In search for new sales, manufacturers seek channel conflict workarounds

Manufacturers of consumer goods depend on retail to distribute their products, but given current pressures in the retail environment, “there is a real interest among manufacturers in developing alternatives for growth,” says Dan Stanek, executive vice president at consultants Retail Forward Inc. “There are a number of directions in which manufacturers are going to get new sales, including going direct, and online is one of those direct channels.”

Stanek notes that retailers` increasing interest in promoting higher-margin private label brands and competition for store shelf space are presenting challenges to manufacturers, as are imported goods that are forcing down prices in many categories. “That means manufacturers have to sell more units to get the same sales volume in dollars,” he says.

Manufacturers responding to increased pressures by going direct online, as well as offline, in factory or mall stores, for instance, are working around channel conflicts with retail partners through a variety of strategies built around different pricing and different merchandise. “You don’t want to be in the position of communicating that you are competing with your retail customers, so you might offer entirely different merchandise—merchandise that is not current or not first run,” Stanek says.

Pricing is another way retailers are separating their online direct offering from what’s on retailer partners’ shelves. Nike, for example, has retailer distribution and distribution through other web sites as well as direct distribution through its own stores and a collection of sport-specific e-commerce sites it operates. “If you`re buying first-time, new items, I think you will pay more on the Nike sites than you would at virtually all other retailers. If you are buying closeouts or distressed merchandise, then the web has the opportunity to become virtually an online outlet store,” stays Stanek.

Manufacturers going direct online are now generally observing such protocols to minimize channel conflict with retailer partners, but what happens if pressure in the retail environment escalates? “That depends on your channel strategy and how much of your business is at stake,” says Stanek. “They will be very careful about making Wal-Mart angry, but would they be as careful with May company? Maybe not as much. If you don`t have as much business at stake, you might go with a less cautious approach.”

In the brick-and-mortar world, for example, he notes, high-end manufacturers such as apparel maker Tommy Hilfiger that sell to department stores have already become aggressive in going direct to consumers by putting their own stores in malls. Online, Tommy.com distinguishes itself by providing only a limited assortment which doesn’t include apparel—except for custom chinos, available only online.