Even the Playing Field Between Virtual and Physical Retailers

Andy Black//December 4, 2018//

Even the Playing Field Between Virtual and Physical Retailers

Andy Black //December 4, 2018//

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As a consumer, I buy from Amazon because there are many times when I just can’t find what I’m looking for in local retail stores. As I’m sure you will admit, the Internet offers just about anything you could want, so long as you’re willing to wait a day or two to get it.

According to APPA, in the first two quarters of 2018, Americans purchased almost $800 million in pet supplies from Amazon, representing a 30 percent growth over the same period in 2017. Since most of my business is with distributors and detailing brick-and-mortar retail, I have mixed feelings about the seemingly unstoppable growth of Amazon and online sales in general.

Try this experiment. Go to Amazon’s site and type in any pet product brand you desire. I’ll bet over 95 percent of the time you will see something from that manufacturer represented on Amazon. I typed in suppliers that I know don’t sell anything on Amazon or any other online sales platform, and still found their products available online and, in most cases, at a discounted price.

Many suppliers have tried implementing MAP (Minimum Advertised Price) policies to level the playing field. Unfortunately, Amazon generally ignores these policies and there are so many online sellers that if Amazon sells at a price, everyone else must as well. I’ve talked to suppliers who sell online, and they tell me the first thing they do each morning is check online pricing trends to adjust their pricing to match Amazon.

In the beginning, Amazon was all smiles and eager to bring in everything a manufacturer produced. No demands were made; it just wanted to be able to stock everything. Slowly, like most big businesses, Amazon’s requests became demands. It required better margins and developed supply chain efficiency disciplines, which levied fines. Percentages were required for advertising and more pressure to comply with its marketing programs. Fast forward to today, and manufacturers are now facing the specter of Amazon private label knockoffs.

Many manufacturers suspect that if nothing changes, they could ultimately lose their brick-and-mortar retailers and most, if not all, of their sales would be held captive by Amazon, EBay and other major online retailers.

There seems to be a glimmer of hope on the horizon for the margin crunch physical stores have been facing. Where MAP has turned out to be less than what retailers had hoped for, I’m seeing Sales Channel Management entering the online sales area. This new management tool may help manufacturers to better control their brand online and even the playing field between physical and virtual retailers. According to this Federal Trade Commission statement, “Reasonable price, territory and customer restrictions on dealers are legal. Manufacturer-imposed requirements can benefit consumers by increasing competition among different brands, even while reducing competition among dealers in the same brand.”

As an example of the Sales Channel Management policy: a manufacturer may restrict the Amazon.com sales channel to only one authorized seller, not allowing any other entities to represent or sell their products to that sales channel. This type of agreement would theoretically stabilize the manufacturer’s pricing to allow their physical retailers to better compete with online sellers and control rampant discounting of their products online.

This type of program would still allow any business to sell online outside of this sales channel, so long as they adhered to the manufacturer’s MAP policy—if they have one. Unlike MAP, which is almost impossible to manage (if a product is very popular with consumers), Sales Channel Management can be enforced through Amazon.com, filled by Amazon (FB), wholesale distribution and third-party automated systems.

When all is said and done, if there are no brick and mortar outlets left, other than those that are extensions of the huge online sellers, product selection and pricing will become an issue in the future. Diversity is a strength and being able to see, touch and discuss the feature of a product with a real person has great value and should not be underestimated.