Cutting out the middleman seems to be what a lot of direct to consumer brands are considering. Seeking hefty margins by cutting out the brick and mortar retail channel. Little do they know, these online only brands are about to become the new middleman and need retail distribution more than ever.
Traditional Distribution
Traditional branded manufacturers focused on selling through distribution required establishing and maintaining relationships. These manufacturers do tremendous volume through retailers that an overseas manufacturing partner cannot replicate. The bulk of retail sales still occur offline (roughly 90%), and still do to this day. By turning a blind eye to the sales volume physical retail brings, direct to consumer brands are more interested in short-term profit-taking than building long-term strategic value while addressing more of the market.
Fact of the matter is a lot of consumers preferred shopping method still has the comfort of the local store for seeing the product, secure pick-up to prevent package theft of online orders, immediate gratification,
Direct to Consumer Only Strategy Not Defensible
The challenges with direct to consumer only is that the barriers to entry are extremely low and it is not a defensible strategy. The ‘short-cut’ to reach consumers directly is sacrificing the volume produced at traditional retail and competing on price. This volume of product produced/sold is integral to protecting a manufacturing partner from competing as they are incentivized on number of units sold to keep their plant operating at full capacity with predictable run rates. If volumes become unstable or do not grow, the manufacturer will take matters into their own hands and compete with their customers directly.
Manufacturers to Cut Direct to Consumer Brands Out
Niche brands that outsource their manufacturing are about to become the next middleman. Overseas manufacturers in a pure-play commerce World are now in the drivers seat and are using Amazon to disintermediate their customers to compete on price only which a brand will never be able to win. On Amazon, there is no such thing as a brand anymore and more than likely your manufacturing partner could now be Amazon’s newest private label.
How to Overcome these Barriers?
- Establish and Maintain Great Relationships with Retailers to Keep Volumes Up
- Get Online and Physical Retail Channels Working Together to Create More Value & Sales
- Invest in Intellectual Property
- Invest in becoming your own Manufacturer to Avoid Competition in the First Place
- Provide Better Customer Experiences
- Instead of Looking at Cost Cutting, Seek Value Creation to Deliver Better Customer Experiences that Increase Everyone’s Sales Productivity
What Value Does the Retail MiddleMan Bring?
- Additional Sales Volume
- Extends Your Reach to New Customers in a Low Cost Manner
- Retail as a Service with Browse/Purchase/Return/Install/Assemble/Deliver
- Immediate Gratification of Customer
- Secure Pick-Up Point for Consumers to Avoid Porch Theft
