With few exceptions, the retailer has all of the lev- erage in the marketer-retailer relationship. This inequality allows retailers to dictate requirements to marketers in order to gain access to a store.
For many years, retailers have exerted pressure on marketers to support their retail accounts with direct-to-consumer
TV campaigns. Those ads not only served the marketer, but
also served as free advertising for the retailer. Customers
would see the product on television — and then complete
the purchase of the product in the retail store. Many marketers have been forced to run DR campaigns that break even
financially, or even lose money, simply to support their retail
programs and maintain shelf space in retail stores.
Recently, the paradigm has shifted again. In addition to
requiring DR marketers to air TV ads, retailers are now insisting marketers sell their products on the retailer’s website
using e-commerce drop shipping. Drop shipping is a fulfillment method that allows a retailer to buy products individually from a wholesaler or marketer and ship them directly
to their customers. Some retailers even require marketers to
offer their products on the retailer’s e-commerce site at the
same time they are selling inside physical stores — and other
retailers require it as a prerequisite to gaining access to the
store. While there are many benefits for the retailer, offering
products via e-commerce drop shipping creates many new
challenges for the marketer.
Requiring marketers to sell on their
websites helps retailers meet the demands of their customers who require
a seamless omnichannel experience.
According to Whisbi, a global provider of omnichannel SaaS solutions,
although 94 percent of total retail sales
are still generated at brick-and-mortar
stores, e-commerce sales are increasing
17 percent annually and will reach an
estimated $414 billion by 2018.
Forcing the marketer to sell via
e-commerce drop shipping allows the
retailer to offer an increased number
of SKUs. The retailer no longer has
to provide shelf space to house this
additional inventory or maintain a
stock room to hold reserve inventory.
In fact, the retailer doesn’t have to re-
tain any inventory for these additional
items. That burden is now shifted to the marketer.
The result: retailers reducing risk by investing far less in
inventory, and purchasing only what is ultimately purchased
by customers via their websites. The capital investment is exponentially less. Where, previously, the marketer would have
invoiced for the goods shipped into the retail stores immediately after they shipped, they now cannot invoice for those
goods until they are purchased from a retailer’s website.
An additional benefit enjoyed by retailers is the shift of
the burden of fulfillment to the marketer. Retailers no longer
have to pass this inventory through their distribution centers
or house inventory and fulfill the orders placed on their website. Rather, arketers must now expand their relationships
with third-party logistics providers, improve and implement
new EDI capabilities to service e-commerce orders, and carry
more on-hand inventory to service an unknown demand.
Market Realist reports the fulfillment cost for Amazon has
continued to grow at a rapid rate. The year-over-year growth
rate of this cost has increased from 19 percent in first-quarter
2015 to 34 percent in 1Q 2016. According to recent data
from;EKN Research, working in partnership with Aptos Inc.
(formerly known as Epicor Retail), fulfillment costs alone
garner 18 cents on each dollar of sales to “satisfy today’s cus-
tomer expectations of ‘buy anywhere, pick up anywhere.’”
The result? Retailers can grow their e-commerce sites by
adding additional marketers and additional SKUs with very
little financial or operational investment. Each marketer
they add will be responsible for maintaining the inventory
offered on the site and delivering it to the retailer’s customer
once ordered. Whether that includes a single marketer with
a single product or thousands of marketers with millions of
products, the retailer’s investment changes very little.
Finally, e-commerce allows a retailer to bring in sales
24/7. Forcing marketers to offer their inventory on their
e-commerce sites allows retailers to increase these around the
clock sales. Marketers have to be prepared to service these
orders, regardless of the volume and including large spikes
that are expected during Black Friday, Cyber Monday, and
the weeks leading up to Christmas. They must also be able to
process and ship orders within the window prescribed by the
retailer — often same day — and deliver the product to the
customer via an expedited shipping method.
Marketers who want to push their products into brick-and-mortar stores no longer can run lean, offer limited SKUs,
and expect the retailer to handle the advertising, fulfillment,
and logistics. ;
Want Shelf Space? Retailers’
E-Commerce Sites Are the Gateway
By Tony Altman
COMMI T TEE