The Elephant in The Room
Once upon a time not so long ago pre-Covid for sure the biggest worry a retailer had was that the store down the street might carry the same vendors. Heaven help us if they had the nerve to sell them for a few dollars less.
Fast forward to 2021
Those concerns pale in comparison to what the independent retailer contends with today. What retailer on planet earth wouldn’t take the competitive challenges of yesteryear versus dealing with today’s internet-driven issues?
Dream Turned into Nightmare
Consider the following scenario. You are at market and discover what you believe will become a “hot” line for your store. You are promised exclusive rights to the line in your trading area to give you an opportunity to develop the brand. Your customers love the line and your competitors are chomping at the bit to buy it should the opportunity present itself.
All is good until one day you discover (or worse yet a customer does) that same hot line is available online. Needless to say that’s a problem since now all the customer has to do is open a search engine on any device and see the same item that you carry and more. You try to convince yourself that your customers will shop locally and support your store. That all sounds good until the price changes. Now the same item is available in some cases for 30-60% less than you are selling it for the shipping is free and the item arrives at the customer’s doorstep the next day.
Sorry but that customer loyalty thing just went out the window.
Competing with Amazon and Your Vendors
OK so you accept the fact that you now must compete with Amazon. But wait there’s more… as the commercial goes. You now discover that your new vendor has the very styles that you carry on their website. And they are NOT directing customer inquiries back to you in most cases; they are selling direct to the retail customer (DTC)—YOUR customer! If that isn’t enough some vendors are starting their own “rent the runway” type services.
Vendor Competition
One store that I work with notified me that items she had in her store for only four weeks could be found on the vendor’s rented site. Her initial reaction was to cancel all future orders from the vendor. Who could blame her? The reality of the situation however is that she would have to replace the merchandise with something else and that isn’t always that simple.
As if business for the independent retailer isn’t already challenging enough. Now the competition isn’t just the store down the street but the vendor you thought you were partnering with to build a mutually beneficial relationship. Think again.
MAP Pricing
You agreed that you would not advertise a price below the Minimum Advertised Price (MAP) until a certain prespecified date. If you get discovered going against the agreement you will most likely incur the wrath of the vendor via a stern warning at least and losing the line at worst should the practice continue. But what happens when the vendor violates his own policy? Not much as it turns out and it happens all the time.
What You Can Do?
Having collaborated with both retailers and manufacturer’s representatives a few proactive options are offered for consideration:
- Search out resources that do not sell on Amazon or other shopping sites.
- Ask potential vendors if they sell direct to the customer from their own websites or if online inquiries are referred to a local retailer.
If the same items are found on a vendor’s site or on Amazon you will most likely need to reduce your retail price to remain competitive.
Ask that the vendor make up the difference in markdown money. Not a credit toward next season’s purchases—a check!
You may wish to return the unsold items to the vendor. I also believe you would be justified in charging freight back to the vendor. Obviously this is costly not only from a time standpoint but also the opportunity costs since you now have to find a replacement for the items in question.
Should the practice continue you can always reduce or cancel current and future orders.
This is easier said than done since in some cases it is difficult to replace the volume generated by major lines.
With regard to apparel lines creating a private label program should be considered.
A store label promotes the store name and brand and helps shield the retailer against online comparison.
Know your numbers on each brand you carry.
This is especially important if the brand is selling through distribution channels that are in direct competition with you. If a brand becomes unprofitable it is your responsibility to work with the vendor to find a mutual solution. If a satisfactory outcome cannot be reached there are only two choices available to you:
1) Maintain the status quo and remain unprofitable
2) Find a replacement for the brand
Have written vendor agreements in place
With specified end of season gross margin targets as well as liberal stock balancing and return privileges on slow selling merchandise.
With regard to MAP violations
Once the vendor is in violation of their own policy on what grounds would it still be enforceable with a retailer?
Vendors at the very least should offer discounted merchandise to their retailers first prior to liquidating using alternative methods.
The Direct to Consumer (DTC) Topic
The DTC topic is most certainly the elephant in the room among retailers I consult with. Given the many pressures facing the independent retailer today competing against vendors for the same retail customer should not be among them. Unfortunately the toothpaste is already out of the tube as it pertains to this issue. The reality is that DTC is most likely here to stay due to the power of the almighty dollar. You don’t have to like it but you do have to learn to live with it.
Strategies for Retailers
- The best single thing you can do in my opinion is to support the vendors that don’t engage in DTC selling whenever possible.
- If retailers mount enough resistance then and only then will vendors realize that DTC practices may damage the independent retail community irreparably if they haven’t already.
Ritchie Sayner
Ritchie Sayner is with Advanced Retail Strategies LLC an affiliate of merchandise planning company Management-One. He is the author of Retail Revelations 2nd ed. – Strategies for Improving Sales Margins and Turnover. He can be reached through the website www.advancedretailstrategies.com or by email at ritchie@arsotb.com
Summary
The article discusses the challenges faced by independent retailers in the post-COVID era particularly the competition from online platforms like Amazon and direct-to-consumer (DTC) sales by vendors. It highlights the struggle with maintaining customer loyalty and competitive pricing when vendors sell directly to consumers often at lower prices. The article suggests strategies for retailers to adapt such as seeking vendors who avoid DTC sales and considering private label programs to differentiate their offerings.
“The DTC topic is most certainly the elephant in the room among retailers I consult with.”
Real-World Examples of Retail Challenges
In today’s retail landscape independent retailers face numerous challenges due to the rise of online shopping and direct-to-consumer (DTC) practices. Here are some real-world examples that illustrate these issues:
- A small boutique clothing store discovers that a popular brand they carry is available on Amazon at a significantly lower price leading to a sharp decline in in-store sales as customers opt for the cheaper online option.
- An independent bookstore finds that a publisher they have partnered with is selling books directly to consumers through their website bypassing the bookstore and undermining their sales.
- A local electronics retailer notices that a major supplier is offering a “rent the runway” type service for their products allowing customers to rent items directly from the supplier thus reducing the retailer’s potential sales.
