Which Came First: Manufacturer or Retailer?

Kallone Intimi Lingerie Boutique, Woodbridge, Ontario

Above: Kallone Intimi Lingerie Boutique.

“In a world where the roles of manufacturers and retailers are seemingly interchangeable, what does this mean for the future of the market?”

by the Retailers Protected Council, retailersprotected.com

When it comes to manufacturers and retailers today, boundaries are blurring and roles are intertwining to make it difficult at times to tell which is which. For instance, many manufacturers now have their own storefronts, and retailers have their own store-exclusive brands. In a world where the roles of manufacturers and retailers are seemingly interchangeable, what does this mean for the future of the market? To look at where the market is going, we need to know where the market has been.

Manufacturers would not be as successful (if successful at all) without the retail stores to buy and distribute their goods to the general public. Without retailers, brand awareness would be infinitely more difficult, and reaching some local markets would be nearly impossible. The ratio is 1:1, if the retailer wins, manufacturers win.

Petits Bisous SS15

Above: Petits Bisous SS15.

The wholesaler-retailer system (also known as the traditional retail model) plays a central role in maintaining the equilibrium of the market. The traditional retail model shows that manufacturers produce goods for retailers at a wholesale cost; the retailers then sell the goods to the end consumers at acceptable gross profit margin. This behavior promotes equilibrium by connecting both the manufacturer and the retailer in a mutually beneficial transaction. In this model, everybody benefits; manufacturers profit from the retailers, retailers profit from the consumers, and consumers benefit by having options regarding products they purchase. Market equilibrium, retailer protection, employment opportunities, new product entrance, and consumer variety are the benefits of maintaining a traditional retail model (see attached chart).

Retailers Protected Infographic

With that being said, why wouldn’t a manufacturer want to support their retail system and not sell directly to consumers? Of course there are short-lived temptations such as a temporary increase of profit for the manufacturer and the brief burst of brand awareness, but is this practice sustainable? After short surges of success, what happens to the manufacturer? Consumers move on to the next product or trend, the manufacturers product is forgotten in the dust of quick-moving consumer fads, and the manufacturer is left scratching their head on how to create another surge of demand throughout the market; only now, because they chose to alienate their retail system by selling directly to consumers, they do not have the strong retail community they once had to help push their product to the end consumer.

Consequently, you can see that the future of a manufacturer that chooses to sell directly to consumers is not a pretty one, but what are the impacts of direct to consumer sales for retailers? Unfortunately, retailers have a much worse fate than that of manufacturers. Manufacturers, unlike retailers, are able to offer goods to consumers at dramatically lower price points, offer free shipping and returns, and offer steep discounts that retailers simply cannot compete with. Retailers could potentially be left out in the cold with no customers, and eventually, no business.

Julie France JFL06_3 Julie France Retailer Programs

Above: Julie France.

The very essence of the retailer-manufacturer relationship is crucial to the balance of the market. A world without one or the other is simply not viable. The future of the market, as we know it, is in the wake of a seemingly unstoppable trend of manufacturers selling directly to consumers. If the traditional retail model is fading, then how will retailers evolve to adapt to the ever-changing market? Is the practice of manufacturer-to-consumer sales sustainable? Is there any foreseeable way for retailers, small and large, to overcome this hurdle?

Perhaps with enough education and awareness of the current market environment, retailers will be armed with the knowledge needed to remain intact. An organization, such as The Retailers Protected Council, that are devoted to supporting retailers and their local economies play an essential role in this evolution.

Learn More

For more information on this topic, and additional tools, educational materials and resources, please visit RetailersProtected.com

One Comment on “Which Came First: Manufacturer or Retailer?

  1. Avatar Bikini Joe says:

    This is a great topic, but when you really look at this it started many many years ago with the majority of major Mall and big box retailers of soft goods doing private label and in recent years just buying a brand name and becoming a direct importer. The profit margin is the issue, “key stone” as it was called is not a workable mark up for retailers. Have you walked through your mall in recent years and noticed that EVERY store has “Buy one get one 50% Off” the day the merchandise arrives, this can not be done with brands or labels that other stores carry, even the dept stores in the same malls which still sell some Brand names have to use a different approach including inside prices, consignment deals, Ad money, mark down allowance and more.

    I have heard the stories of JC Penny buying from Distributors which put a 3 company in the mix, those days are long gone and for the most part, chains, discounters and Dept stores are making (or less say Importing their own goods)

    As a maker of Swimwear, I do have retail customers, but the operate seasonal Swimwear Stores in Major malls, I do buy about 25% of my assortment from brands, the balance is my own lines. The fact is we make no money at the end of the season on goods that we buy outside.

    This is the state of retail and being “Special” and a step ahead of the direct sellers is the only thing left for stores that buy brands and use a more traditional mark up.

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