The real ramifications of online
The latest sales numbers for online retail confirm that its rate of growth – from a low base – is high at 18.7 per cent, but at $21.3 billion in total, it still accounts for less than 8 per cent of the entire retail market, as it does in every major economy in the world.
However, the critical number is actually where the dominant growth for online is coming from, and that is in the area of ‘marketplaces’ such as Ebay, which grew at 74.8 per cent last year according to Australia Post.
These ‘marketplace’ online catalogue resellers rely on one key input. Branded goods from multiple third-party vendors all vying to catch the consumer’s wallet with increasing levels of discounts on desired goods.
That feeder mechanism of technologically turbo-charged ‘grey’ importing which crosses global distribution lines is about to undergo a radical re-assessment though.
While many consultants have been arguing for nearly a decade about the ‘new rules of distribution’ and product manufacturers needing to adjust to the new paradigm before their brands become worthless, it has only been the last twelve months where that call has started to bite hard.
The big example is Nike, which recently announced a major shift in its global retail distribution strategy reducing support for 30,000 global retailers and distributors to just 40.
That is not a typo – Nike will support just 40 partners and by doing so expects sales and profits to climb not shrink.
Furthermore, it is taking the unprecedented step of suing distribution partners who have failed to live up to the agreements that were previously in place in regard to supplying third-party online resellers.
Nike has totally restructured its internal team and its distribution plan to create a network of company-owned physical stores, some major strategic mass merchant physical retail partners and is entering into a global agreement with Amazon to act as its online retail support partner for Nike.com and for clearance that it can better control worldwide.
Along with revamped third-party legal agreements, this should mean that Nike wrests back control of the discounting of its own products and recreates greater consumer desire as a mass-affluent brand.
This move will have two impacts. The first of these will be that all smart global brands will eventually follow suit, either because they get it or because increasing levels of economic pain force them to act. That shift will eventually put them in a much better position.
The second impact will be on the resellers, and this will be the really dramatic one because if all you do is sell someone else’s brands, you are at risk. You are at risk legally if you break your distribution conditions and sell through third parties, but you are at greater risk of having supply withdrawn entirely.
We are about to see a massive cull of multi-brand retailers who have survived purely on discounting and added no value to the consumer experience beyond cheap price. There are only two options left to these retailers and they are not mutually exclusive.
In the new world of retail distribution, ALL retailers must be investing in exclusive product and superior customer experience.
Not me-too product that is blatantly stealing intellectual property from somewhere else and trying to sell it cheaper, but differentiated products and services customers really desire and will value through their wallets.
All the ‘emperors’ are increasingly being exposed as naked, and for that we can thank the revolution brought about through online retail.
Peter James Ryan is chief executive navigator at Red Communication Australia, and has 25 years of marketing and business experience.
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