The experts speak: Direct e-tailing a slippery slope

Rich Collins, CEO, Big Tent Entertainment
June 1, 2005

Rich Collins, CEO, Big Tent Entertainment

‘I don’t have an issue with the idea of manufacturers going directly to consumers. The internet continues to force us to rethink many long-standing business practices, and this is just one of them. The real question, I believe, comes down to how strong the manufacturer’s brand is, and whether the direct offer is compelling enough to cause consumers to sacrifice the one-stop convenience and sharp pricing that a traditional retailer can offer. If the manufacturer has a strong brand and can, for example, offer a wider selection, unique products or, possibly, an interesting promotional offer, then perhaps consumers will modify their shopping patterns.’

Alejandra Denda, VP, The Mercer Group

‘With shelf space at a premium and a shrinking list of retailers to sell to, Hasbro’s recent decision is both strategic and essential. Companies like Hasbro have to create as many new distribution options as possible to survive long-term. Being in control of their distribution channels is no different than controlling the TV distribution of your content, like 4Kids Entertainment does with its programming block. Not only can Hasbro get to the final consumer with a cohesive marketing strategy and retail execution, but it can also protect the pricing strategy, maintain its profit margins and offer the consumer better value. New scenarios require new answers; direct-to-retail is one of them.’

Nancy Fowler, President of worldwide consumer products, DIC Entertainment

‘Direct-to-consumer initiatives are inevitable considering the extremely competitive and narrow landscape at retail. Not only is there limited shelf space for the hundreds of great licenses available, but retailers are also seeking and securing licenses directly from licensors and cutting out manufacturers – so it doesn’t seem unreasonable for manufacturers to be looking for alternative sales channels. The tricky part seems to be finding a balance between enjoying these direct-to-consumer opportunities and not alienating retailers, and it appears that they’re not initially threatened by these initiatives as long as the manufacturer does not compete with them on pricing or exclusive product offerings. For example, I did a quick comparison of an item for sale on against three mass retailers. Two of them had it priced identically, while the other retailer was selling it for five dollars less than what was available at Hasbro’s site.’

Morten Geschwendtner, Director, Kidz Entertainment

‘I think this is a very risky move for a manufacturer; it’s dangerous to get into someone else’s territory. We have had some experience in the Nordic region with manufacturers that have tried this sort of direct selling, and they found it hard to get listings from some of the key retailers. I can’t see that there would anything different in this case.’

Debra Joester, President, The Joester Loria Group

‘On-line stores have become valuable tools, allowing manufacturers, brand owners and licensors to offer products to consumers and get a quick read on consumer reaction and satisfaction. There are some important guidelines that ensure retailers will not find such sites offensive, including honoring retail prices and not offering products until they are generally available at retail. On-line stores are often an extension of websites that are primarily designed to provide information, reinforce affinity and involve the consumer in the brand. Licensors also utilize sites to collect consumer feedback on fit, design and other important factors. On-line retailing by manufacturers, licensors and retailers will only continue to grow, and bricks-and-mortar retailers with great websites will be the biggest winners.’

Al Kahn, CEO, 4Kids Entertainment

‘As long as the products being offered directly by manufacturers through these on-line stores are different than what is carried in the retail marketplace – such as the exclusives Mattel is presenting with American Girl – it probably makes sense. But if the manufacturers’ proprietary on-line stores are set up in a way that their selection competes with retailers, it’s problematic. Why should a retailer give shelf space to the product if the manufacturer is selling it? It could cannibalize their business.’

Liz Kalodner, Executive VP and GM of global consumer products

and international television distribution, Sesame Workshop

‘I’m not sure that Hasbro’s entry into on-line shopping will dramatically change consumer or retailer behavior. Consumers are still likely to frequent retail stores and their on-line sites first; they offer good pricing, a good shipping/handling structure and variety of product. Manufacturer sites, though, can present a depth of product that a consumer may not be able to find easily elsewhere, and they could even serve as an efficient testing ground for products that a retailer may be reticent to buy.’

Mark Northwood, VP of North American licensing, Nelvana

‘Hasbro’s website can be seen as a positive from the viewpoint of manufacturers, consumers and traditional retailers. There are many SKUs in the lines of most large manufacturers that don’t sell large volumes, but that enhance the sales of larger volume/margin items. An example is the children’s oven and drink-maker businesses. Most retailers will list the major item, and use these promoted items both as volume drivers and to build retail traffic. However, I think that very few retailers like to list the accessory cake/muffin and drink packs that are needed for continuous play. If the manufacturer took care of selling these types of accessory items on its own website, the retailer wouldn’t have to use valuable space where they can sell the key drivers, and the consumer would get a valuable resource for the purchase of accessories needed to keep children happy between holiday seasons.

From a licensing perspective, manufacturer websites offer a place where licensors can launch properties, provide information about them and link to their own websites. This gets children more involved in the play patterns behind the properties, and helps increase overall sales, not just sales on the web.’

Vickie O’Malley, Managing director, Copyright Promotions Licensing Group

‘Hasbro UK has actually been retailing on-line for several years now through The benefits for the company are clear; on-line sales provide an outlet for the full range, control over display and a full retail margin. Shelf space is limited, and buyers are increasingly forced to stick to a very tight range of proven lines. When there’s no outlet for anything at mass market but your core line and classic product, it’s frustrating for manufacturers and consumers alike. Our retail environment is becoming depressingly homogenous and ultimately, of course, buyers also become trapped with nothing left to compete on but price. The ‘we’re providing a service to consumers who would struggle to find these products elsewhere’ line has become increasingly credible.

But manufacturers making this move will do so carefully. Clearly, it would be foolhardy to undercut bricks-and-mortar selling prices. Most manufacturers that have tried direct on-line retail have made sure to stay under the radar – these websites are not marketed, and only the very lucky or determined shopper finds them. It’s stealth retail! Only when significant volumes are sold this way will retailer irritation turn into anger. Of course, investment in an on-line retail site might indicate that sales from the ‘stealth retail’ site were pretty healthy. If that’s the case, maybe traditional retail will be tempted back to differentiation through product offering as opposed to pricing strategy.’

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