As manufacturers, you depend on getting full price for your stuff but are you always aware of the interplay at retail? Think about it; how your partners in independent and specialty stores are faring should concern everyone including consumers.
Two recent blog posts highlight the problem, first was from the Robin Report in Derailing the showroom scare:
A recent [study] revealed that 70 percent of consumers ages 25 to 54 with smart phones use them to comparison shop, up from 62 percent a year ago. And of those who use their smart phones to comparison shop in-store, almost one in three ultimately buys the product online… The [survey] found that 49 percent of consumers ages 55 to 65 use their smart phones to comparison shop… By shopping online, customers can save up to 10 percent on sales tax and potentially more off the price of the desired item. As price increases, so do the financial benefits of purchasing online. And the more commoditized the product, the more susceptible it is to showrooming.
This brings to bear a post Miracle wrote on how independent designers unwittingly reduce their selling opportunities at retail by printing their urls on hang tags and labels, and why retailers are reluctant to buy from you because of it. That isn’t as important today as it was when she wrote it because most people know they can find you online even if your url isn’t obvious so the more important question becomes -are you enforcing your price points? That’s the real problem. If you want the scale and distribution, not only must you enforce MSRP (or MAP pricing) on your consumer direct sales, you have to enforce this policy with retailers who sell your products online.
That your retail partners -who you expect to buy your stuff- depend on you enforcing your pricing in the age of internet sales comes from this independent retailer who explains how this is killing the specialty store business:
The manufacturers are training [customers] that bloggers are their most trusted source of information. Where does that leave the retailers? Just a few years ago, our expertise was essential to our value proposition to [customers]. Now we’re being relegated to the back row of a very loud chorus.
What’s a retailer’s goal? To give customers a great experience and match them up with the right products for their families. What’s a blogger’s goal? To attract traffic to a website. Does anyone else see a problem here? I’m not saying bloggers aren’t awesome (many are), or that they don’t have a place in strategic marketing – of course they do.
The author goes on to explain what she thinks manufacturers can do to support their specialty store business. I truly believe her article is required reading. Folksy and friendly, she makes the same points that have been mentioned on this site quite a few times. In fact, if any of this concerns you, I urge you to read the related posts that appear at close. It could make all the difference in selling an account and not. If independent stores are not around anymore, neither will you be and consumers will have increasingly fewer choices in product selection.
Lastly as consumers, you aren’t off the hook either. If you’re looking for less homogeneity in an age where everything looks and fits the same at big box stores, you have to seek and patronize smaller specialty stores that carry independent products because those manufacturers aren’t tied to department store sizing guidelines or the need to cross merchandize their styles in the season’s “it” colors. The latter aren’t intended as criticism by the way; selling in department stores means your stuff has to fit and mix and match similarly to other lines on the same rack or it’s confusing to customers.
Related:
The battle of retailers vs manufacturers
Compromising with retailers
Three reasons you’ll be knocked off
Three reasons you’ll be knocked off pt.2
I can’t think of a spiffy title for this sales rep post you must read
Value Circularity: cotton, colanders & the specialty store market
Advantages of selling what you produce
This past weekend we (finally) purchased a new bed from a chain mattress store. We bought a higher end brand mattress, 2 pillows of the same brand, and a mattress protector. The store had the protector for $180, but the mattress brand had the product on their website for $89. We asked them to match the price and they did. We took the protector with us that day. When the mattress was delivered (by friends we hired) they sent another protector and an extra pillow with it. The store is 90 minutes away. We are going to take the extra merchandise back to the store. However, we’ll ask that they reduce the price of the mattress protector on our bill to the price on Amazon of $41.90. So how much did it really cost to produce this seemly very nice sewn product?
My thoughts on this are not well assembled, but I found this post very interesting. (I am tempted to put that “very” in caps.)
Through my years in the garment business I have watched the duel decline of American manufacturing and the small retailer, side by side. From 1964 to 1999 I saw the selling of garments go from the Mom-and-Pop stores, serviced by equally family oriented wholesalers, to big box stores who demanded volume and services that the small manufacturers could not give and survive.
But things change, and then they change again. Now the entire brick and mortar concept of retailing is threatened by the internet. The only big box stores that are thriving are those who have thoroughly integrated online selling with point of purchase stores. But change brings opportunity as well. And the small manufacturer can grab it as well as the large one. Because the internet has done much to level the field between the small and the large. I know, because I am now one of those online retailers. (We call it etailing) With a very small base and a narrow niche market I sell world-wide.
It may well be that stiff price controls are needed. I can certainly see some sort of online sales tax looming on my horizon, and it is only fair. Change will happen and will continue to happen. What I would urge is that we use our wits to see that the changes are not set up to solely benefit the big players (stores and manufacturers), but to keep this wonderful level playing field for the use of all players.
I read both this blog post and the one Kathleen suggested with great interest.
As a manufacturer who is also an online retailer (but who doesn’t sell on Amazon or Ebay and who informs any potential wholesale customers that MSRP is the minimum retail price and nobody can sell under it), I have 3 remarks:
1) It seems like the Internet has been both idolized and demonized by brick and mortar stores. Yes, the exposure potential you get is much wider, but conversion rates (as in, how many of those visiting your e-store actually buy something) are also infinitely lower than those of brick and mortar shops, where people can see, feel and touch the real product, not to mention try it on when it comes to apparel. I need 2-3,000 visitors to my website (the vast majority of whom come from paid ad campaigns, which are very hard to get profitable due to the low conversion rates). Of those 2-3,000 maybe 300-500 will continue on to the product pages, of whom maybe 50 will seriously consider buying something, of whom 1 will buy something in the end. Compare that to specialty shows we do where people could see, feel and try on our styles: for every 200-300 visitors walking by our booth 50 or so would come into the booth to browse, 5 would try (multiple) things on, and 1-2 would end up buying. See the analogy?
2) Just as retailers complain that big manufacturers “snob” them and go straight to the easy solution of Amazon, many retailers equally “snob” small manufacturers, not wanting to take the risk to carry their lines when they know the big brands are tried, popular and sure to sell! So the blame lies on both ends! The lady who wrote the post Kathleen quoted talks about specialty, yet she talks about carrying Chicco which is a giant in her industry and another manufacturer (not named in the article) who must have been at least big enough to be able to ship a whole container of just one product! I would think that specialty means that your inventory is not as much mass-market and consists more of products that cannot easily be found elsewhere.
3) Amazon is not the rule, it is the exception. Most Internet retailers are as small a business (if not smaller) as specialty brick and mortar stores. Also, Amazon, Sears, Ebay and the likes are as mass-market as you can get, so I don’t see why specialty stores feel they need to compete with them. Wouldn’t it make more sense if they tried to differentiate themselves by carrying products that cannot be found on Amazon or elsewhere? Isn’t this the point of specialty stores anyway? As a consumer, I never go to Amazon for a specialty need. I don’t mean to sound harsh, but why be surprised if the products you carry are no different to those on Amazon and customers choose Amazon to buy those products from instead of you, because of lower pricing.
With regards to Sarah H.’s comment about sales tax: I’m not certain what you mean. Are you in a state without sales tax? We charge and collect California sales tax on all California retail transactions (online and offline), and we report and pay it to the state every quarter. As far as I know, every online retailer is obliged to do the same for every state they have a physical presence on, no matter how big or small they are (operating an online business out of your home office is still considered a physical presence in your state of residence, as far as sales tax law is concerned). How is that different to a local brick and mortar store? Being a very small business, we certainly contribute our fair share in sales taxes and we certainly don’t feel we need any more complicated Internet sales tax laws than those currently in place!
So where does that leave flash sales? It seems they are taking over our industry, and while they may be a good way to get name recognition, there’s no question they are stepping on retailers, internet and doors. I can get publicity, broad distribution, sell overruns, and not have to worry as much about meeting my vendor minimums, since I know everything I make will sell… but it drives my wholesale up a bit, since I have to factor in my margin from selloff. Is this too high a price to pay to be an “it” brand? I haven’t had too much input from my own reps about them, except that everyone is justifiably annoyed if a brand runs a flash sale too early in the season. I have heard from other DEs that their reps have either cautioned them against flash sales or expressly “forbidden” them. Thoughts?
With regards to sales tax: It is partly that sales tax laws are patchwork, state by state. And etailing crosses all kinds of state and national boundaries. Also partly that the bricks and mortar stores are crying out for anything that will hamper the competition. It looks more and more certain that there will be some kind of national sales tax law, not necessarily paid to the federal government, but effectively bringing all internet commerce under one law.
I guess I’m coming from a different perspective here. I am seeing a situation at the mall where stores seem to be pushing all but the most typical customers away and onto the internet. The department stores here are not carrying misses pants in “tall” sizes, so it’s hard to find misses pants longer than 32″, maybe 31″. Kohl’s has now started doing this too. I’m 5’7″ and dislike wearing “floods”, I’m stuck. “You have to go on the internet” is what they say. Some of them carry misses 16 or XL or plus sizes, but only online. A few, it looks like it’s online-only over a 12, but it could be that the 14’s sold out. And in some of the stores, the sales people can’t or won’t tell you what sizes the items come in. What can I say, good luck at selling us the blouse, t-shirt, handbag, etc. to go with it.
If I really like a product, or really miss being able to get it in my size as the retailers cut back, my obvious choice is to go on the internet – not in hopes of finding a screaming deal on the item, but simply trying to track down a retailer who sells it. So far, this has worked better with shoes than with anything else.
To J Hodson: I hadn’t seen your comment, or I would have responded earlier. Often times manufacturers or retailers would rather get rid of non-moving merchandise at cost (occasionally even below cost!) than have it take up space in their store or warehouse and not sell! That doesn’t mean it doesn’t hurt them financially. So I wouldn’t necessarily read too much into the low price you found on Amazon. As a rule of thumb, manufacturers will try to sell merchandise to retailers for 2-2.5 times the cost of manufacturing, and retailers will then usually double this to get to the retail price.
Now, before you rush to say manufacturers and retailers are so greedy, keep in mind that only a third of this selling price actually ends up going into their pocket. About 1/3 is their costs to manufacture their product and then another 1/3 will be used to cover their overhead costs (employee salaries, bills, rent, advertising costs etc.) so they only get to keep about 1/3 which is usually way lower than people think. Accordingly, 1/3 of the retail price will cover the retailer’s purchase expense, another 1/3 will cover their overhead costs and so on.
Based on the above, and the decision is of course yours, I suggest that you don’t try to take even more advantage of your local retailer by asking them to match the Amazon price, because they probably took a big blow in their profit margin already by agreeing to match their manufacturer’s price (who shouldn’t be undercutting their customers’s pricing, but that’s another story). If I had to guess, $89 is probably close to what the retailer paid for the protector wholesale, and they agreed to lower the price because you bought all this other stuff, to show some good will with the hope to see you again in their store!
Very good point about the kind of merchandise found on Amazon etc. Or even on “store” websites. Much of what is sold online (especially on places like eBay or Amazon) is older or off-price merchandise of some kind. I myself sell “slight irregulars”. I am totally upfront with my customers about what they are buying, but not all sellers are. In terms of clothing, the more clothes become a commodity item, the less it matters whether you are buying this year’s shirt or last year’s. Or buying a slight irregular. Off-price merchandise has become such a hot item that there are regular off-price markets (One just ended in Vegas.).
And I would like to note that the 1/3rd rule applies just as much to online retailers as it does to the store down the street. I do well to maintain a 1/3 profit margin, what with fees, shipping, and so forth, besides the cost of the merchandise.
J Hodson wrote:
Who can say? What it cost is indirectly the wrong question because it leads to people counting other people’s money. It’s part of the reason that discounting can be such a downward spiral because with so many discounts, consumers increasingly believe that the discounted price is the “real” price.
In this particular case, I think the mattress cover sold at retail was a high margin add-on. Lots of retailers do that. You need C to go with A and B; A & B being products of intense competition in print advertising and with C, they can recover a bit of profit from their discounted item. Loss leaders are what get you into stores. It is the other items you pick up on your way out (since you’re already there) that make up the difference.
Amanda: I can understand why reps will advise against flash sales because retailers don’t like them and if retailers aren’t happy, they aren’t going to be ordering from the rep which means the rep won’t be making any money. Flash sales are relatively new and still a rarity; who can say how it will all work out. I suspect these sales will continue and probably become an even bigger deal but I also think there will be products made specifically intended for flash sales as opposed to regular retail in the same ways that outlet malls got so big that brands were making product specifically for their outlet stores instead of seconds or over runs as was the original intention.
Karen: I understand what you’re saying and agree that retailers are using the internet in their own way, specifically to reduce their overhead in carrying less popular sizes etc. It amounts to a double edged sword. In the end, the genie is out of the bottle with no way to get him back in.
Some time ago I spoke to a Manufacturer that decided to move away from wholesale to only do online mostly to avoid the seasonal “stress” of making collections in certain time frames(and avoid bad accounts that didn’t pay). I think the MAP pricing policy is a good way of working around the insecurity.
None of us would like to live in a world without retail stores, small town/city centers with independent retail stores, coffee shops etc.
Most of the European lines I know actually sell different inventory on-line than in wholesale/retail. I don’t know what the “smaller” once do though.
Flash sales are all about last seasons collection(or last year). I think this is a good opportunity for retailers and consumers, less for the Manufacturer. They “buy” 40% off your wholesale price and sell it for 50% of retail price. You don’t want to do that business if you don’t have to. If you look at it as marketing opportunity it can be a risky and expensive one time happening. The big once ask for 500-600 pieces and without an already known brand name this is risky. Some chose to produce some styles especially for this flash sales.
A retail store will also benefit from selling online. I know an independent retail store that does it’s own flash sales and send out news letters regularly (also quite active in social media).
Every manufacturer have a web site today so it’s normal to print the web site on the hang tag. The manufacturer could have links to the different stores web site on their own web site to give the sales to the store closest located to the customer.
The latest New Yorker (Sept. 10, 2012 issue) has an article on Federico Marchetti and the Yoox Group, headquartered in Milan. The article discusses how e-commerce is affecting the ability to control prices for luxury fashion labels. According to the article, Yoox is a fashion shopping site, both a discounter and a full-price retailer. Yoox also buys clothes on consignment from, and handles logistics shipping, customs, returns, and customer service for, over thirty fashion houses, including Armani, Dolce & Gabbana, and Jil Sander. There’s a synopsis online at http://www.newyorker.com/reporting/2012/09/10/120910fa_fact_seabrook, but you’ll need to get your hands on a hard copy to read the whole article.
I totally agree with Karen about less-common specialties being pushed to the net. Shoved is more like it. I live in a city that has decreed that my size in shoes “does not exist”. So I don’t exactly trawl the stores looking for the odd shoe that might almost fit me. Anyone with more than a C cup (ok, maybe D) is forced to buy bras online. It seems bags are about the last “clothing” item I can just buy because I see it and like it. So when I already have to look for everything online, why should I even attempt to look around me? Shopping is like gambling, you have to win sometimes to even feel like doing it at all..
Another interesting link about retail and on-line:
http://retailminded.com/e-commerce-sales-strategy/
It’s from Retail Minded and written by Nicole Reyhle.
She writes about retail stores doing on-line sales as well. She says: “The U.S. Commerce Departments anticipates there will be $690 billion in e-commerce sales in 2012. Is your business a part of this number?”
She writes aboyt 5 things to consider
and, 10 tips for effetively manageing your online store.
Interesting article!
To clarify my last comment about the price of the mattress protector.
I try to buy quality the first time and make it last. I know a little about clothing quality. So when I look inside a shirt I can get a feel for the level of quality. In just about every other category “price” is the metric I have for judging quality. I don’t want a $40 mattress protector for the top end bed that should last 25 years. I want a very good product. As a consumer, I feel upset and confused by this situation. Depending on the actual quality of the product I’m either getting ripped off, getting a great deal, or rarest of all paying a fair price for the level of quality I want to buy.
The brand of mattress we got is price controlled. Because its such a big ticket item it actually makes me feel “safe” knowing that the price on the mattress brand website is the same as at the big chain store. I know that next month it will be the same price that I paid last month.