Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
(Page 2 of 3)
The cost of operating the site, however, remains constant. One industry estimate holds that in the consumer electronics space, a site needs to sell in the range of $100 million to $300 million annually to be profitable, given the ongoing overhead requirements of fulfillment, marketing, customer support, and other functions. Pull in less, and such a site will have trouble operating at a profit.
And despite retailers` initial concerns about sales that could be lost to manufacturers` sites, the percentage of a brand`s sales rung up directly on the brand`s own site remains tiny, compared to sales driven through retail stores and retailer web sites. Lexar Media, for instance, estimates that of visitors who come to Lexar.com with the intention to shop, only 1.5% ultimately buy directly from Lexar.com. Luxury brand Waterford Wedgewood USA Inc. pegs direct sales on Waterford.com at perhaps 1.5% of total brand sales.
"I don`t think that any manufacturers who sell direct to consumers think for a minute that they`re going to take on the role of their major retail partners," says Dan Hess, senior vice president of industry analysis at comScore Networks Inc.
One way manufacturers are sidestepping channel conflict with retailers when going direct both online and off is to differentiate that offering from what`s available at retail stores and sites, with strategies built around having different merchandise. "You don`t want to communicate 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.
In the brick-and-mortar world, for example, high-end apparel brand manufacturer Tommy Hilfiger sells through department stores but has also become aggressive in going direct to consumers by putting its 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.
Pricing is another way retailers are separating their online direct offering from what`s on retailer partners` shelves. Nike, for example, has retailer store and web site distribution 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," Stanek says. "If you are buying closeouts or distressed merchandise, then the web has the opportunity to become virtually an online outlet store."
The notion that a retailer or retailer channel "owns" a customer because the customer has shopped that retailer`s channel frequently in the past is becoming outdated among forward-thinking marketers and the rise of the Internet is at the root of that shift. "Consumers have become expert cross-channel shopping machines," says Hess. "So the ideal scenario, and one in which all parties can win, is one in which the manufacturer gives the consumer the option of being referred to either an online or offline retail partner or of checking out right there on the spot."
That`s a strategy that would have been difficult to execute online as recently as two years ago. But since than, technology developers such as Channel Intelligence have stepped up with software that automates referrals to offline and online retailers from manufacturer sites, and even provides product inventory status. A product search on the web site of Channel Intelligence customer Lexar Media, for example, brings up a product page that offers shoppers the option of linking to Lexar`s online store, a link to online retailers that stock the product, and a link that provides current store-level inventory on the product at local stores within the ZIP Code designated by the shopper. That strategy and the new technology to support it are an improvement from earlier times in which brand manufacturer sites may have directed shoppers to a retailer`s corporate home page, if they referred visitors anywhere to buy at all.
Software that assigns a portion of direct-to-consumer sales on a manufacturer`s site to the buyer`s local dealer is another example of channel cooperation that aims to replace channel conflict. Snowmobile manufacturer Fast Inc. makes what enthusiasts have dubbed "the Ferrari of snowmobile suspensions," the Fast M-10. The product is available primarily through snowmobile dealers, as well as having some manufacturer-direct sales through mail and phone orders.
This month, Fast will launch direct sales of the M-10 on its web site, Teamfast.com.
Snowmobile dealers might see that as a competitive strike-- except that software on Teamfast.com from technology provider Reshare Corp. will automatically assign revenue equaling dealers` net on each suspension sale on the manufacturer`s site back to a dealer. Buyers on Teamfast.com are asked to fill in the name of a local snowmobile dealer. If it`s not one that carries Fast products, buyers then get a query list that asks them to choose from a set of other dealers--all of which stock Fast products. If no dealer is plugged in, the software will choose one according to ZIP Code and brand.
"The dealer always gets the amount of money they would get had they done the deal themselves," says David Karpik, Fast Inc.`s director of sales. Fast has shared revenue from direct mail order and phone sales with dealers via a cumbersome manual process; this will improve on that system and, Karpik hopes, increase dealers` enthusiasm for promoting Fast`s products over those of competitors. "We want to make it profitable for dealers to handle our products," he says. After an initial limited launch, Karpik expects to spread the Reshare-powered program across more of Fast`s products.
The store locators
When Waterford Wedgewood went direct online, some of its retail partners--typically, small, high-end specialty gift and jewelry stores rather than the large department stores that provide most of the brand`s offline distribution--felt threatened, says Jennifer Korch, director of Internet marketing. "They may think that if their business is not going well, its` because of Waterford.com, but if anything, that`s helping to grow their business," Korch contends. Korch adds the brand seeks to allay retailers` concerns about the brand going direct online with education about what Waterford.com can do for a retailer`s business. "Eight times more people use the store locator feature than buy online, for example," she says. "If they are a small, local retailer who is not doing a lot of marketing or a catalog, then a lot of their referrals come from us."