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A conflicted group
Top 500 manufacturers need to address channel conflict and speed up online productivity.
With their big brands, deep pockets and extensive product base, consumer brand manufacturers as a group have the potential to emerge as some of the biggest merchants online and, in some cases, even outright category killers. Manufacturers such as Apple Inc. (No. 3), which increased its web sales about 27% to an Internet Retailer-estimated $6.66 billion in 2011 from $5.22 billion in 2010, and Dell Inc. (No. 5), which posted web sales of about $4.60 billion last year and has been selling online since 1996, already own significant market share within their core merchandising category of consumer electronics.
But those manufacturers sell most of their goods directly, in Dell's case, or directly and through their own retail stores, in the case of Apple. They don't have to worry about competing with the retail chains that represent the biggest customers of most consumer goods manufacturers.
The channel conflict conundrum helps explain why consumer brand manufacturers aren't growing nearly as fast online as web-only merchants, chain retailers and catalog call centers ranked in the 2012 Top 500 Guide. Collectively, the 63 manufacturers ranked in the Top 500 grew their combined web sales year over year about 12% to $20.40 billion from $18.21 billion. But web-only merchants grew much faster—about 32% from a combined $73.39 billion in 2011 from $55.68 billion in 2010. Chain retailers and catalog call center companies also grew e-commerce faster last year; in the case of store-based retailers year over year by about 15% to $64.63 billion from $56.36 billion, while Top 500 catalog call center companies increased their combined web sales about 12.3% to $22.32 billion in 2011 from $19.87 billion in 2010.
Selling online direct to the public at the risk of alienating a retailer or distributor network isn't a new problem for many consumer brand manufacturers. But it is an issue that is preventing many manufacturers from doing a better job of creating a more robust e-commerce channel, says Tip Rose, executive director of retail for Resource Interactive LLC, a digital marketing agency and e-commerce consulting firm. "Most manufacturers still don't see themselves as retailers because they are the maker of their product and the ultimate authority of their brand," Rose says. "They also have a long-standing and considerable investment in their retailer network and they don't want e-commerce to hinder that relationship or have retailers see it as a threat."
Some of the manufacturers growing the fastest online avoid channel conflict because they have their own store networks. That includes Luxottica Group S.p.A. (No. 145), which grew year over year about 157.7% to Internet Retailer-estimated web sales of about $120.0 million from $46.6 million. Luxottica operates about 7,000 optical and sunglass retail stores worldwide under brands such as LensCrafters, Pearle Vision and Sunglass Hut.
Other manufacturers making gains on the web say channel conflict is not a particularly divisive issue because they work to make retailers and vendors key parts of their e-commerce and digital marketing strategies. They include Under Armour Inc. (No. 143), which increased e-commerce sales 59% to an Internet Retailer-estimated $122.4 million in 2011 from $77 million in 2010, and Lafayette 148 New York (No. 375), which grew year over year about 132.2% to $27.9 million from $12.0 million. Lafayette 148 New York is a New York niche apparel manufacturer that develops its own brands for affluent and fashion-conscious women aged 35-55 and also sells online at Lafayette148NY.com and through upscale department stores such as Nordstrom Inc. (No. 31), Saks Inc. (No. 38), The Neiman Marcus Group Inc. (No. 41) and others.
Since launching its own e-commerce site in 2005, Lafayette 148 has undertaken a number of initiatives to develop its fast-growing web channel, including launching highly targeted and personalized e-mail campaigns. But Lafayette 148 doesn't see itself as being in competition online with its retailers, says senior vice president of marketing Debra Clark.
On Lafayette148NY.com, the manufacturer features the logos of its retailers very prominently on its customer service pages. By using the personal shopper button on a product page and talking directly with a personal shopping assistant, the assistant will show the customer where to find the right merchandise, style and fit on its own site or direct her to the nearest department store, e-commerce site or bricks-and-mortar location that has the merchandise she is looking for. In addition Lafayette 148 also features retailers that sell its apparel prominently in its spring and fall interactive trunk shows, and points consumers to stores where Edward Wilkerson, the manufacturer's lead designer, will be making a personal appearance. "We have a great opportunity to sell our own brand online because that's a channel our customers told us they wanted us to develop," Clark says. "But we also work closely with our retailers to promote both their brands and ours."
At Under Armour, two of its biggest retail chain partners—Dick's Sporting Goods Inc. (No. 101) and The Sports Authority Inc. (No. 230)—combined accounted for 26%, or $382.7 million, of Under Armour's total 2011 revenue of $1.47 billion. But even though Under Armour is growing aggressively online through a series of new social media initiatives, the manufacturer also is using its newly redesigned web site to promote its retail partners, says vice president of global e-commerce John Rogers.
In November, Under Armour launched a completely redesigned e-commerce site that features bigger images, more new products such as shoes, athletic bags and hats, an updated live chat application from Needle and RightNow Technologies, and a new site search engine from Oracle. Under Armour, whose target customers online are up-and-coming male and female athletes in middle school, high school and college, worked with Huge Inc., a New York web site design and consumer market research firm, to rebuild its e-commerce site. Upgrades included more advanced features and functions such as a customer review tool that lets visitors rate products on a sliding scale for size, fit, comfort and performance, and share the results with family and friends on Facebook and elsewhere.