June 3, 2004, 12:00 AM

Direct to retailers

Wholesalers are finding many of the same benefits—and challenges—of using the web that retailers have found.

After having spent 20 years in the retail business, Marc Joseph figured in the mid-1990s that the Internet offered broad new opportunities. But even though he had devoted much of his career as a merchandise expert for Federated Department Stores Inc.’s Burdines chain, he wasn’t thinking retail. His sights were on the web and its ripe potential for changing the wholesale consumer products business. “Online wholesaling has become the next wave to hit the Internet,” he says.

In 1998, Joseph founded DollarDays International LLC as a wholesaler of general merchandise to independent retailers. After years of slow growth, it surged in the past year, as more merchants have raised their comfort level in sourcing products online and have come to know DollarDays through searching the Internet for merchandise.

“A few years ago, retailers were tentative about going online to buy wholesale products,” says Joseph, president and COO. “They preferred the traditional way of walking around trade shows to see a few hundred vendors, talk to people, look at samples and then decide who to buy from.”

No more traveling

But a growing number of retailers, after becoming more familiar with using the Internet for personal shopping and conducting research, are becoming more accustomed to shopping online to stock their businesses. And some have begun to lean on the web as their lifeline. “Without going online to my suppliers I would be out of business,” says Trina Ortiz, owner of three Ortiz Dollar Store & More outlets in the Pueblo, Colo., area, who finds suppliers on aggregator site WholesaleCentral.com.

At the same time, adds Joseph, who also spent several years as a traditional wholesaler to grocery and drugstores, manufacturers have cut back on their policies of sending salespeople to stores to display products and process orders.

With online retailing continuing its steady annual growth, subsequent growth in online wholesaling is a natural progression, experts say. “When all of the Internet play in 2000 was on retail, wholesale was under the radar,” Joseph says. “It’s been a basic business matter of converting the mindset of store owners to realize that buying over the Internet is not only convenient and safe, but that it also gives them a chance to find the latest products at competitive prices.”

The growth of online wholesaling is expected to continue rising steadily, according to a study released earlier this year, “Facing the Forces of Change,” commissioned by the Distribution Research and Education Foundation of the National Association of Wholesalers. The percent of wholesalers’ revenues gained through web sites will rise from to 13% in 2008 from 3% in 2003, says the study, which was conducted by Philadelphia-based Pembroke Consulting.

Over the same period, the study notes, e-mail orders will grow to 5% of orders from 2%; online orders through third-party web sites will stay at 1%, and EDI orders will grow to 18% of all orders from 12%. Overall, online ordering will expand to 37% of orders from 18%, the study says.

Not just technology

Reaching that growth in retailer-wholesaler online commerce will require a continued evolution of the web as a channel for sourcing retail inventories among independent merchants. And as large mass-market and specialized big-box retailers deal more directly with manufacturers, cutting into traditional wholesaler-distributor markets, a new breed of online wholesalers is emerging to serve the small, independent merchants that often find themselves competing with the largest retailers. But making online wholesale activity more common can require coaching by wholesalers as well as a better understanding of the benefits of online buying by merchants themselves. Online wholesalers are also finding the web doesn’t negate the basic skills of merchandising and customer service.

The benefits to small, independent merchants are not difficult to comprehend. Through the ease of using web browsers rather than having to hit the trade show circuit or meeting with dozens of sales reps, retailers gain wider selection of suppliers as well as products in a more expedient manner. They can also realize more organized management of orders and shipments, while viewing web pages that show near-real-time updates of inventory availability. Joseph figures that, in the long run, the most sophisticated small retailers will also integrate data from online orders with back-end inventory management and accounting software applications, saving them time on updating their inventory management and accounting software as they purchase supplies. “Wholesaling products is the next logical step in the evolution of the Internet,” Joseph says.

But for now, retailers involved with online wholesaling say they’re more focused on the near-term benefits that the channel offers them over more traditional wholesaling. “Most wholesalers put out a catalog once a year, and that catalog has the merchandise that at the time of publication is usually in stock,” says Ortiz, the dollar store owner, adding that keeping her stores stocked with fresh products is key to her success. “But a couple of months later the percent of merchandise that is in the catalog and not in stock is very high. The only way to find new items is online, which is usually updated as often as daily.”

Tom Williams, a principal and manager of the family-owned Big Gib Store in rural Republic, Wash., says he routinely receives visits from a locally based wholesaler of general merchandise for his store’s section on goods typically found in dollar stores. But that wholesaler, who is also a friend of the family, rarely gets any of Big Gib’s business, Williams says. “His pricing is pretty much the same as online wholesalers’, but it takes him 3 to 4 weeks to deliver goods, but when we order online we get deliveries in 7 to 10 days or sooner.”

The 4 Quarters Dollar Store in Belle Fourche, S.D., has done all of its product ordering online since opening for business last summer, says owner Robin Olson. Although Olson will occasionally view product offers from traveling salesmen, so far their product catalogs have been too scant and their prices too high in comparison to online offerings. “They haven’t been able to give me prices as good as available online, and their catalogs are not that big and don’t offer a lot of variety,” she says.

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