Blame the [Retailers/Brands]

Blame Game

What happens when an established specialty brand’s unit sales are flat, its retailers are struggling too, and they begin looking to each other for answers?  Two things, really.  The retailers blame the brands, and the brands blame the retailers.

Both can be right .. and wrong.  But only one of the parties really has the power to solve the problem.

When brands play “blame the retailers”, arguments usually include some combination of:

  1. Retailers do not believe enough in the brand or product.
  2. Not enough floor space is being given to the brand.
  3. Retailers are not stocking the brand’s models widely enough.
  4. Poor retailer quality of store shopping experience and/or of customer service.

When retailers play “blame the brands”, arguments usually include any of:

  1. Brands are selling product through commodity retail channels that specialty retailers cannot compete with.
  2. Brands are making too much, driving down price, or too little, choking off sales.
  3. Brands are not doing enough marketing and advertising to drive consumer demand.
  4. Brands are advertising suggested retail prices that make the brand unrewarding to retailers.

Any of these reasons is, of course, plausible and the criticism is oftentimes warranted.  But then brand managers often react in an ironically counter-productive way — they make more units, reduce MSRP, and expand retail sales outlets including opening new dealers in close proximity to existing ones.  All of these represent attempts to artificially force growth.

What makes this reaction so curious is that if brands believe its existing retailers are so poor at retailing, how does saturating the marketplace and squeezing their margins make them better?  Adding more competitors and driving down price only removes the ability from existing dealers to earn enough profit to invest in retailer and staff education, hire more staff or pay staff better to improve the customer experience, let alone widen inventory selection.

So is this a one-sided answer?  Do retailers not share in the solution?

The understanding which must be grasped is that unless a brand owns its own retailers and can dictate and control the consumer experience, independent retailers will always be too varied in skill, knowledge and experience at retailing to ever effectively offer better-skilled retailing to brand management as a uniform response to the problem.  It is incumbent upon brands to exercise the power they have over who may retail their product.

A poor-performing retailer is like a poor-performing sales associate.  The solution is not to maintain that one’s employment, hire another one, and ask them both to split a single salary.  The employee’s performance will also not improve by stocking units more deeply for the employee to sell.  And, the employee will not be motivated by a salary cut.  The poor-performing sales associate really just needs to be let go and replaced by a better one.

Why, then, do brands think they can force growth of their brand by opening more stores that compete with existing ones, by selling units through price-driven commodity retailing channels, or by reducing the retail price without taking a haircut in its own margin, too?

The right answer, and solution, is that wise brands carefully manage their retailers by continuously evaluating them, choosing the better ones for their brand image and experience with customers, and then giving these better retailers a reason to continue to choose to be strongly loyal to that brand, like effective retail price management, good marketing support, and offering an achievable profit margin that creates real incentive to sell the brand.

The answer to the previous question asked, however, is brand arrogance and short-sightedness that thinks it can force growth through aggressive tactics.

One approach is a proactive one that earns success in the marketplace by earning retailer desire to serve the brand well.  The other approach is a reactive one that takes a punitive approach to retailers as an entire class rather than allowing natural market forces (including brand managers’ own highly-influential decisions) to weed out poor retailers.

If putting more salespeople on a store floor won’t artificially grow store sales, growing a brand is not likely to work by putting more retailers into competition with each other in and of itself.  Yes, the goal is to expand, but only as real consumer demand is poised to grow beyond what existing retailers can handle, such that existing retailers don’t lose sales or profitability in the process.

That begs the next question: is the growth in consumer demand (or its potential) really there at this time?  That is the question that brand managers should start with — not starting with “how much more do I want to make this year?”  The former question is scientific, while the latter is emotional and driven by simple human ambition that can ignore reality.