Friday, March 05, 2010

Direct to Consumer

This Business Week article describes how a number of prominent consumer goods manufacturers have decided to expand their direct selling to consumers. The article cites firms such as P&G, Levi's, Mattel, and Columbia. Why would firms do this? First, many of these popular brands find themselves squeezed at the retail level by the rapid expansion of private label products. Moreover, many large retailers have chosen to rationalize branded product lines in an effort to increase inventory turns and streamline operations. Finally, direct selling offers consumer products companies an opportunity to connect directly with their consumers... to provide customized products in some cases, to gather feedback from users, learn about new trends, and to engage customers emotionally and socially with the brand.

I find it interesting to see this development take place given that we have faced many years of increasing retailer power at the expense of many branded consumer products firms. Over the past two decades, retailer power has risen as consolidation has taken place in the retail channel, and as private label products have proliferated and increased in quality. Now, we see the prominent brands fighting back a bit. For years, many brands could not offset this rising retailer power with the threat of vertical integration, because operating a large number of brick and mortar retail stores was simply too expensive. However, going online direct to consumer offers a much more inexpensive way to vertically integrate without many of the risks, such as the high fixed cost investments and inflexibility associated with owning and operating company stores.

1 comment:

Sean T. Kenny said...

The overall distribution strategy is the most interesting part of this story. While all companies have one, whether it is known by the consumers, distributors, vendors or employees is the largest question.

From an investment perspective, the systems/solutions are out there...they just need to be aligned with the corporate plan/direction.