Vendors Re‑evaluate Online Distribution Policies to Head off Race to the Bottom
The debate over whether to sell direct to third-party e-commerce platforms is heating up among outdoor vendors as more and more of their specialty dealers opt to sell on such sites.
At stake, say both vendors and retailers, is the specialty model that has sustained the industry since its inception and helped generate millions of dollars to promote non-profits that help grow participation in outdoor recreation and conserve wild places.
While virtually all outdoor companies use the Internet to build their brands, many say that third-party e-commerce platforms are creating an environment where a product that is being deeply discounted by a distressed retailer or an entrepreneur working out of his garage can become the standard by which consumers gauge a good deal or fair price.
“We are not going to change emerging technology, nor should we want to,” said Will Manzer, CEO for Eastern Mountain Sports and chairman of Outdoor Industry Association® Board of Directors. “So the challenge is going to be for manufacturers and retailers to make sure this is not a race to the bottom.”
Outdoor vendors have been responding to these pressures in three basic ways. First, some vendors have followed their dealers and begun selling a few dozen outdoor brands directly to third-party e-commerce platforms like Amazon, while at the same time working furiously to police their minimum advertised pricing, or MAP, policies. A second, smaller core of influential companies led by Vibram USA and The North Face (see related story) meanwhile, have prohibited dealers from selling their products on Amazon and other third-party websites. The remainder is contemplating which of these two diverging paths to take.
More than a dozen manufacturing and retailing executives contacted for this story said they were concerned about the impact third-party websites have on prices. Many singled out Amazon, saying its decision last fall to aggressively market its Price Check application, which allows consumers to scan UPC codes in a store and then search for a lower price on Amazon’s website, raised alarms across the industry.
Finding the balance is a challenge. Vendors are deliberately trying to avoid hampering a significant source of growth. Internet sales of outdoor product reached $1.33 billion in the fiscal retail year that ended Jan. 31, up 18.7 percent from a year earlier, and now account for 11.3 percent of industry sales, according to OIA VantagePoint™, the first and only full market point-of-sale data view, built specifically for OIA members. Sales through independent outdoor specialty retailers, by contrast, grew 12.5 percent to $2.23 billion, or 19 percent of industry sales.
“Everyone needs to step back and slow down, because you can’t just cut off 30 percent of the population and not expect to hurt yourself,” said a highly regarded specialty outdoor retailer who has been selling on Amazon.com for years and views big box retailers as a much bigger threat to his business. “Amazon is not really the base culprit when the guy who has posted the product at a 30 percent markdown is selling out of his garage.”
Companies that already sell on Amazon praise the company for creating an efficient and trustworthy e-commerce platform that has merely brought transparency to pricing tactics. Amazon has enjoyed such tremendous growth and success, they note, because it has done such a phenomenal job satisfying customers.
“Amazon has built an incredible platform that is almost 100 percent customer-focused,” said Dustin Robertson, chief marketing officer for Backcountry.com. “We need to be careful in the outdoor industry that we don’t walk away from that. Who are we to tell consumers where to buy?”
Most specialty outdoor retailers say they use Amazon to generate incremental sales that they can reinvest in their core business, which is selling via their own e-commerce stores. But they, too, have concerns about Amazon’s impact on specialty retailers.
The “Earth’s Biggest Selection”
To fulfill its mission of “offering the Earth’s Biggest Selection,” Amazon seeks best-in-class online retailers to round out its assortments with products it does not deem profitable to stock itself. It then monitors all third-party sales on its site to systematically identify and cherry-pick top-selling products for its own Sports and Outdoors store. Retailers, who essentially pay Amazon a 15 percent commission for the privilege of selling an item on the world’s most popular retail site, say that once Amazon buys direct, it’s virtually impossible for an independent retailer to compete against them on Amazon.com.
Until recently, the allure of near-term incremental sales outweighed concerns over how Amazon’s growing market share might affect the industry long-term. The industry, however, needs to gain a better understanding of the pros and cons of selling on third-party e-commerce platforms like Amazon — versus through channels controlled by outdoor specialty retailers and brands that invest millions of dollars annually in non-profit organizations that grow outdoor participation, conserve wild places and advocate for government policies needed to sustain the industry. (See related story)
Retailers who use Amazon know they are enriching a potential, if not inevitable, competitor and building Amazon’s brand in the process. They look at Amazon’s impact on Best Buy (see related story) and wonder what will happen as Amazon continues taking market share.
“I think we have to ask ourselves what sustains the industry,” said OIA President and CEO Frank Hugelmeyer. “In the end, it’s important to make informed choices about the long-term benefits and ramifications for the outdoor specialty marketplace.”