Where brands will go when store size shrinks

March 20, 2012

Brands keep jumping through hoops to earn retail shelf space. How quickly will they migrate to online marketplaces?

Smaller stores may help retailers penetrate more markets and bring quicker in-and-out convenience to shoppers. Yet assortments suffer, and brands squeezed as well by private labels will look online for their own direct dialogue with shoppers and attractive settings to show off their lines.

Marketplaces such as Amazon.com, eBay.com and Buy.com are alternative sales channels with growing presence that brick-and-mortar stores should monitor – lest stores get too heavy-handed with brands and push them more quickly in this direction. It’s tempting for brands, since smartphone-toting shoppers have shown a surprising willingness to compare an e-world of competing merchandise offers while standing in stores next to items they are considering buying. With competitor’s purchases a click away, retailers can no longer take their leverage over suppliers for granted, says The Lempert Report.

Profitability is also key to this balance of power shift. Manufacturers that compare what online marketplaces cost with what they pay to supply retail stores may well decide this is valuable and lucrative distribution. At Buy.com, for example, sellers of health and beauty care and groceries pay a 99 cents per item fee plus 14.5% in commission and payment processes/fraud prevention fees.

It’s possible that more online marketplaces will emerge and drive down some of these fees, making this channel even more appealing. If that happens while comparison-shopping becomes even more expedient by mobile technology, omni-channel shoppers will be kings and brands will rely less on distribution through physical stores.