As brands seek higher revenues and improved profitability, ecommerce is becoming an increasingly important revenue stream. As it should be; brands will be able to ensure more consistent customer experience, develop a better relationship with customers, and let’s not forget: brands will retain a higher margin from each product sold.
As ideal as this sounds, brands can’t leave brick and mortar stores entirely. Aside from the fact that brands still need a way to launch products and display seasonal product lines, customers still want to experience first hand the latest and greatest. They need the reassurance of seeing a product in person, especially when trying to find the right fit.
Competing revenue streams
Brands are continuously launching new products each season. As they better understand which of these new products are gaining traction with customers, brands innately want to capture as much of the profitability as possible, especially as volume increases. This approach conflicts directly with retailers, dealer networks and distributors, who also want to maximize profits from these same high volume products.
In this respect brands have an advantage. They are not limited to physical locations to interact with customers. Retailers, dealer networks and distributors are very much dependent on a physical presence as a point of sale. They could create e-commerce sites to compete with brands but the challenge in getting customers to see them as both a physical destination and digital destination will likely overwhelm its resources.
In contrast, brand e-commerce websites are natural places for customers to go looking for a specific item. For example, customers don’t have to spend much mental energy on figuring out where to go online to buy size 8 black Nike Softball Cleats – at the very least, they know they will be able to find them at nike.com.
Eventually, some brands will move entirely online. Naturally, retailers, distributors and dealer networks see this as a direct threat to their livelihood.
Brands can avoid the headaches of high overhead costs, limited selection and staff education required by a retail location. Such cost savings allow brands to offer better pricing to customers while retaining the same margin. Therefore, it’s not surprising that many brands are racing to invest in their ecommerce platforms. Eventually, some brands will move entirely online. Naturally, retailers, distributors and dealer networks see this as a direct threat to their livelihood.
Retailers are keenly aware of this trend and it concerns them deeply, so they have made attempts to combat this change. They threaten and even refuse to carry certain product lines unless brands agree to enforce consistent pricing and/or provide friendly financing terms. If these distribution channels represent a meaningful portion of revenues, then brands really have few options. To complicate matters further, stores have the added advantage of understanding customers better than the brands do. Customer feedback is easier to get in a retail environment, and stores have better mechanisms for assessing customer needs, preferences and aspirations.
Finding a fit online will never be as natural as just trying something on, but it will get easier to communicate as the web evolves. Perhaps, the new athlete-endorsed basketball shoes are a bit too narrow and cause an athlete to roll their ankle. Perhaps, the sleeves on the new down-hill ski jacket are a little too tight in the shoulder and restrict movement. Perhaps, the orange shoelaces are the wrong shade of orange to match their college team colors. These are some of the hurdles that knowledgeable staff can answer and help customers to navigate. This type of customer understanding and trust is invaluable and will be difficult for brands to acquire overnight.
Digital solutions to showrooming
Despite these challenges, brands must be innovative to build an ecommerce base that isn’t antagonistic to its existing retail partner relationships. Digital tools offer a host of possible solutions.
The first solution is obvious. Sell what the physical stores can’t and don’t.
1. Sell what the physical stores can’t and don’t
The first solution is obvious. Sell what the physical stores can’t and don’t. Stores are constrained by space and must sell products that produce the highest revenues per square foot. Cash flow is also a concern. So, items with lower inventory turn are a lower priority. This often means that specific brand product parts and accessories don’t end up in physical stores, allowing for brand ecommerce stores to capitalize on this gap in the market. Other products that stores don’t normally carry include: bundled packages based on position or athlete type, special or anniversary editions, and non-standard items such as hard to find sizes. All of these items can be sold online with ease and little disruption to retail channels.
Through e-commerce fulfilling customized requests like these is possible, and does not upset retailers while providing a unique experience for customers.
2. Offer product personalization
A second solution is similar to a strategy employed by Nike with their NikeID initiative. Physical locations tend to sell only the most popular colors and configurations depending on the sport, yet customers want unique items that are tailored to them. Online product configurators offer customers a way to personalize their own equipment. A great example is a coach who would like to special order their unique combination of team colors. By allowing customers to design their own version of a product online, brands are providing a service that retailers cannot. For instance, obtaining equipment in the customer’s team colors and engraved with their jersey number or name is a common request we’ve found through our consumer research in working with brands. Through ecommerce fulfilling customized requests like these is possible and does not upset retailers while providing a unique experience for customers.
According to a 2013 Google study, 40% of customers who used a store locator to find a retailer went into the store to make a purchase.
3. Offer a “Buy Local Now” button on the site
A third solution is offering a “Buy Local Now” button on the site. While this may seem to contradict a brand’s desire to capture more margin, it reflects a segment of the market that can’t wait 2-14 days for a product to arrive. Parents may need to buy cleats for their child’s first soccer practice that starts in two hours. Brands build loyalty by helping customers meet their needs regardless of if that need is online or in stores. According to a 2013 Google study, 40% of sporting goods customers who used a store locator to find a retailer went into the store to make a purchase (source: Carabetta and Marchant, 2013). Armed with that information, what retailer wouldn’t want more product information and accessibility available to customers.
4. Partnering with brick and mortar
Yet another solution offers a way for brands and their retail partners to work together and share in the rewards. Digital catalogs allow stores to leverage their physical space and brands to increase point of sale displays. These catalogs can include entire brand inventories. If customers can’t find what they are looking for in the store, the retail kiosk offers a way to complete a purchase and have an informed staff member guide them through the process. For stores, they don’t miss the opportunity to sell to a customer that is ready to buy and could receive a commission on the sale. They also don’t have the headaches of managing inventory, processing payment, managing cash flow and fulfilling orders.
Brands with an ecommerce infrastructure can take care of those pain points for the stores. And the brands should, because the brands capture a sale they wouldn’t have gotten, obtain meaningful feedback that is normally retained at the retail store level, and develop another means to engage the customer. These retail kiosks represent a way for brands to share information with the customer and obtain information to refine its own e-commerce sales.
Ecommerce is an important revenue stream for brands. Its importance will only continue to grow as customers feel more and more comfortable conducting purchases through the internet. Balancing the needs of retail partners and the desire for growth will be challenging, especially as customer buying habits evolve. Digital tools offer innovative solutions that can manage both. It’s more important than ever to have a digital strategy that combines the interests of physical stores and your ecommerce website.