13 Jul The Future of Retail
Today, the retailer or middleman is being squeezed so hard the retailer is seemingly becoming completely irrelevant. In general, the pricing manufactures and wholesalers are offering retailers are so absurd it makes you wonder what the future of retail is going to be like in all industries. The travel industry has been dealing with this for a longtime, and now all retailers are facing major changes as well.
Wholesale Pricing is Retail Pricing
I have been recently working on a few projects that require establishing relationships between manufactures and wholesalers with retailers that want to sell their products. In almost every situation, the manufacture or wholesaler is offering their products to the retailer at the same or marginally lower prices than what is already being offered in the “retail” market directly by the manufacture or wholesaler. I am wondering why they offer a distributor or reseller program because the pricing does not allow the retailer to sell their product. Every time I run the numbers, it is more costly to sell the product than to purchase it from the “retail” market.The difference between wholesale pricing and retail pricing no longer exists.Click To Tweet
Why Do Manufactures Still Require Physical Retail Stores?
Most manufactures and wholesalers are still requiring retailers to have a physical store in order to establish a business relationship with them. So instead of supporting progressive and forward thinking retailers, they are hoping physical stores will continue to be a strong channel of distribution. But, brick-and-mortar is not a growing trend in retail, it is a dying trend. Just ask Shopify who provides leading e-commerce software to retailers. Retailers know people are clicking and taping on their mobile phone to make purchases, not driving to a store to walk up and down aisles. And, consumers are not interested in going to the store and paying more for the same thing they can order online for a lower price. In addition, the rent and cost to carry inventory in a brick-and-mortar store is unnecessary and too costly.
Manufactures seem to think they can sell direct to the customer online. Therefore, What is the point of having online retailers in the mix? Most manufactures are good at R&D, product development, and production, but lack in the area of direct marketing and selling to the consumer both online and offline. Besides, Should a digital era manufacture plan to be good at everything? Ironically, only a few manufactures and wholesalers have placed a solid line in the sand and found ways to support their relationships with up and coming retailers. Companies like GoPro that use Minimum advertised pricing (MAP) policies and enforce them well clearly demonstrate to retailers they value their role in the supply chain. But, more important than a MAP policy are manufacture and wholesale policies that hold the manufacture and wholesaler accountable. Often it is the retailer that provides accessibility and availability to the customer when the manufacture can not reach them otherwise.
The Manufactures’ & Retailers’ Dilemma
The future of “retail” and retailers are definitely in jeopardy. The solvency of retailers depend on how well manufactures and wholesalers adapt to the rapid changes in customer behavior and the digital economy. The entire purchasing process has changed drastically which is well documented in Werner Reinartz’s Harvard Business Review article, “The Future of Retail, We’re Never Not Shopping.”
Manufactures and wholesalers are at a crossroad and need to decide how they are going to handle current and future retailers. This is the biggest manufactures’ dilemma in 2016. Currently, most manufactures and wholesalers are failing miserably because they are not offering the proper business model and pricing structure to allow a digital age retailer to survive and sell their products. At the same time, manufactures and wholesalers often don’t have the resources nor capability to properly reach the end consumer.Manufactures trying to support retailers is one of the biggest business dilemmas for 2017.Click To Tweet
A Decision Needs to Be Made
As a manufacture or wholesaler, a major decision needs to be made. Either 1) Sell directly to the customer, or 2) Plan to create a network of retailers, especially with those that are progressive and forward thinkers. If you are trying to play both sides of the fence, retail pricing has to be considerably more than wholesale pricing by at least 50% on average. Otherwise, the retailer does not have nearly enough margin to warrant carrying your product. I would recommend instituting a Maximum Manufacture Wholesale & Retail Pricing (MMWRP) policy. If there is not enough margin to produce and sell a product with real wholesale pricing, it is probably not a good product to be manufacturing anyway.
Seek to Grow the Pie
It has been my contention that it is better to build a businesses with the idea of expanding the pie and being inclusive, verses implementing business strategies that shrink the pie. Online travel companies thought by removing the travel agent from the equation, they would be able to set their own price with the customer and cut cost. But, instead of dealing with travel agents, online travel companies are constantly in a price war with each other to provide the lowest possible price. However, new companies like Lola Travel, a mobile app travel company, is rethinking how to operate in a digital economy by hiring travel agents to manage relationships with the retail customer. A simple idea by Paul English, Co-Founder and former executive at Kayak, is expanding the pie by implementing a business strategy that includes travel agents (retailers) instead of excluding them. The net result, everyone wins including the end consumer.
Wholesalers and manufactures need to get creative and implement programs to embrace digital age retailers. Drop shipping, pricing with healthy margins, and supporting online retailers should all be major concerns when designing or redesigning your program to support a retail distribution network. Otherwise, wholesalers and manufactures need to be prepared to take on the cost and labor needed to manage the supply chain from start to finish with little to no support from others.