December 26, 2000, 9:55 AM

Bypassing the Middleman

When Levi Strauss & Co. dove head first into electronic commerce last November by opening a pair of Web stores just in time for the peak holiday shopping season, the news stunned retailers. One of the world’s biggest clothing makers had decided to bypass retailers altogether. But it wasn’t just Levi’s Web presence that caused consternation. What really worried retailers was Levi’s strategy of selling Levi jeans and Dockers only at the Levi Web site. If Levi can do that, then there’s no reason other manufacturers won’t follow suit.

And there’s little retailers can do about it. Levi may depend on a vast network of bricks-and-mortar merchants to sell its apparel around the world. But on the Internet the only place shoppers can buy Levi jeans and Docker khakis is at the Levi Web site.

“I don’t think their policy is very fair, and I’m not pleased with being bypassed,” says Rob Schlein, owner of Dan’s Big & Tall, a small chain of Dallas clothing stores. “If I sell Levis in my regular stores, I should be able to sell them on my Web site.”

Retailers naturally don’t like it when any big manufacturer, such as Levi, cuts out the middleman and starts selling direct to the public over the Internet. But now that consumers are buying everything from clothes to furniture on the Web, it’s inevitable that more manufacturers are going to sell online and compete head-to-head with retailers for shoppers. And retailers better get used to it. Appliance manufacturer Whirlpool Corp. is making Internet retailing a big part of its future plans. And the ranks of manufacturers already selling on the Web include such household brand names as Estee Lauder, L’eggs and Timex.

The battle lines are drawn

In conventional retailing, it can take manufacturers years to build up a national distribution system of merchants. But the Internet offers manufacturers speed and the chance to reach consumers quickly. Levi took just 18 months to develop and launch its electronic commerce initiative. And that quickness to market impresses analysts. In fact, now that one of the world’s biggest clothing makers has made a successful transition to Internet retailing, analysts aren’t just talking about a slow stream of manufacturers coming online; they’re predicting a stampede.

“There’s a huge battle brewing up between retailers and manufacturers about selling direct to the public over the Internet, and it’s going to explode on the industry very soon,” says George H. Whalin, president, Retail Management Consultants, San Marcos, Calif. “Manufacturers see this as a great way to sell product and build up their brands, so they’re just salivating to get on the Web.”

 

Better get used to it

Most retailers hold out some hope that manufacturers will include them in their electronic commerce plans. But if manufacturers choose otherwise, there’s little merchants can do about it. “This is an emotional issue with retailers,” says Maxwell H. Sroge, chief executive officer, Maxwell H. Sroge Co., a Chicago retail and direct marketing consulting firm. “They don’t like being alienated, yet manufacturers are adopting a retailing mentality about the Internet and that trend will only accelerate.”

Merchandising used to be retailers’ exclusive domain. When the only place to buy consumer goods was in stores, retailers told manufacturers which of their brands they would sell and how much. Today about 85% of all consumer products are still sold through stores.

But over time as national chains have consolidated and retailers have cut back on their numbers of sales associates and buyers, they’ve shifted more of the merchandising role to manufacturers. Today retailers aren’t looking to manufacturers to just supply them inventory. In many cases, they’re dependent upon the manufacturers to train sales associates and even supply the shelves merchants need to stock the goods in their stores.

“Traditional retailers created a dinosaur industry when they began to rely on financials to drive their business and asked big wholesalers and manufacturers to pick up the merchandising slack,” says Kenneth Seiff, chief executive officer, Bluefly.com, New York, a virtual clothing store. “The balance of power is shifting and that’s why retailers can’t challenge those big-name manufacturers who want to sell on the Internet.”

Some manufacturers are taking limited steps to placate merchants and avoid direct conflicts. Levi and Timex Group Ltd. feature store locator buttons on their Web sites. And L’eggs Products, a division of Sarah Lee Corp., plans to feature coupons consumers can print out and redeem at stores around the country.

But those are only token efforts and don’t alter the fact that manufacturers are going to compete directly against their retailers for Internet business. “Retailers are being very aggressive on the Internet and we are going to sell online too,” says John F. Andrews, assistant marketing manager, L’eggs Products, Winston-Salem, N.C. “The Internet is the competitive place to be right now.”

All the stops

In fact, rather than being low key about their Web selling efforts, most manufacturers are pulling out all the stops and building fully stocked, state-of-the art Internet stores. Mattel turned its Internet site into a hot selling Web store when it introduced an interactive feature that allows shoppers to build their own Barbie doll from a base of 15,000 separate clothing, hair and eye color choices.

And when Timex opened its Web store in May 1997, the watchmaker could have been conservative and offered only a few of its brands. But Timex didn’t think a limited selection would draw consumers, so today Timex offers almost 300 different styles of watches and clocks-its complete inventory and more choices than consumers will find in conventional jewelry or department stores.

“Electronic commerce is coming on and we wanted to be ahead of the market,” says Sally Jagello, Internet manager, Timex, Middlebury, Conn. “Putting the complete inventory online sets us apart.”

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