Third-Party Reselling: The New Industry ‘Crack’
Over a beer not too long ago, an old friend and I were comparing thoughts about the demise of so many leading retailers over the past few years. Circuit City, Tweeter, 6th Avenue, Harvey Electronics, Ken Crane’s, my old company MyerEmco, so many others. What happened? What was the cause? Was it the Great Recession? The real estate bubble bursting? The rise of ecommerce and online research and purchasing decisions? Though we agreed that all of these developments were important contributing factors, my friend suddenly snapped, “It was our addiction to flat panels. They were retail ‘crack’!”
What my friend, also a retailer at that time, meant was that many retailers oriented their entire companies to a never-ending stream of sales of high-ticket, high-margin flat-panel TVs, and because their companies were 100 percent built to rely on those revenue streams, as soon as the high-ticket, high-margin aspect of selling flat panels disappeared, retailers could not re-orient their businesses quickly enough to adjust for half their gross profits disappearing in literally a matter of months. That trail is littered with the corpses of some of the finest CE retailers who ever existed. All were dead of an “underdose” of crack, or so the argument could be made.
Fast forward to today. (Is “fast forward” still a term?)
Today, many of the finest independent retailers have embraced third-party reseller marketplaces from companies like Amazon, eBay, Best Buy, Walmart, and others, and this may have forever changed the CE sales landscape. After all, who can argue with providing new reach to nearly unlimited numbers of customers without geographic or demographic borders? For many retailers, this has created an opportunity to gain sales from entirely new sources, and has become an important part of their multichannel market strategy.
Full disclosure: My company, SVS, has successfully embraced third-party reselling, and we are considering adding new partnerships. Just like our retail partners, we see this as a phenomenal opportunity to broaden our reach and add new dimensions to our retail partnerships.
Well, I was in retail quite a long time and have learned a truth over the years that should surprise no one: Easy money in retail never stays easy for long. And there are always reasons for this. In this case, if the provider of the platform sees the limited value being added or replaceable parts of the chain, they will capture as much of the profit from those parts of the value chain as they can. Several of these marketplace providers have been criticized by The Street for lack of profitability, so that is an obvious direction to take. The actual brands in play may draw the same conclusions, as the businesses of many are challenged in the current environment. Even though retailers are providing the product, the customer’s relationship lives within the marketplace platform and their decisions are still driven by the strengths of products and brands.
It’s not a perfect analogy, but just like TVs weren’t a forever ATM machine, anyone who’s convinced that third-party reselling provides a risk-free foundation from which to build a retail brand is not seeing the big picture. It may seem like a stretch today, but when someone else is in control, you have to consider the risks. If retailers rely too much on someone else to build their sales, what’s left, when things change?
The simple solution I advocate is balance. As I said, my company deploys third-party reselling, and we view it as a healthy dimension to our business. It is smart to use the most powerful tools available – but it is even smarter to keep developing new tools at the same time! Push the envelope on how you are willing to go to market, and look for emerging trends to build on for the future.
The one irreplaceable element in all this is the customer. I don’t know how we’ll be finding him or her in the future, but I can guarantee you it won't be the way we are now.
Selling through popular third-party channels and capturing all the business you can makes smart business sense, but not when it is at the expense of building your own brand and maintaining a nimble and inclusive customer engagement strategy.
One of the wonderful aspects of being a retailer is that you never have to bet the farm on any one thing. If one area becomes hot, you can be there for that. If it cools off, you can move away from it just as quickly. You can assemble a portfolio of revenue streams and technology platforms that create an ecosystem of cash cows, upcoming stars, and hot new categories of product and delivery systems. It is only when you fully orient your business towards one go-to market strategy that you may find yourself living and dying by the merits of that strategy.