Brands Exclusive supplies branded fashion products online only: Their strategic focus is very targeted on the brands of the products, and the prices offered, which are normally well over 50 per cent off retail prices. Let me give some recent examples – Ben Sherman shirts $48 (RRP $100), $68 ($140); Diesel Jeans $135 and $125 ($270); M J Bale Shirt $39 ($169); Nautica Shirts $30 ($120). The list could go on with similar examples in both ladies and mens fashion wear covering some very well known brands (Van Heusen, Flair, Corfu, Mossimo, Jeff Banks, Hardy Amies, Marcs) as well as some ‘up and comers’. This raises an enormous challenge for traditional ‘bricks and mortar’ retailers whereby the normal wholesale price they have paid for the goods is now becoming the new ‘retail’ price. In effect, they are being ‘cut off at the knees’ (as one retailer has told me) from the supply chain. His response would possibly typify that of most retailers and that is to not buy those branded products for their retail store. And herein lies the danger for brand managers/suppliers. The short-term cash flow injection from selling online at significantly discounted prices may be countermanded by less future trade with retailers and also by a reduction in both the profile and price of your products with the consumer. In effect, you are establishing a new ‘retail’ price point, and a channel of distribution which excludes your main brand promoters (retailers).
Obviously there are many considerations involved here for all parties but I would think long term sustainability and brand value are two strategic imperatives that need to be at the top of the list. This challenge is also being felt by retailers from another source.
Pacific Brands supplies to both retailers and direct to the consumer: This is a public company with a large number of iconic Australian labels, which historically has had a poor track record of misguided strategy, lazy governance and poor management. One wonders whether it’s current approach in the workwear area (with such iconic labels as Yakka, King Gee, Can’t Tear ‘Em) for example is showing the same traits. Pacific Brands is a supplier to both the retailer and the consumer which has led to some inevitable tensions. This is called B2B (Business to Business) and B2C (Business to Consumer) in their annual report but in practical terms it has meant they are competing with the retailers to supply to the larger consumers (being the larger clients for workwear such as mining companies, larger organisations etc). These contracts are being priced at (and below) the wholesale prices retailers pay, so the retailer has little ability to compete against one of their key suppliers.
The practical consequence is that retailers are moving their own customers on to other labels such as Bisley, DNC etc. Historically a supplier such as Pacific Brands would see retailers as being their primary channel of distribution, and would assist them to win larger corporate clients with better wholesale prices. However Pacific Brands have made the strategic decision to directly compete with their retailers to win the larger corporate customers (even if they do not express it in such ‘bald’ terms).
The response of retailers will be obvious – they will move to other suppliers.
As with the above example of online traders this raises some significant strategic questions regarding long term sustainability of the model, and brand value/price of the products for both the retailers and Pacific Brands. I would suggest that perhaps the recent failed takeover negotiations by private equity parties for Pacific Brands see this as a weakness in their business model.
Many retailers have expressed their concerns to me in perhaps more ‘colourful’ language but the message was the same – we will gradually move over to other suppliers for the products we supply our customers.
What is the correct response to the above two examples for businesses involved in the ragtrade? While the trend is toward multichannel distribution you need to be sure your business model does not jeopardise your long term sustainability and profitability.
Brett Stevenson is Director of Excellere, a company that specialises in strategic and financial development. www.excellere.com.au
