By Kurt Peters
Levi Strauss and Co. got a lot of publicity-most of it negative—when it tried
to sell slacks directly to consumers over the web in the late 1990s. Back in
those days, retailers and manufacturers were still trying to figure out how
the web worked. Levi decided it would be the sole source on the web for its
jeans and Dockers. It created Levis.com and Dockers.com for that purpose, just
as most retailers were building their own web presences.
Big mistake. Major retailers who sold Levi products through their stores let
their ire be known to Levi and anyone else who would listen and Levi quickly
backed away from its plans. Other manufacturers who harbored similar notions
gave thanks that they weren’t the ones who blazed that trail.
Four years later, retailers have become resigned to the fact that some manufacturers
are going to sell direct to consumers on the web-for example, computer makers
and, despite the Levi experience, some clothing manufacturers-while manufacturers
have gotten a lot smarter about selling on the web. They’re realizing there’s
a reason they use retail distribution channels to begin with-and they’re realizing
that the web is a retail distribution channel best left to the retailers. “Manufacturers
that tried to sell online found direct selling to be a lot harder than it looked,”
says Ken Cassar, retail analyst with Jupiter Research Inc. “They’re now happy
to let retailers handle retailing.”
But if manufacturers are happy to leave retailing to retailers, that doesn’t
mean that they have turned the web over to retailers. In fact, far from it.
When it comes to selling on the web, manufacturers have decided they want to
be in control of how and where their brands appear online. And so, many have
come to a truce with retailers over selling, but in a way that they still exercise
control over their brands. “Manufacturers now are focusing on product education
and product content and that’s good for retailers,” Cassar says.
Support the dealers
Indeed, that is exactly the approach that major appliance manufacturers are
taking. Through an arrangement with Chicago-based JGSullivan Interactive Inc.,
major appliance manufacturers provide product images and data for local retailers
to display on their web sites hosted by JGSullivan. To date, 6,000 independent
appliance retailers have signed up for such informational sites, at no cost
to the retailer.
The success of that program—and of a similar one in the consumer electronics
markets—is indicative of the lessons that manufacturers have learned as the
Internet has matured. “The bottom line is that we want to provide a positive
online shopping experience for the consumer and we want to deliver that consumer
to an e-enabled trading partner,” says Ray Brahams, manager of Whirlpool Corp.’s
eWhirlpool Group, b2b. “We’re very committed to our distributors. They’ve gotten
us to where we are today and we want to be supportive of them.”
Especially in the appliance market, such an arrangement makes sense, analysts
say. Even though big, national retailers such as Sears, Roebuck and Co., Best
Buy Co. Inc., Circuit City Stores Inc. and The Home Depot Inc. have thriving
businesses in appliances, appliance selling is still a local market. More than
15,000 retailers nationwide sell appliances, and many are small, local chains
of three, four or five stores. And with appliances the proverbial last mile-delivery
and installation of the product-is often the most arduous.
The future is here
But the independent retailers are usually so intent on selling appliances
in the store that they have paid little attention to the web, even as consumers
have demonstrated willingness to buy big-ticket items sight unseen, analysts
say. “They’re busy focusing on the day-to-day business,” says Bob Donaldson,
e-commerce manager of Associated Volume Buyers, a buying cooperative for independent
appliance retailers that uses the marketing name Brand Source. “They’re too
busy getting deliveries out the door in the morning to focus on the future,
but the future is here.”
Indeed it is. “What surprises our members is the number of people willing
to go online and spend $2,000 on an appliance without ever seeing it,” Donaldson
says.
Furthermore, the web is providing exactly the convenience that shoppers seek
from the web. A surprising 18% of business conducted at Whirlpool.com, which
allows shoppers to choose products then refers them to local retailers to buy,
occurs during times that appliance stores are not usually open: 7 pm. to 8 a.m.
daily and on Sundays, Brahams says. “It gets back to the convenience factor,”
he says.
New co-op marketing
Tapping into that willingness to buy is where JGSullivan comes in. Working
with appliance manufacturers, JGSullivan has created web templates that independent
retailers use to create their web presence. JGSullivan maintains a database
that contains product features and images that manufacturers provide. Dealer
sites receive product information updates automatically every week. Manufacturers
pay for the retailers’ informational sites in a variation on the cooperative
marketing model.
To be eligible to participate in the program sponsored and paid for by manufacturers,
dealers must sell $100,000 worth of product a year. JGSullivan estimates that
as many as 10,000 dealers qualify, of which 6,000 have sites. For $595 a year,
retailers get an e-commerce site. The sites allow the retailers to choose which
products to display and promote and to set their prices. The e-commerce system
does not, however, include automated payment processing. The sale is initiated
by an e-mail from the customer to the retailer, who must re-key the credit card
information into its regular processing service and contact the customer to
arrange delivery. JGSullivan operates 850 such sites.
Retailers who participate in the manufacturers’ programs must meet minimum
standards of responsiveness. For instance, with Whirlpool, retailers must respond
within 24 hours of receiving an order to arrange delivery. There have been very
few instances so far, Brahams says, of retailers not responding within the specified
time.
Avoiding chaos
After some cautious initiatives to sell appliances on their own sites, which
were met with indignant calls from retailers, manufacturers have embraced the
leave-retailing-to-retailers model and are happy to take part in JGSullivan’s
plan to create a common platform from which local retailers build their own
sites. “This helps the manufacturers avoid chaos when they have all the dealers
building their own sites,” says Eric Agren, vice president of the dealer e-channel
initiative at JGSullivan. “It would be impossible to manage if they had all
these dealers calling them asking for co-op funds for their different sites.”
Not to mention the hundreds of platforms that retailers would be using, meaning
the manufacturers’ data would have to be in a multitude of formats.
In addition to the retailer sites, JGSullivan has created and hosts a site
for buying co-ops Brand Source, Retail Network Services Group LLC’s BrandsDirect,
Best Brands Plus and others.
It
also creates and maintains sites for the manufacturers, such as Whirlpool’s.
A shopper can decide which product she wants at one of the manufacturers’ or
co-op’s sites. When she is ready to buy, she inputs her ZIP Code and the site
refers her to a retailer near her home. “Our partners tells us that if they
weren’t at our site, such sales would be lost,” Brahams says. “But now it’s
an incremental sale.”
As the small numbers of sites that are e-commerce-enabled would indicate,
independents still have a lot to learn about using the web, Donaldson says.
For one thing, independents often fail to understand that if a customer buys
from BrandSource.com at a lower price than the customer would have paid in the
store, the sale is a saved sale; many look at it as a sale at a lower price
than they would have gotten otherwise. “Retailers complain that the customer
was just in the store looking at the same product for $20 more,” Donaldson says.
But Donaldson points out that a customer who is price shopping on the web will
buy from the retailer that gives her the best price. “The customer is going
to buy online,” Donaldson says. “The fact that they still bought from that member
is a saved sale.”
Independents also have yet to understand follow-up, he says. “The biggest
failure so far is that retailers aren’t getting web customers to come back to
them,” he says. “Whenever they make a delivery, they should leave behind material
telling customers the next time they’re shopping for an appliance, come back
to them, either in the store or on the web.”
Selling the dealers
Dealers must be sold on the benefits of e-commerce and then, once on board,
have to be coached on using the channel effectively. “Training the dealer base
is critical,” Agren says. “It’s one of the most difficult and time-consuming
parts of our job.”
There are, of course, small appliance retailers who are enthusiastic about
their web experiences and who have learned to leverage their web presence for
their benefit. For instance, Pardini Appliances, a two-store retailer based
in Ukiah, Calif., attributes a 35% increase in sales over the last three years
to its web site. “The California economy is flat and there have been mill closures
in our market, so we attribute a lot of the increase to people finding us on
the web,” says owner Mark Pardini.
The increase comes not because people buy on the web—few sales are initiated
and consummated on the web, Pardini says—but because customers come into the
stores better informed and able to make faster decisions, meaning the sales
associates can serve more customers in the same amount of time. “60% of our
customers have gathered some information on the web,” Pardini says. “It’s a
huge benefit to our salespeople because they’re not starting out from scratch
with those customers. The turns are faster because the customer is informed.”
Pardini benefits in another way by being able to direct callers to the web
site for routine information. So a customer who has questions about dimensions,
color, etc. can look up the information on the web site and get clear color
pictures of the products. Similarly, Pardini directs contractors who call seeking
specs of products for which they are building kitchens or cabinets to the web
site. “It’s made our job tremendously easier,” he says.
Agren says other industries can employ the model that JGSullivan has successfully
created. In fact, the company is already selling services to other markets,
especially those like appliances, where the last mile is important. It has created
web sites for office furniture manufacturers Hon Industries Inc., which has
900 dealers participating, and Flexsteel Industries Inc., which has 400. It
also supports Armstrong World Industries Inc.’s flooring site.
Whatever approach manufacturers take from here on, though, analysts caution
that they need to be sure the retailer is in the loop. “Manufacturers and retailers
both were unsure in the early days whether the Internet would allow manufacturers
to bypass retailers,” Jupiter’s Cassar says. “But it has become quite clear
over the years that consumers are disposed to buying from retailers. Retailers
aren’t likely to be afraid that manufacturers are going to steal their business
any more.”
kurt@verticalwebmedia.com
How some consumer electronics manufacturers
are getting to customers
Dozens of manufacturers, including Panasonic, Sharp Electronics Corp. and
Hewlett-Packard Co., are making it easy for consumers to shop on their web sites
and then instantly purchase their selected products from an online retailer’s
web page. Through a service provided by Channel Intelligence Inc., shoppers
on one of these manufacturers’ web sites are only two clicks away from the buy
page of a retailer’s web site. And because the retailer’s inventory status is
updated at least every six hours on the manufacturer’s page, shoppers can be
fairly certain that the product they want is in stock. As a result, retailers
and manufacturers using this system have seen their sales conversion rates increase
from four to 10 times, says Rob Wight, co-founder and CEO of Channel Intelligence.
“We’ve heard from some manufacturers that these increased rates of conversions
have resulted in up to 30% increases in sales of particular products,” Wight
says. Channel Intelligence, which launched its service with Panasonic in December
2001, is working with 50 manufacturers and about 150 retailers. Many of the
retailers connect with multiple manufacturers.
Channel Intelligence uses web services technology to integrate manufacturer
and retailer web sites, an approach that enables it to get a manufacturer connected
with about 20 retailers within a few days, Wight says. Web services use data
integration standards that enable disparate applications to link without extensive
writing of programming code.
Depending on the amount of products and retailers involved in a manufacturer’s
web-selling strategy, Channel Intelligence charges manufacturers as much as
$25,000 per month to host the integrated transactions with retailers, though
small manufacturers with limited products and fewer retailers may pay as little
as $1,000 per month. It charges nothing to connect the retailers. Other than
a JavaScript connection Channel Intelligence builds into the manufacturers’
web sites, its clients are not required to build anything onto their own infrastructure.
