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Up Against It

21st Feb 2013

Ecommerce is a wonderful thing. Having encouraged the fading of markets’ geographic boundaries, it has also allowed a blurring of the lines between manufacturer and wholesaler and retailer. Great for the consumers but not so great for those online retailers who sometimes find themselves in an ‘all bets are off’ position when it comes to pricing.

Brands like Tommy Hilfiger, Nike and Polo Ralph Lauren are manufacturers and suppliers as well as retailers with their main turnover coming from manufacture and supply. Gap is a retailer that manufactures its own products but its main role lies in its existence as a retailer. So far so simple? Not so much in recent times as the online retail market has grown and the fortune of the High Street is looking more precarious.

Knocked by the recession, wholesalers and manufacturers don’t want to miss an opportunity and are selling online to expand their customer base and increase sales, pitching themselves against the retailers that they are supplying to, with everyone seemingly selling the same thing. It’s a common scenario and it’s on the increase.

Anyone can buy from wholesalers but, in the past, these parties haven’t particularly wanted any individual to. They’ve hidden behind a ‘trade only’ moniker which has allowed them to access manufacturers’ benefits however, in this climate, most are happy to sell to anyone and are now happily selling to the consumer online.

Whether they are setting up separate business entities to sell through or selling via ebay, these wholesalers can’t be seen to sell at less than their own RRP (recommended retail price)  and so hold ‘sales’ and vastly reduce stock to get around this problem. They may also choose to offer free shipping or reduce stock when purchasing over a certain amount. The only way for the online retailer to compete is to match any offers or to shave a little off the RRP, thus reducing profits.

There will always be a certain percentage of shoppers who want to buy from the original site and being in direct competition with manufacturers and wholesalers will most certainly lead to a decrease in sales. This problem intensifies if the manufacturer is also paying for pay per click. By directly competing with the retailer in this arena they are driving up the average cost per click causing more suffering for the retailer.

Recent complaints from online retailers about manufacturers and wholesalers selling online include those dealing with manufacturers undercutting retailers and complaints about manufacturers keeping some products exclusive to themselves or offering them at a wholesale cost that makes them impossible to sell competitively. The overall concern seems to be that manufacturers, on the whole, control too large a share of the retail market.

So, how to redress the balance? The trend for manufacturers and wholesalers to sell against the retailers isn’t going to go away and any complaints in the wider field will fall on deaf ears. On the more specific charge of undercutting, there is a fair and justifiable need to complain. The first step is for the retailer to do just that and voice a complaint. It’s widely recognised that undercutting isn’t acceptable and this should be enough to rectify the ‘mistake’. If this doesn’t do the trick then it is time to consider changing supplier. Besides leaving the retailer with no room to compete, the manufacturer and wholesaler selling against the retailer at a reduced price is also running the risk of damaging the brand which means that everyone eventually loses out.