Lines Blur Between Manufacturer and Retailer

Discussion
Mar 13, 2006
George Anderson

By George Anderson


VF Corporation is the world’s biggest apparel manufacturer and it’s also making moves to become a force on the retailing front. The company, which manufacturers apparel brands including Nautica, Vans, Wrangler and Lee, recently announced it would add 400 new retail stores to the 525 stores it currently operates in locations around the country.


“What’s been happening with retailers developing their own private-label lines and going for direct sourcing, as well as apparel manufacturers also expanding their own retail lines, is that there has been a blurring of distinctions between what is an apparel retailer and what is an apparel manufacturer,” said Peter Kilduff, associate professor of strategic management and marketing in the Textile Design & Marketing Department at UNC-Greensboro.


VF now generates about 13 percent of its $6.4 billion in annual sales through stores operated by Vans, Nautica, The North Face and other company brands. According to The Business Journal of the Greater Triad Area, Greensboro, NC-based VF is looking to increase its retail sales to 18 percent of its total by 2010.


One of the advantages of VF operating its own stores, said Prof. Kilduff, is the “Direct-to-consumer contact. That’s something that retailers have played a lot on; they are the ones that have the daily dialogue with the consumer.”


Moderator’s Comment: How has the number of manufacturers opening stores affected the retail business? Do you see
the trend accelerating?

George Anderson – Moderator

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13 Comments on "Lines Blur Between Manufacturer and Retailer"


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W. Frank Dell II
Guest
14 years 11 months ago

I call this the Wal-Mart effect. If a CPG company has a product line not right for Wal-Mart customers or don’t want their brand image reduced to the Wal-Mart market, what options do they have? Many of the VF customers have been put out of business by Wal-Mart, so having their own stores works. Ben & Jerry has ice cream shops. The problem for most CPG companies is having a wide enough product line to fill even a small store. Additionally, like with all retailing, a store has to have a reason for being. A men’s store or men’s shirt store works as long as the consumer knows what to expect when they go there to shop.

Phillip T. Straniero
Guest
Phillip T. Straniero
14 years 11 months ago

I often wondered if the growth of outlet malls and big box malls in this country would lead to a major source of friction between major manufacturers and large national or regional retailers. As the retailers continue to develop Premium or Exclusive store brands, it makes sense that a manufacturer needs to have a consumer outlet that enables them to protect themselves from major changes in retailer product assortments or the issues associated with significant retailer pricing pressure. On the other hand, if a manufacturer ends up with too many retail outlets, they will surely end up with a limited source of distribution (led by their own stores) as retailers will view them as direct competitors rather than suppliers. As one retailer recently said to me, “We need to make sure we don’t get ‘out of balance’ with our private label”…the manufacturers need to do the same in evaluating the number of self-owned retail outlets they operate.

George Whalin
Guest
George Whalin
14 years 11 months ago

The lines between manufacturers and retailers have been blurred for many years. While Gap doesn’t actually manufacture their own merchandise, all of it is made exclusively for their stores. And yes, well-known lifestyle brands such as Nike, Mont Blanc, Coach, Tumi, and Donna Karan successfully operate stores all over the country.

While some retailers like to complain about manufacturers opening their own stores, it is too late to do anything about the situation. Smart retailers don’t let themselves become too dependent on one supplier or brand. And smart retailers take steps to build their own store as the brand while using desirable consumer brands to serve the store’s customers. When those brands choose to compete head to head in the same marketplace with traditional retailers, smart retailers do what’s best for their business and their customers. In today’s fiercely competitive retail markets, it is simply survival of the smartest and fittest.

Herb Sorensen
Guest
14 years 11 months ago

Retailers and brand manufacturers are in exactly the same business, at least if they both want to survive. It is simply a matter of the division of labor. As the world changes, expect to see the lines further blurred.

This thing of being customer or shopper centric ultimately requires you to very nearly ignore who YOU are, and focus only on the customer and their dollars. When you do that, you become more chameleon-like, but potentially a lot more valuable to your customers.

Bernie Slome
Guest
Bernie Slome
14 years 11 months ago

It is inevitable for manufacturers to become retailers. For the most part, the manufacturer becoming a retailer doesn’t compete with traditional retailers; rather it should help retailers. The manufacturer as a retailer will help create, enhance and build the brand which, in turn, creates more sales for a retailer as people identify with the brand. What benefits the manufacturer is the control that they will have, as a retailer, over the sales process, customer service and the customer experience. Retailers need to start thinking about making their profits from selling, cross-selling and up-selling rather than soft dollars. In some ways, retailers have forced manufacturers to create their own destination stores.

James Tenser
Guest
14 years 11 months ago
Every brand marketer has the right to offer its products direct to the consumer, whether through retail outlets or the Internet. But this may present strategic consequences with respect to its retail customers, who may view this as a conflict of interest. A good object lesson in this regard is Levi Strauss, which ran into some push-back from major department store customers after it made a vigorous effort to sell its clothes online in 1998-99. In the end, Levi’s backed off, preferring strong retailer support from Macy’s and JCPenney to the incremental sales generated from the Web site. On the other hand, we see some very successful showcase stores operated by the likes of Nike, American Girl and other brands who continue to enjoy strong relationships with major retail chains. Such outlets offer entertainment value as well as merchandise, and they never undercut list prices. Whether VF’s Vans, Nautica and North Face brands merit this type of exposure is arguable. If the company can build perceived value for those labels, it may win favor from… Read more »
Jeremy Sacker
Guest
Jeremy Sacker
14 years 11 months ago

Anyone can open a store and sell their “stuff,” and many manufacturers have via the internet. But, where they (manufacturers) miss the mark is that retailing of the future is not just a storefront. It is differentiation, bundling and services (not customer service). Sure, no one can argue that manufacturer outlet malls have not been successful, but consumers expect bargains at those locations. What happens if you actually lose distribution because your retail customers rebel?

I am not saying that this trend won’t continue, just saying that it is a very risky proposition.

Mark Hunter
Guest
Mark Hunter
14 years 11 months ago

It’s a very healthy move as it spurs competition and allows the manufacturer to get closer to the consumer. Key is to be able to maintain pricing integrity and maintain a fair and level playing field. VF has had outlet mall locations for years, so their expansion is not really that dramatic and is really at the opposite end of the retailing spectrum from Nike, Sony and others that create flagship stores. Question a manufacturer has to ask themselves is, what is the role the store will play? Nike Town, Sony, etc. are designed to help build the trademark while VF stores are designed to move volume.

Don Delzell
Guest
Don Delzell
14 years 11 months ago
There is no reason a corporation which manufactures consumer products cannot also become effective at retail. It is highly unlikely that the same individuals, processes, methods and specific systems will support successful ventures into both spaces. All of the benefits noted in the article are true: the consumer insight, the ability to test, and the use of stores to support and enhance lifestyle marketing statements. NIKE has made similar statements, and operates its retail locations in exactly this manner. I have no idea if NIKE makes money at each location or not. My understanding is that the stores are marketing expenses. Managed as such, it is consistent and supportive of the overall brand strategy. VF is essentially a holding company. While holding companies in general haven’t proven to be the most successful form of business model, they do provide, in theory, the ability to segment businesses, isolate core competencies, and be good at more than one thing simultaneously. Consolidation at retail is a cyclical thing, although until WM breaks apart, that mass market part of… Read more »
Mark Burr
Guest
14 years 11 months ago

I would agree that there isn’t really an easy answer to this one. I would, however, like to do some research on this as to why some manufacturers are allowed to do so and some are prohibited by legislation, such as auto manufacturers. There are some interesting anti-trust and conflict of interest issues on this one. I’ll need to do some more reading on this issue to understand what the real implications are to retailing if this were to proliferate to any great extent.

Mark Lilien
Guest
14 years 11 months ago

Ralph Lauren operates their own stores profitably and they also sell merchandise profitably to department stores. Some of the company-owned stores are full price and some are outlet locations. This company’s results prove that it can pay to play in all 3 channels if your merchandise is desirable enough.

Karin Miller
Guest
Karin Miller
14 years 11 months ago

Blurring the lines on the entrepreneurial side, we have an interesting 100,000 sq ft home furnishings store in a prominent design district in Culver City, CA called HD Buttercup that actually advertises itself as a “manutailer”. This store leases space to several dozen small, upscale manufacturers and provides a venue in which they can sell their goods directly to consumers. It will be interesting to see if this concept is successful and how it evolves.

Warren Thayer
Guest
14 years 11 months ago

It’s not just private label; it’s margin squeeze brought on by deductions, fees, slots and tough “negotiation.” Can’t blame the manufacturer, but of course they also have to realize the dangers of being de-listed if they do this too much, especially if they come in with shelf prices below what their retail accounts are offering on similar or identical products. Of course it depends on the product category, too. Supermarkets selling Ben & Jerry’s aren’t likely to see scoop shops hurting their pint sales. More likely, the added exposure of scoop shops actually helps sales of pints. So there’s no simple answer to this one.

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