Direct shipping – a dangerous step for virtual retailing

Perhaps it has been going on for ages. Or perhaps I haven’t noticed it much. But certainly this last year has shown a worrying increase in a trend in the music retail industry: the direct shipping model.

Direct shipping within retail as a whole has grown exponentially with the advent of Amazon and, particularly, ebay. The concept is that no stock is held by the retailer, and that they instead fulfil any orders they receive direct from the supplier’s warehouse.

On the face of it, this development is no more than an evolution of the ‘JIT – Just in time’ manufacturing and distribution model that reformed industry a few decades ago; it is a further step for efficiency and increases the availability of product at a consumer’s fingertips with less hands getting in the way in-between. Less hands mean lower costs. What’s not to like?

To address that issue, we need to understand what makes our industry special. This isn’t a trip down nostalgia lane, but a recognition of why retailers are still a valued part of the chain in the music industry.

Customers visit music stores to be enthused by product, and with tactile products such as musical instruments, the enthusing comes with direct contact. Despite growing consistency, each instrument is still made from natural products and they each have their own character. You may think you know where I’m going with this, but so far direct shipping is no different to distance selling (ie. buying online or over the telephone). However, when goods are delivered to store they are checked by store staff, and presented in a way that allows consumers to appreciate them for what they are. Often they require tweaking to a consumer’s requirements or ‘setting-up’. Furthermore, there is a ‘commitment’ to a brand – like a franchise – that comes along with a dealership status that is awarded to a retailer.

All of this is lost the moment a distributor decides to offer a direct shipment approach. Whilst they may believe that this extra benefit they offer their dealers is a bonus, they can sometimes overlook the harm it can cause:

Some manufacturers go direct to consumer themselves. That is a different argument I suppose, and it is for their business to decide whether the retail dealer-base is of value to them. But when a distributor or manufacturer wishes to fulfil orders on behalf of their retailers, they can create a number of unusual side-effects:

  • Dealers who adopt the direct model may believe that having 30,000 products on their website is better than 2,000. I happen to believe that having 2,000 products on our website that we have chosen, invested in, and have in stock ready to go, using the couriers we have elected, delivers a better customer experience. This leads on to…
  • Dealers like us, who are franchised to a brand and commit to holding product, are dis-incentivised to maintain the stock profiles because suddenly there are competitors who hold little stock and just try to win a sale on price and variety. This leads on to…
  • Dealers unlike us, who adopt the direct model (and so incur less cost) will naturally use this to their advantage. So they soon experience a the sharp side of the double-edged sword: if they have decided to commit to holding the product physically in store as well as offering it direct from supplier, do they then choose to undercut their stores (something I really cannot get on board with, but know that several of our competitors try to pull the wool over traditional customers by having a higher price in store than online)? Or do they support their store pricing, but then lose any advantage they may have gained by going direct? Both decisions has a powerful adverse effect.
  • Dealers who adopt direct shipping have no opportunity to check over the product that their customers will be receiving, or offer additional services to customise the sale or the product. They have less control over the timing or priority of shipping, and resolving any delivery issues becomes tricker.
  • Dealers who adopt direct shipping have to navigate awkward situations when orders are cancelled, either before or after delivery. Who handles the return? Is the dealer then committed to the stock they have ‘ordered’?
  • Dealers who adopt the direct model are increasingly sharing their customer base with their supplier, potentially like a turkey sharing its whereabouts on Christmas Eve!

I have less confusion with those customers who choose to buy goods that are direct shipped, than those distributors who choose to offer it as a benefit for their dealers:

The consumer may not actually know they are buying direct and may assume that the retailer has the product in their warehouse or store. They may also have taken a conscious decision to trade-off the benefits of buying from a retailer’s premises in return for the extra choice and better price.

However, the distributors who are offering this ‘benefit’ to their dealer base are directly incentivising dealers to invest as little as their trading terms allow, on the basis that anything else will be handled for them. The natural progression is to then remove the retailer and distributor altogether, and simply have consumers buy direct from manufacturer.

That may be the way this shifting landscape takes us; retail has ‘evolved’ so much in the last 20 years that we have absolutely no idea what the next 20 will bring. But certainly manufacturer-consumer direct model helps neither retailers nor distributors, so why these distributors are helping push us in that direction I simply do not know.

There are some exceptions  – such as digital media and software – where distributors fulfilling orders makes logistical sense; often delivery is by digital means and there is no variance in the product. It also alleviates some of the problems with obsolescence, and constantly revising product. These are the exception rather than the rule in our industry though.

All I can say is that we have no intention at this stage of even considering advertising musical instrument products that we are expecting another company to fulfil on our behalf.

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