I've often remarked on how rapidly the retail landscape is evolving. It's almost unrecognizable compared to five years ago, let alone a decade or two. Back in 2015, I was working with sporting goods retailers like Sport Chalet in Southern California and MC Sports in Michigan, and The Sports Authority was the second-largest sporting goods retailer in the nation. All three are gone, it feels like a lifetime ago.
Over the past decade, several well-known retailers have gone out of business. Here are a few notable ones:
Pier 1 Imports: Declared bankruptcy in 2020 and closed all its stores.
The Sports Authority: Went out of business in 2016 while the name stuck around another year on Mile High Stadium in Denver as a cruel reminder.
Toys "R" Us: Filed for bankruptcy and closed its U.S. stores in 2018.
Lord & Taylor: The nation's oldest department store chain closed all its locations in 2020.
Fry's Electronics: Closed all its stores in 2021.
Party City: Filed for bankruptcy and is going out of business at the time of this writing.
The rise of marketplaces and e-commerce platforms has intensified competition and eliminated many barriers, allowing more businesses to compete for market share. The real question is whether this transformation and growth are genuinely beneficial.
What Changed?
Before the pandemic, the retail landscape was already undergoing significant changes. The rise of e-commerce and online marketplaces was steadily shifting consumer spending habits from brick-and-mortar stores to digital platforms. Retailers were investing heavily in their online presence, offering more convenient shopping experiences, and leveraging data analytics to better understand and meet customer needs. This shift was driven by the increasing comfort of consumers with online shopping, the convenience of home delivery, and the broader selection of products available online. As a result, more dollars were being spent online, and traditional retailers were feeling the pressure to adapt or risk becoming obsolete.
The onset of the pandemic in 2020 dramatically accelerated this trend. With lockdowns and social distancing measures in place, consumers turned to online shopping out of necessity. This sudden surge in e-commerce activity forced retailers to rapidly scale their digital operations and innovate to meet the heightened demand. Curbside pickup, contactless delivery, and enhanced online customer service became essential components of the retail strategy. The pandemic not only intensified the shift towards online spending but also highlighted the importance of a robust digital infrastructure for retailers. Those who could quickly adapt thrived, while others struggled to keep up with the pace of change. This period underscored the critical role of e-commerce in the future of retail, it also reinforced the need for a crucial process to protect brand health and profitability.
Drain on Profitability
E-commerce presents several risks to traditional product segmentation strategies. In a physical retail environment, product placement, store layout, and in-store promotions play a significant role in segmenting products and capitalizing on consumer behavior.
However, in the digital realm, these strategies, which aided in the consumer experience and path to purchase, become more challenging. Online shoppers can easily compare products across different brands and retailers, often prioritizing price and convenience over brand loyalty or perceived value. This shift can undermine carefully crafted segmentation strategies, as consumers are more likely to switch between brands and products based on immediate online offers and reviews rather than long-term brand positioning. The exception is for products possessing high awareness from brands with strong brand health.
Creating elevated values for products can be more challenging in an e-commerce setting. In physical stores, retailers can create a premium shopping experience through ambiance, customer service, elevated merchandising, and in-store events, which contribute to the perceived value of high-end products. Cabela's and Bass Pro Shop are great examples, which we covered in a blog post about Selective Distribution. Online, these experiential elements are harder to replicate. While digital marketing and virtual experiences can help, they often fall short of the tangible, immersive experiences that physical stores can provide. As a result, maintaining a product's elevated value online requires innovative approaches to digital engagement, storytelling, customer interaction, and maybe most importantly distribution control to differentiate premium products from their more affordable counterparts.
What are Sales Channels, and why are they Important?
Sales channels are the diverse routes through which a brand's products or services reach the end consumer, playing a vital role in the brand's overall strategy and success. Depending on the product line, these channels can range from straightforward Direct (to consumer) and Indirect (wholesale partners) to more nuanced options like Specialty, Big Box retail, and Mass or Value. Typically, these channels are designed to enhance the consumer experience at each retail location with the brand's products.
Each sales channel offers unique advantages and challenges, making it crucial for brands to carefully select and manage their channels to align with their business goals and customer expectations. For instance, direct-to-consumer channels allow brands to build stronger direct relationships with their customers and gather valuable data, while indirect channels can help expand reach and leverage the expertise of established retailers.
The right mix of sales channels can enhance brand visibility, improve customer satisfaction, and drive revenue growth. By understanding and optimizing their sales channels, brands can ensure they are meeting their customers' needs effectively and staying competitive in the market.
The risk is channel conflict, when these sales channels start to compete for the same consumer on the same product. Often the biggest challenge is the direct-to-consumer business is more profitable for the brand, and several brands have tried to drive demand through DTC outlets at higher margins. If the brand can deliver a superior consumer experience this shift will happen organically, however too many brands have tried to force the consumer transition, rarely successful and usually at the expense of market share, product values, and brand health.
Maintaining Integrity: The Importance of Listing Compliance
Channel conflict revolves around e-commerce listing compliance to a brand's sales policies. Brands should strive for consumers to engage with their products at their preferred retail outlets (digital or physical), with the goal that price variations across different outlets do not influence the consumers purchasing decisions. This is where many brands have turned to MAP (Minimum Advertised Price) policies in an effort to create a uniform value for certain products. I wrote about this process in October of 2024, "Why a MAP Policy is Necessary and the Risks it may Create."
Essentially, every product listing online is either compliant to the brand sales policies or it isn't, which would make it disruptive. If it is disruptive, the question needs to be asked and answered to why is it disruptive? Certainly, the most disruptive listings are counterfeit products, but if we assume the products are genuine, a disruptive listing is either a MAP violation, or a distribution policy violation.
MAP policies are easy to enforce, as a seller must qualify as an authorized brand customer and sell products on an approved website or marketplace, which is usually outlined in the brand's terms and conditions of sale.
Distribution violations can be a little trickier. In this case, the seller is not approved to sell on the website or marketplace. This action is more damaging to the brand, and often more severe penalties exist in a brand's terms and conditions for violations. Another advantage is that Terms and Conditions is a contract, while MAP is a unilateral policy.
Enforcing a contract versus a unilateral price policy has distinct advantages. A contract is a legally binding agreement between two or more parties, meaning all parties have specific obligations and penalties for non-compliance explicitly agreed to the terms, making it easier to enforce in a court of law. While a unilateral price policy, like a Minimum Advertised Price (MAP) policy, is set by the brand without requiring agreement from the sellers. This allows the brand to adjust the policy as needed without renegotiating terms, offering greater flexibility and control. Sellers may challenge the policy, and enforcement will rely on the brand's ability to monitor and take action against non-compliant sellers.
From Policy to Practice: Enforcing Distribution Policies to Safeguard Your Brand
A brand's terms and conditions are the foundation of their sales strategy, and each wholesale partner has agreed to support these terms in exchange for access to the product line. By adhering to these conditions, wholesale partners help maintain the brand's integrity, ensure consistent pricing, and uphold the quality and reputation of the products. This mutual agreement not only fosters a strong partnership but also protects the brand's value and market position. Enforcing these terms is essential for preventing unauthorized sales, minimizing channel conflict, and ensuring that all partners operate on a level playing field. Ultimately, a well-enforced set of terms and conditions benefits both the brand and its partners, leading to sustained growth and success.
We specialize in the analysis, data mining, and source of product identification of online listings. This information clearly and consistently informs our clients which sales policies to enforce at the source of product. We are passionate about protecting brand health and seeing strong brands thrive in today's marketplace.
Conclusion - The Importance of solving Channel Conflict
In conclusion, brands that effectively address channel conflict, rigorously and effectively enforce their sales policies, put the business in the best position to thrive. Prioritizing the consumer's shopping preferences above all else can create an environment to flourish in the modern retail landscape. By ensuring compliance and maintaining strong partnerships, these brands can protect their value and reputation. Moreover, by focusing on the consumer experience and maximizing the brand position in each shopping options, they can build lasting loyalty and drive sustained growth across all channels. Success in today's competitive market hinges on a brand's ability to balance these critical elements, ultimately leading to a stronger, more resilient business.
Counter Diversion is a boutique SaaS company - we don't have marketing, and we don't use high-pressure sales tactics. Our goal is to have solid, honest conversations about the issues at hand and then either recommend our service or another one that is a better fit for your needs. If you'd like to engage in that type of discussion, schedule a consultation here.
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