, the objection is “I can get a similar product from XYZ and they also _____”. The other company has similar products but also some kind of advantage that is preferable to the retailer.As a DE, you will definitely need some kind of advantage over another brand that will get you the buyer’s order.

The retailer’s advantage that you’ll have to deal with is that unless you’re an “it” brand -one they must have because the sell-through is incredible, it gets a lot of press, it sells itself, or some other reason- they have many options to chose from. So when I see a response like this:

too bad you have that attitude. You probably have missed a lot of sales by not carrying some great lines because of your fear.

My thinking is maybe, maybe not. No retailer has an unlimited amount of open to buy dollars. Thus the retailer is always choosing between this or that. Because of this, the only way a retailer is losing sales by not picking up a brand is if they buy a brand that doesn’t sell as well instead.

The feedback that I get from many of my DE friends is that their savvy buyers are always questioning what they are doing to market their brand. Are they getting any press, do they have fashion shows or trunk shows, what is the DE doing to get their brand out there and make it desirable to the consumer. Sure the retailer has to do some legwork but because most retailers usually have their “cash cows” and they can’t focus their marketing efforts on every single brand. If your brand doesn’t move, it may not get picked up again for the next season no matter how much the buyer personally loves it and how great of a product you really have. This is one of the reasons I know that retailers who put some focus into retail merchandising and promotion often do better than those who don’t merchandise and promote.

For example Sephora -the large cosmetics retailer- will require a brand to focus on getting publicity or they will not keep the line. Not only do they focus on getting publicity but they limit their promotions to a certain caliber of publications. Sephora is a large national chain so that may not be relevant to you but smaller retailers have their own way of accomplishing the same result.

Now if you’re a DE who feels like a retailer is missing out by not buying your line, you better have a high sell-through to back it up. If you have a great product but it moves slowly, the retailer’s dollar is tied up in it (low turnover) so you’re missing the point. One of the challenges that many retailers face is that the greatest product is often not the best selling product. Likewise, what sells the best is not the product they would have preferred to push but it sells so that’s where their money goes. As a retailer, one of the biggest heartbreaks is a wonderful brand that you can’t get people to buy at full retail.

Having said that, I think that it’s very difficult for a DE to be a good retailer and to provide full retail support to their stores. If you really know what you’re doing with retail support, then you’ll be a great retailer and if you’re a great retailer, well then you’re competing with your store accounts. It’s a difficult line to tread and it’s a safer thing to test once you’re an established brand with the recognition and sales (and retail accounts that just can’t give up your line) rather than someone just starting out, when you have tons of competition and aren’t even established yet.

There are ways to build a system that can accomplish both goals but it’s a very tough juggle for many DEs who have so many other tasks to manage. Having said that, I feel that I need to be fair because there are definite advantages to being a DE/Retailer, but that will come in another post.

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