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Retailer | Supplier | Industry newsHelderberg Cycle World, one of the first retailers to become a Specialized concept store, recently relaunched their enlarged store that now provides an enhanced customer experience. They added 80m2 to the front of the store and updated the layout to open up the space, says Kristy Yeld, retail manager for Specialized Bicycles Africa. Other upgrades to the store include a seated coffee area for customers, a kid’s area and updated Body Geometry equipment to give the rider that premium experience. Photo: Johan Badenhorst.
January 2017

Should brands open stores?

Should retailers import brands?

Are the roles between retailers and suppliers in our industry blurring, as in the rest of the world — or should each stick to his own corner? We asked the question at the end of last year ... and were taken aback by the strength of feelings on both sides of the divide, reports TRUDI DU TOIT

In an ideal world retailers get all their stock from importers or local manufacturers, which they then sell to consumers. Their suppliers only interact with customers via the retailer.

We all know that the above is a fantasy world that long ago evaporated. Nowadays international brands pressurise their local distributors to open brand stores, and consumers interact directly with brands and local manufacturers via their websites, Facebook pages and twitter accounts.

On the other hand, some chain stores import a more impressive international brand offering than many distributorships.

Globally, the retail world has changed and there is very little that we in South Africa can do about it. But, it doesn’t mean that we have to LIKE it.

At the end of last year Sports Trader asked retailers, suppliers and sales agents in the industry whether they have come to accept and adapted to the changing relationships — in most cases the response was a resounding NO (see the table below).

Q1: Retailers importing brands

Interestingly, more retailers (63%) than suppliers (58%) responded that only distributors may import brands. But, when taking into account that most of the retail respondents are from independent stores, this is not surprising: they are just as much affected by chains bringing in international brands that are not available to them as local distributors.

Sales agents feel the strongest : 89% say that retailers should not import their own brands, which would deprive them of sales.

It is, however, not always a cut-and-dried scenario. “Specialised, slow-moving equipment is to a certain degree being shelved by many sole importers and the off-shore manufacturers are now approaching retailers who are able to import directly in order to keep South African market share,” says Duncan Pattenden of specialist outdoor store Orca Industries. “Because some wholesalers have started retailing, some retailers have started importing and selling directly. To a certain degree this is also to combat in-house brands and online shops.”

Sometimes, international brands have a different understanding of our market than what we do. “We are distributors and only sell to retailers,” was the bemused response of then Columbia international CEO Gert Boyle when she was asked by Sports Trader years ago why they launched the brand into South Africa through the new DueSouth retail chain.

“It’s a free market in which we operate and a retailer is simply looking for a way to improve his margins by cutting out the middle man,” commented one of the more forgiving anonymous suppliers. “It certainly negatively affects distributors, but distributors can counter this by improving their value offering through exclusive distribution agreements of known brands, service delivery and pricing. I see it as just another distributor entering the market.

“A retailer will have to rent additional storage space and staff for the administration of importing directly so what is it other than another distributor?” he/she adds.

The subject of retailers developing in-house brands, however, elicited a much more emphatic response from suppliers: 84% say nyet, because they consider house-brands as direct competition to their own brands vying for shelf-space.

It is acceptable “as long as they are totally original and are not sold as a copy and rated/ punted as from the same factory as an international brand,” commented another supplier who wishes to stay anonymous.

“Competition tends to improve performance as you try to stay ahead. An in-house brand can be a positive addition for a retailer and have a negative impact on existing brands IF executed properly — or it can have a negative effect on a retailer and create positive awareness for why consumers should buy existing brands,” continues the forgiving supplier. “Think of what cheap Chinese copies did to many brands — it improved their value offering once consumers realised that looks do not equal performance.”

Q2: Distributors/brands opening their own stores

Call them factory stores, concept stores, or experience stores, any store operated by a supplier makes retailers hot under the collar. Only retailers should operate stores say 84% of retail respondents, 78% of agents and 32% of suppliers.

“Is a concept store not just an expensive marketing strategy?” asks a supplier, whom, like most others, wishes to remain anonymous. “I believe global trends will ultimately come to the fore in our local market, so brands with concept stores are a reality of the future, but I don’t believe there is a one approach fits all solution across the board.

“Most brands can no longer afford to go to expos (trade shows) to exhibit, due to the costs involved, so they are forced into trying to secure some revenue in return.”

Suppliers selling direct to consumer “can live alongside retailers as it expands the offering to consumers offering and allows reach into areas the retailer cannot or will not reach,” adds another supplier.

“BUT, they need to sell at retail prices,” says one of the suppliers who believe brand stores are acceptable.

Retailers are much less forgiving. Tales of retailers calling distributors who start selling directly to come and fetch their stock because they don’t sell competitors’ products, have become industry lore.

Retailers are especially sensitive when suppliers open stores in direct competition to them — as in the same shopping mall or then reduce their product offering to the retailer.

“It is unethical for any distributor to sell to the end user,” says an independent retailer. “They have affected many small companies financially, who in fact are in many cases the people who originally were the reason why they were able to start doing business in the first place.”

He/she believes that this effectively amounts to clients being stolen from retailers “as all data had been captured over many years of doing business ethically.”

Q3: When may suppliers sell directly to consumers?

Never, say say 68% of the retail respondents.

But, what is a distributor to do if retailers dont’t want to stock his products, or only order a few lower-priced items, which does not do justice to the depth of the brand? Would it not be acceptable to sell directly to consumers under these circumstances?

No, is the unforgiving response from 79-95% of retailers and 78-56% of sales agents (see table right). Not surprisingly, 63-79% of distributors are in favour of selling directly under special circumstances.

Only 26% retailers believe it is acceptable for brands to sell direct to consumers if retailers don’t want to stock their products, or not stock enough (21%).

How now? Surely, distributors must have a choice to expand their brand as per their own requirements as “sometimes we don’t get the right exposure in the retail market for our brand as a whole,” responded a supplier of an international brand.

“Its simply a modern case of a wholesalers success can not rely on the performance of retail alone,” says another distributor. “When most retailers cannot/will not stock certain items from your range, it limits you as a wholesaler to see the true potential of your product realised.

“Yet, through many social media outlets we can see there is a great demand for products that are available ex-warehouse, but are not stocked by retail stores. Because they see them online, people talk about these product and go and enquire in stores about them, which creates a demand.”

There are many examples where retailers cherry-pick products from a brand, yet there are customers who want to buy other products from the range, agrees another distributor. “How does the distributor give the end-user access to these products?” he asks.

If retailers are not supporting a distributor at the level he requires, he needs to make a business decision on whether to cut out the retailer and sell directly to consumers, says another distributor.

“However, I don’t think it is a good business strategy to supply retailers and sell directly to consumers — unless the products don’t compete with each other (e.g. low end products in retailers and high end products direct from the distributor) or the consumer is in an area where no retailers stock your product, so you help a consumer out at a recommended retail price.”

Big brands have the backing of their principals, but it is even worse for someone trying to establish a new brand. “Retailers wont stock unbranded product until they become a brand,” reported an entreprneur.

Some retailers (32%) do, however, understand that there may be certain circumstances when a supplier must sell direct. “Retailers cannot expect wholesalers to remain wholesalers if they compete with said wholesaler, and vice versa,” reasons Jax Snyman of The Sweat Shop.

“How else are the importers going to move slow moving stock which retailers do not want?” adds another retailer. The problem comes in when importers lose sight of what is current and slow moving, year-end write off’s or dead stock. One cannot price-fix, but distributors who sell below the recommended retail prices are shooting themselves in the foot (online shops for example).”

If retailers don’t want to carry old stock then importers or distributors may be forced to sell direct — at retail prices, hopefully, he adds.

“Technically speaking, in the free market, one cannot stop a distributor from retailing directly to the end-user,” says another independent retailer. He has no problem with that, as long as the suppliers does not undercut his retail partners and he advertises prices that are above the recomended retail price.

“A distributor selling direct to the end-user at retail pricing is an issue of greed and a means to take maximum profit from a product to the detriment of his retail partner.” But, ideally the distributor should direct sales to a retail partner.

“When former trade only suppliers start selling to consumers — some secretly, others openly — it makes it difficult for a retailer to be competitive,” says a retailer.

Q4: What about sponsorships, selling to coaches and at expos?

Brands sponsoring clubs or schools or selling to coaches is a big no-no for retailers as well, with 84% objecting to suppliers selling to coaches and 63% have a problem with brands sponsoring clubs and schools. They are slightly less opposed to suppliers selling at expo’s and events — with only 58% objecting.

“Distributors can enter into sponsorship agreements with schools through a local retailer, then it’s a win-win for all,” says a sales agent.

“Rather let the retailer give a discount to clubs, schools or coaches,” agrees Mark Kruger of Slingervel. “Now, you stock a certain brand that the distributor sells to clubs at the same price — or even less than what they supply it to the retailer.”

Sponsorship should mean exactly that, adds Snyman: “the free supply of goods and services, not a subsidised price.”

Q5. Importance of sales agents

Retailers will be more inclined to buy stock from a sales agent paying a personal visit, say 68% of the retail respondents — but, interestingly only 33% of the agents and reps who responded believe this.

This is especially true for retailers in country areas, responds Johan Roestorff of Atlas Sport in Stilbaai.

“Its about building a relationship with your customers,”comments an agent who regularly visits his retail clients. Since one of the big brands he represented replaced him with an in-house rep, the brand has very little presence in independent stores.

“People do business with people,” agrees a supplier. “Visit a retailer and you’ll realise what a good relationship with staff is worth. No app or electronic order system can replace good relationships with staff. A retailer might use a slick, electronic order system to buy from you, but they still need to WANT to buy from you.”

Some products need to be seen physically, and not only on a screen, explains a retailer.

“The commission-driven agent beats the internal sales person most times from a service perspective,” is the experience of Snyman.

“Agents definitely have a role to play with doing business with independents who thrive on face-time,” agrees a supplier. “Sadly, there are very few good independent agents still in the market due to the risks involved with doing business on a commission basis.”

Although only a third of the agents believe visiting retailers is important, 78% believe they are essential to the industry, compared to 53% retailers and 42% suppliers. Nearly 60% of suppliers responded that they find it difficult to find good agents to represent their brands.

I think the lack of good agents/salesmen has become apparent and the distributors that do have them should look after them, says a supplier.

In the end it comes down to compromise, says a supplier: “It’s a free market so you can do what you want, but this is true for the other party as well. As a distributor you need to realise that your store potentially competes with an existing retail customer, who might then decide not to buy from you anymore. You need to decide where your focus lies — retailing or distributing. And if it is both. then you need to carefully consider the pro’s and cons.”

Responses show level of division in idustry

On retailers importing brands Retailers Suppliers Agents
Only distributors may import brands 63 58 89
Retailers' own brands hurt distributors 32 84 33
Retail house brands compete direct with distributors 58 84 44
On distributors/brands opening stores Retailers Suppliers Agents
Only retailers should have stores 84 32 78
Every brand store competes with retailers 68 53 78
When may distributors sell to consumers? Retailers Suppliers Agents
Distributors may NEVER sell direct to anybody 68 11 44
Distributors may NOT sell to consumers 84 37 78
Distributors may NOT sell direct to coaches 84 37 67
Distributors may NOT sponsor schools/clubs 63 16 33
Distributors may NOT sell direct at expos/events 58 26 44
Distributors may sell direct if retailers don't stock their products/brand 26 79 44
Distributors may sell direct if retailers not stock enough 21 74 22
Distributors may sell direct if SKUs ordered not show brand range 16 63 22
Distributors may sell direct if retailers cannot afford top end products 5 74 33
Role of sales agents Retailers Suppliers Agents
Agents are essential to the trade 53 42 78
Retailers are more inclined to buy from an agent 68 11 33
It is difficult to find good agents to represent brands 0 58 44

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