Channel conflict remains an issue.
Mark Brohan , Research Director
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. A few have accomplished that, but many more fall short, according to an analysis of data for Internet Retailer’s newly published 2012 Top 500 Guide.
Manufacturers such as Apple Inc., No. 3 in the 2012 Internet Retailer Top 500 Guide, which increased its web sales about 27.5% 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 manufacturers ranked in the Top 500 grew their combined web sales year over year about 12.0% to $20.40 billion from $18.21 billion. But web-only merchants grew much faster—about 31.8% 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 14.8% 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 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.”
But some manufacturers ranked in the 2012 Top 500 Guide that are 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. The list includes 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 132.5% 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 age 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. “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.”
For the first time the Top 500 is available in three forms: print, digital and as part of the all-new and completely updated Top500Guide.com. Information on how to order the fully updated 2012 Top 500 Guide is available here.