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Online Vs Brick-and-Mortar

Increasingly, many retail jewelers and manufacturers are considering what to do with the growing problem where designers and manufacturers sell their products on-line to consumers and in direct competition with their retail jewelers. Retailers believe this is incompatible with a good relationship with the manufacturer and further believe it is unfair because the consumer can purchase the same products on-line at lower prices.

Manufacturers, on the other hand, have over the past five years or more are looking at static or declining sales through the normal retail channel and believe they need to do something to address this situation. The times, as the saying goes “are a changing.”

Retailers complain, rightly, that they have been instrumental in building manufacturers’ brands and in return, their support and loyalty has been rewarded by manufacturers undercutting them by selling direct to consumers. Retailers, so aggrieved, are taking action. Some have decided to drop manufacturers’ lines who compete with them. Some choose not to state the manufacturers’ names when consumers ask. Some have initiated policies where they won’t permit photographs to be taken of styles in the showcases or when the selection process is underway. Each of these actions is designed to frustrate the consumers’ ability to shop on line.

These actions are easily understandable when sales are not what they used to be. Retailers invest in a manufacturer’s line with an implicit understanding that there is some control of the manufacturers’ distribution policies. Some manufacturers police their distribution policy aggressively. Rolex is a classic example. However, Rolex is one of the only real brands in the jewelry marketplace where the consumer is concerned. Many jewelry manufacturers profess branding as a principle, but few have attained that status in the consumer’s eyes. Others promise exclusivity or limited distribution to the retailer. These promises are

almost never put into writing because of anti-trust concerns. But, the sense of the deal is you (the retailer) support the line with a decent assortment of product, supporting display space and promises to reorder as the stock turns.

The manufacturer, in turn, implicitly promises to make certain there is not an over saturation of jewelers in the same or contiguous market areas carrying the line. These implicit promises are usually made by the manufacturers’ sales representatives with the store owner.

These agreements in normal times generally have worked well for both retailers and manufacturers. However, the past five to ten years have not been normal times for either manufacturers and retailers.

As the economy stalled, manufacturers confronted with the retailers’ desire to hold back ordering, chose to try other distribution options. The immediate low hanging fruit was to look for additional distribution to generate sales. New products that were more price pointed to the retailers’ needs were added. Expansion into silver jewelry became more popular. With all the talk about consumers buying on line, manufacturers and designers finally put their feet in the water to try the Internet.

The Internet represents a new channel of distribution for manufacturers. The ability to reach millions of consumers so easily is very tempting. However, the unintended consequences of taking this step, lead to conflict with retailers who carry their product when they learn what you have done. It becomes a question of communication, transparency, and trust.

There aren’t many ways for manufacturers to navigate around this problem. One method is to create a different line from what is sold to retail jewelers. This avoids the problem of price comparisons for the same item, likely the most frustrating and irritating issue from a retail perspective. Most manufacturers have an extensive array of products not necessarily part of their retail lines that can be used to offer on-line. These products are probably among the old and discontinued numbers. They would need updating and revisions to bring them up to date. New products that were not accepted at retail could also be included in this new line.

Likely, in my view, retail jewelers will not like this method although it is infinitely better than doing nothing. Manufacturers also could communicate with the retailer the contact information of their consumer as a possible lead for additional business.

Depending on the manufacturer’s commitment to branding and the importance of branding to the firm, manufacturers could withdraw from Internet selling entirely. Long term, I’m not so sure this is at all practical. It will depend on the manufacturer’s market position and its view of the situation. As noted previously, there are precious few consumer brands in the jewelry market.

Jewelers have long experience with manufacturers adding new distribution channels. My own experience in china, crystal, and the silver businesses is a classic example. For the most part jewelers have successfully just abandoned these product categories to department stores and outlet malls. It is not so easy in the jewelry category. It could be an opportunity for manufacturers and designers to begin a limited distribution philosophy in order to gain entry into the US jewelry marketplace.

The present situation will not remain the same.

AT: 02/14/2018 12:08:01 PM   LINK TO THIS ENTRY

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