The Supply Side: E-commerce a good path to physical store success

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.

Keith Anderson believes the best thing a potential retail supplier should do to before seeking physical shelf space is to market and sell their products online with a company website or through Amazon.com.

Anderson, an executive with Boston-based Profitero, recently led a panel discussion at the Selling to the Masses event in Bentonville. He said any potential supplier to brick and mortar retail giants like Wal-Mart and Target are likely best served by first marketing direct to consumers to establish brand recognition and a sales track record before knocking on the door of top brick and mortar retailers.

GROWTH OPPORTUNITY
He said e-commerce still comprises only a fraction of the overall $3.2 trillion of retail sales in a year’s time, but it’s where consumers are going. Retail sales overall are projected to increase around 4% this year from 2014, according to the National Retail Federation.

The industry predicts online retail sales will top $357.3 billion in 2015, rising 13.9% from a year ago. Online sales rose 15.9% between 2013 and 2014. As much as 50% of all in-store retail purchases are influenced in some way by online commerce, according to Deloitte.

E-commerce matters to brick and mortar retailers because it also represents their greatest potential for growth, Anderson said. In the panel discussion the experts agreed the best place for new suppliers to start was Amazon.com and their own website.

“Amazon is the tail that wags the dog,” said Robert Engel, consultant and founder of Angel Sales.

About 39% of online shoppers go straight to Amazon.com, which is a powerful market, said Tyler Roney an independent broker/marketer for e-commerce.

“One of my clients is a food company and we helped them to build out about two dozen SKUs (store keeping units) on Amazon in just the last few months. In September they did $50,000 in sales just on Amazon, that does not include other retailer sites. Amazon is their launching pad,” Roney said.

He said the speed a new supplier can get to market on Amazon is likely unmatched in the industry and Roney likes that Amazon allows suppliers to be self-marketers which gives the supplier more control over their pricing and their messaging.

“It’s a great way to get a product out there and also to test products with consumers because Amazon shoppers are very transparent on Amazon about the products they buy,” Roney added.

Anderson said it’s different playbook when selling online and it does require an understanding of the platform. That said, the speed to market may allow new suppliers to gain national distribution in just a matter of weeks with far less costs than a traditional brick and mortar retailer. 

Kenji Gjovig, founder of High Tide Consulting, said Amazon is a fast mover, but suppliers also should work with larger brick and mortar companies like Walmart.com and Target.com who are expanding their online offerings and supply chains to try and catch up with Amazon. He said Wal-Mart’s focus on using its physical stores as pick-up and fulfillment centers puts them in a unique position, and Wal-Mart’s online grocery focus is on-trend with where consumers are going.

“If Wal-Mart can be successful, it’s going to be an interesting possibility in the space,” Gjovig said.

CLICKS TO BRICKS
Engel said it’s easy to get on the virtual shelf at Amazon, but he said suppliers need to know if they make a big splash there, they will still need to prove they have a reliable supply chain in place if they plan to call on brick mortar buyer teams.

He said having control over pricing can change at brick and mortar because it’s far more expensive to do business there as brokers might need to be added, other inventory storing and shipping and retail packing costs as well as marketing and in-store merchandising expenses will reduce margins for suppliers who have not planned accordingly.

Anderson said with subscription-based purchasing now accelerating, suppliers large and small need to look for ways to market on Amazon or Wal-Mart.com or even Costco.com items that are ripe for easy replenishment like pet food and diapers.

Mike Moore, a retired executive with Nestle/Purina, spent the last few years of his professional career helping the large supplier develop its online strategy. He said one thing quickly learned is that it’s not a one-size-fits-all strategy.

“While consumers like to buy dog food in bulk, the cost of shipping this large item online was not conducive. We sold very few of these large bags online at major retailer sites. We did find that wet pet food sold very well on Amazon, perhaps a weekly supply at a time on auto ship,” Moore said at the Selling to Masses event.

Anderson said automatic shipping allows retailers to lock in better logistics rates because they use ground transportation. He said Amazon was the first to jump on this with its subscription-based purchases, but other retailers like SamsClub.com, Target.com and Walmart.com have all followed.

WHY AMAZON FIRST?
The experts each agree that Amazon is the place for new suppliers to launch their products, aside from their own website. Moore said Amazon has the scale and that’s why it’s the best place to start. Roney said Amazon is the leader, but he would also seek out Ebay as second option because it’s not nearly as big but remains relevant.

Gjovig said new suppliers have to start with Amazon.com, but should soon use lessons learned with other online retailers.

While Anderson agreed that Amazon is the best launch pad, he said suppliers should not forget about opportunities in China. He said Alibaba and other Chinese online retailers use programs that make it almost turnkey for retailers to introduce new U.S. brands into China through e-commerce.

Anderson said the supplier looking to China should have some reasonable knowledge about Chinese consumers and demand for certain products that are not being met through tradition brand offerings. The secret he said is finding those niche opportunities.