Flexibility is Key to E-commerce Stability
As more brick-and-mortar retailers close their doors—Circuit City, Blockbuster, Ritz Camera, CompUSA and Dixons, among others—and Amazon becomes more and more powerful, I am constantly asked by our manufacturer customers about how best to navigate an increasingly challenging landscape.
The truth is: There is no magic bullet. Each time the lights go out at a retailer, brands are left with shrinking distribution channels.
The only way to avoid that dilemma is to establish a direct-to-consumer (DTC) channel that won’t go away or be dictated to by third parties with interests opposed to yours.
Direct selling is the most effective, proven way to do that.
The retailer-retribution concerns that once dominated discussions about going direct-to-consumer are truly a thing of the past. Something like the Samsung store-within-a-store at Best Buy is proof of that. And manufacturers such as Apple and Dell have proven that owning their own DTC channels can be both an important hedge against overdependence on brick-and-mortar and, at the same time, a brand-marketing asset.
The tumult in the retail world makes it more important for companies to choose their channel partners wisely, but be humble enough to know that a balanced, more diverse approach can position them for future success. With channels converging overnight, partners can quickly turn into competitors.
Here are a few best practices to follow to ensure your new channel won’t disrupt your existing ones:
· Look for non-threatening ways to get started, such as in a new geographic area or customer segment, and also consider new non-retail product lines. Steps like these change the “zero-sum” dynamic that too often defines channel conflict and allows you to stand up a new channel without raising partner concerns.
· Use pricing that is competitive, but not so aggressive that it alienates your retail partners. Five percent over retail is usually a level that neither scares off price-conscious shoppers nor raises issues with retailers.
· Keep in mind that brick-and-mortar retailers are rightfully more concerned about other brick-and-mortar retailers than they are about online threats. The Stevenson Company TraQline market studies found that Best Buy loses only 4.4 percent of its in-store shoppers’ purchases to Amazon.com, versus 8.2 percent to Walmart. For TV purchases, the numbers change to 3.5 percent for Amazon.com, and 13.6 percent for Walmart. Your new channel isn’t an existential threat to your retail partners, but rather a hedge against the real threats they are dealing with daily.
With the future of retail uncertain, the most flexible business models are bound to prevail. And if you want that to be yours, make sure you have a smart direct strategy in place and choose your channel partners wisely.