“The times, they are a-changing” and now we finally have proof, as Jonathon Green, Co-founder of Eljo.com.au, explains how one distributor is bucking the trend by not favouring large bricks-and-mortar retailers.
In my experience, manufacturers are rarely happy dealing with independent online retailers on a level playing field.
This might come at the dismay of the ACCC, but manufacturers actually like to protect the relationships they’ve established in the past with major retailers. I can see why this was traditionally a necessity – they were protecting their biggest income stream. It’s a no-brainer!
However, several events of the past 12 months or so, with the struggles of Clive Peeters, WOW Sight & Sound and now Retravision, coupled with earnings downgrades for several others and multiple store closures, are causing major manufacturers and distributors to rethink their stance. One example stands out as clear evidence of this.
Rapper and pop culture icon, 50 Cent recently launched a new line of premium-grade stereo headphones, aimed at rivaling the success of Dr. Dre’s ‘Beats’ headphones. The new 50 cent headphones are due for an Australian release at the end of June.
What does this have to do with an anti-online bricks-and-mortar protection policy? Well, the local distributor of the 50 Cent headphones has decided to buck the trend. In a rather bold move, they have decided to hand select a series of independent retailers – including pureplay online stores – to be their core stockists, rather than the major retailers (as is usually the case).
This is a bold move, there can be no doubt about it, but it has been made with a lot of consideration. You see, there are a few reasons for this decision and they all stem back to the ridiculous set of demands made by the major retailers of their suppliers. These demands include ridiculously one-sided supply agreements and huge credit terms, which put massive cash flow pressure on Australian suppliers. But the demand with perhaps the biggest impact is their minimum margin requirements. I’m told that when a product like this comes to Australia, the major retailers have traditionally demanded a minimum margin be made available in order for them to line their pockets. Suppliers usually agree in an attempt to butter up the retailers and make their life rosy. This is a major reason as to why, for example, a set of (genuine) Dr. Dre ‘Studio’ model headphones are available in Australia for $499, almost double the price of retailers in America.
No wonder everyone is buying offshore!
In choosing to partner with multiple independent online retailers, the 50 Cent Headphone distributor on the other hand have found international parity, with all models priced the same as in other parts of the world. The incentive for consumers to buy offline is no longer a concern. Thus, the Aussie distributor will have a better capacity to control Australian sales, while removing cash flow issues usually present in dealing with major retailers.
As the Australian bricks-and-mortar retail landscape becomes more and more difficult, and more of its’ incumbents fall by the wayside, it would not surprise to see more and more distributors and manufacturers wrest control back from the struggling retailers and go down this type of path. As Bob Dylan so famously sang, “The times, they are a-changing!”