ETHICS BEHIND BRANDS SELLING DIRECT
Can a brand be both the manufacturer and the retailer? If a brand owns the retail stores, then the answer is unquestionably yes. For all other manufacturers who do not own brand retail stores, the answer is also yes, but not successfully. A brand can choose to develop relationships directly with consumers, but when doing so they risk wrecking the manufacturer-retailer relationship ultimately alienating themselves from current retail partners. This behavior may inhibit long-term brand success. Many of these manufacturers rely heavily on retailers as a source of revenue and to increase brand awareness (especially in smaller, local communities). Very few brands would reach a sustainable status without a healthy retail network. The retailers ‘feed’ the manufacturers by investing in their products and increasing brand awareness to the public. The public has the need to feel, taste, touch, smell, hear, and try goods.
While manufacturers play tug-of-war with retailers over consumer dollars, many consumers are blind to the impacts of brands selling direct. Consumers look at the situation with short-term rationale, ‘why buy a product from the store, when I can get the same product from the brands website for much less?’ Consumers should not be blamed for their decision. To them, it appears as an immediate financial benefit to purchase online directly as opposed to a brick and mortar store. What they do not realize is the long-term effects of their continued purchases directly from brands. Over time, as brands gain more and more of the consumer market, stores are eliminated and monopolies may be formed. Once the market has monopolized, prices will increase and product variety will decrease. Despite short-term gain, purchasing directly from the brand is not in the consumers’ best interest.
So then we ask, is it ethical for a brand to play both roles in the supply chain? A survey¹ by Rodrigo Cano (general manager, Eurotard Dancewear and Julie France Body Shapers) to retailers across the nation proves that the answer is no; it is absolutely unethical. When asked the question, Do you think there are ethical implications regarding manufacturers selling directly to the public?, one retailer replied ‘I feel that it is going behind my back to get to the consumers. I have made the local investment and sacrifice to front [the brands’] products and we should be in a symbiotic relationship.’ Another retailer went on to say ‘Manufacturers selling directly to the public jeopardize retailers in several ways: primarily by breaking integrity between consumers and retailers regarding price, delivery, quality and availability. They also jeopardize their own relationship with retailers that carry their brands by directly competing with them, thereby making competitors out of their own partners.’ Over 95% of participants in this survey agreed that it is unethical for brands to sell direct with another 95% saying that it is important to them that the brands they carry in their store do not sell to consumers.
With so many retailers dismayed by manufacturers selling direct, why do brands continue to bypass retailers in the supply chain? Similar to the consumers’ short-term rationale, the manufacturer sees the opportunity to increase profit. Whether brands are aware of the long-term effects of selling direct is questionable. Even so, only a few brands would possess the potential to survive without a strong retail system. Of these brands, many risk being absorbed by larger manufacturers or would potentially be forced out of business.
The manufacturer has nurtured business relationships with its retail partners for many years, and should uphold that relationship in a mutually beneficial way. Prior to the Internet era, the manufacturer has depended on the retailer to sell and promote their products. The Internet has made it possible for brands to branch off from their retailers and sell directly to consumers. This behavior creates chaos through out the supply chain and markets in general resulting in potential brand elimination, retail elimination, extinction of sales representatives, increased price, decreased product variety, and increased unemployment. Additionally, the media, trade organizations, advertising agencies, and other industries indirectly supported by the retail system may also experience loss in revenue or be forced to collapse.
What do you think?
Rodrigo Cano, BBA, MBA
Retailers Protected Council
Founder / President
Author / Publisher
Copyright © 2014 Rodrigo Cano. All Rights Reserved.