Photo: Yakima
Can revenue-sharing programs save independents?
Some vendors are taking unusual steps to support independent specialty shops that are dealing with heightened competition from online rivals.
In the active space, for example, Ibex Outdoor Clothing recently announced it was launching a new online revenue sharing program with retailers beginning in 2017. Under the program, key dealers will receive 10-percent of all ibex.com consumer sales from within their areas. In addition, Ibex will provide the “Elite Dealers” with data on what Ibex products consumers are buying in their region. Finally, Ibex will include “ride-along referral” collateral in every direct ibex.com consumer order that introduces consumers to their local Ibex retailers.
“Ibex feels strongly that the fabric of our industry is more vibrant and healthy with a strong, independent retail base supporting customers and communities across the country,” said Ted Manning, CEO of Ibex, in a statement.
In the bike space, Trex and Giant have only begun selling direct to consumers online over the last year, but have also done so through a revenue sharing scheme with independents. Instead of being shipped to the online shoppers, bikes are shipped to the local dealer of the consumer’s choice. The local bike shop then builds the bike and coordinates delivery with the purchaser.
The brands earn credibility by having a strong presence in independent stores and that supports sales in other more mainstream channels.
An article in Outside Magazine, however, notes that the revenue sharing model — at least in the U.S. cycling channel — will be tested by the arrival in 2017 of Canyon Bicycles, which has flourished in Europe by selling directly to consumers at discounts. The battles over shelf space are also expected to convince smaller, niche vendors to shift to the increasingly popular direct-model route, the article suggests.
Likening it to past challenges by video stores, the author, Robbie Carver, concludes that in order to keep local bike shops from going out of business, cycling enthusiasts are “going to have to forget about price and instead put a premium on experience.”
Discussion Questions
DISCUSSION QUESTIONS: What do you see as the pros and cons of revenue-sharing programs being offered by vendors to support independents? What advice would you have for independents in the active space that are facing increased price competition from online sellers?
Poll
BrainTrust
Ori Marom
Founder and CEO, Segmentis
Bob Phibbs
President/CEO, The Retail Doctor
It’s all about the experience. Small retailers can thrive when they offer an experience that entertains and informs consumers. Otherwise, it’s a battle for the lowest price, with brick-and-mortar at a severe disadvantage. Revenue-sharing seems to acknowledge the vital role that traditional retailers play in the overall success of many brands. This new scheme won’t last if retailers don’t offer unique experiences to complement products.
The biggest problem bike shops have is an “ant hill” mentality which means they only take care of those who they already serve. I like the idea of Ibex but doubt it will influence many others. Why? Because the manufacturers are hurting from the “ant hill” approach as well. To grow their businesses they need to partner only with brands who get that and provide an emotional sale full of possibilities or go direct. No brand can afford an “ant hill”-only approach.
While I credit the brands cited (Ibex, Trek and Giant) for their revenue-sharing initiatives designed to support independent retailers, I believe that shoppers searching for a particular item and price and finding them through direct online sales channels will make these programs very difficult to sustain. Providing direct shipment of a bicycle to a local dealer of the shopper’s choice for assembly and tuning is a wonderful service that a percentage of shoppers will value and a great delivery and service option. Whether enough people will use this service to sustain its offering is questionable. I believe the future of brick-and-mortar retail is implementing technologies that allow a completely transparent and 100 percent accurate consignment business. Brands can control their entire supply and inventory chain while the retailer can present, rotate and prioritize many new innovative and popular products. This business process can put at least 3 percent CoG directly to the bottom line by eliminating inaccurate and costly administrative costs.
It is a good idea. It seems that brands are beginning to realize that online vs. offline price competition is destroying their entire distribution network, with potentially disastrous consequences.
Few brands have access to the capital needed to replace even a single collapsed national retail chain, so relying on single-brand stores is not the solution.
One problem with revenue-sharing is that it compensates stores for pure online sales to which they did not contribute directly.
I think we will soon see many more brands following suit in Ibex and Giant’s trek.
Ibex payments amount to paying an endorsement or referral fee to enthusiast shop operators. This cost of marketing is a slippery slope leading to some road rash when the program is withdrawn or consumers find out the premium paid for shop endorsement. Let’s hope the short-term market development fund (MDF) strategy has a viable exit that can be triggered when the lack of objective advice to consumers by shops is found out.
This discussion applies to all small businesses who want to stick around, as doing nothing is a sure way to fail. In my store I have several great working relationships with regional vendors that provide me with some fantastic deals. I am loyal to them, as they are to me, and they will price-match larger wholesalers in order to keep both of us strong.
As I stated before, you must pay your bills on time or this will not work, as cash flow is critical both ways. We are not on an island anymore and the big CPG food companies have been ignoring us for years, so find some strong regional companies that you can both benefit from, and nurture those relationships, as it is your best way to sustain profitability.
Revenue-sharing programs with independents are a noble idea. However, I don’t think it will make sense for vendors to continue in the long run. In the case of Ibex, the revenue-sharing program is either eating into Ibex’s pocket or consumers are paying a higher price. Either way, the idea is not very sustainable.
Ibex and independents shouldn’t see themselves as competing but rather as offering completely different types of services and fulfilling different needs. At the end of the day, many consumers are looking for the best price, which will likely be found directly from the vendor. However, there are also many consumers who will want to physically touch and test bikes before buying or are looking for professional recommendations.
Competing on price alone will end up hurting everyone. Relying on distributors to offer revenue-sharing is too risky. Independent retailers need to focus on providing an excellent experience for customers and building personal relationships.
Good intentions, but it’s hard to keep a business open on 10 percent gross margin. I do appreciate how Ibex is trying to work with their stores.
I think brands that truly want to support the independent specially retailer need to work extremely hard to drive traffic into those stores, and offer online shopping to those retailers who will only buy in that channel. Too many brands are just competing with the stores and throwing them a small bone.
With that said, I also think the independent stores need to do a better job of supporting those brands with a full assortment, etc. Especially with products the customer wants to experience in person.
What a broad-minded, forward thinking idea … exactly the kind of thing that will end up getting axed. This is one of those “I see what you did there” ideas: try to turn independent shops into de facto company stores by giving them an incentive to push your products, while — of course — avoiding the risk and expense of actually opening the stores. Omnichannel on the cheap!
But the lack of hard numbers makes this kind of program likely to fall victim to some cost-cutting regimen that sees the $$ outflow, but not the inflow … or at least doesn’t believe it. (I’m speaking in general here, not necessarily this specific program.)
It is about the value add from the independents. In this case the independents provide the assembly and service experience for the bicycle manufacturing, which makes for great synergy and drives better customer experience. It will work for specific products that needs value add close to the customer.
Revenue-sharing is a step in the right direction and agree that it is a suitable stop gap for the short term. The question remains whether or not the shift to online will plateau or if store traffic will continue to decline. If so, a 10% share will become rather paltry. In the spirit of keeping things simple, independents might be best incorporating an affiliate web portal to utilize on their websites/social media and access for in-store shoppers looking for something not in-stock. A few benefits: 1) web orders can be shipped to store (if end customer wishes) and drive repeat traffic 2) a store can use the affiliate link to drive brand engagement and commissions (there’s an incentive to promote) 3) Stores assortment relevancy improves and would have a revenue making way to capture sales for items not in store. 4) Stores would be part of the solution (improving convenience and engagement) and realize fruits of their efforts.