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Committee Corner: Want Shelf Space? Retailers’ E-Commerce Sites Are the Gateway

1 Apr, 2017 By: Tony Altman, Motivational Fulfillment & Logistics Services Response

With few exceptions, the retailer has all of the leverage 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 retain 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 customer 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. ■

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