Bob McKee blog

Multichannel is More than just a Website
14th January 2011

In the Western world, Fashion Retail has been suffering since September / October 2008. And no matter what you or I may think should happen - if Fashion Retail suffers - so do all the members of the supply chain. (we'll talk about what's going on in Asia at another time - since we see a completely different path for both growth and evolution in the Chinese and Indian retail business models.)

Traditional bricks and mortar retail has worked hard to find growth since the economic downturn - but, with little success eking out barely as little as 3% year over year sales growth. But, in 2009 with typical traditional retail businesses reporting low sales growth - those organizations involved in what has been dubbed "Fast Fashion" saw growth rates in excess of 16% - pretty good - until you look even further into those organizations that have more fully embraced multichannel sales techniques. Those heavily involved in aggressive multichannel saw growth rates closer to 40%.

So - let's go to my friends at Wikipedia:

Multichannel Retail

A multichannel retailer is a company that sells directly to the public via more than one distribution channel. Most multichannel retailers sell through mail order catalogs and "brick & mortar" retail stores. Some multichannel retailers sell online as well.

Typically, a multichannel retailer begins with a traditional retail storefront, then adds a mail order catalog and finally, once those two channels prove lucrative, expands to a third selling channel by establishing an online presence.

Although this is the normal sequence of events, there are other successful multichannel retailers, who have started with either a web channel or direct mail channel first and then expanded their marketing efforts into the "real world" of traditional retail storefront selling environments.

Establishing more than one way for their customers to shop for their products, is a method for retailers to attempt to grow their monthly revenues and gain new customers, who in turn can be marketed to via other channels not used during their initial purchase. For example, shoppers at traditional retail storefronts may also be encouraged to join customer loyalty programs, which may allow further marketing to the customer via direct mail and / or online via E-mail.

The Distribution Channel and Managerial Decisions

The distribution channel is defined as a chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user. A number of alternate 'channels' of distribution may be available.

The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order. Many suppliers seem to assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the supplier's responsibility; and, if they have any aspirations to be market-oriented, their job should really be extended to managing all the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier:

• Channel membership
• Channel motivation
• Monitoring and managing channels

Types of Marketing Channel

1. Intensive distribution - Where the majority of resellers stock the 'product' (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident.
2. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where 'suitable' resellers stock the product.
3. Exclusive distribution - Only specially selected resellers or authorized dealers (typically only one per geographical area) are allowed to sell the 'product'.

Channel Motivation

It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is 'incentive': the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a compensation is offered to the distributors' sales personnel, so that they are tempted to push the product. Dent defines this incentive as a Channel Value Proposition or business case, with which the supplier sells the channel member on the commercial merits of doing business together. He describes this as selling business models not products.

Monitoring and Managing Channels

In much the same way that the organization's own sales and distribution activities need to be monitored and managed, so will those of the distribution chain.

In practice, many organizations use a mix of different channels; in particular, they may complement a direct sales force, calling on the larger accounts, with agents, covering the smaller customers and prospects. These channels show the marketing strategies of an organization. Effective management of distribution channels requires making and implementing decision in these areas.

What I've said in a number of presentations over the past several months has been:

• "don't be afraid to think "out of the box" ..."
• "put theory into practice - necessity is the mother of invention - and - desperate times require desperate measures".

The technology exists to deploy multichannel sales models - the only thing missing in the equation is the willingness to take the plunge - the calculated risk. But, realize that there can be - and should be a very broad definition to what constitutes a multichannel sales and distribution model. It can be, and should be, more than just a web site. The use of and engagement in 'social media' is, and should be, more than your name or coupons on Facebook, MySpace (yeah some people still use it), or Twitter. If you want to find a challenge to your view of multichannel - look no further than a Chicago based Tee Shirt company - Threadless.com - - just watch any of the number of video's that you can find easily on YouTube (ahh haa - another avenue for the Social Media side of Multichannel efforts).

I saw a recent survey of the Top issues on the minds of Fashion Executives. The Number One issue again this year - is Unit Cost. Lower Unit Cost to improve margin - yet - if you look at markdowns as a controllable cost - it is the single biggest erosion to margin in any Fashion company. And the proper deployment of a smart multichannel business philosophy and strategy can assist in controlling or at least mitigating these controllable costs.

Please share your thoughts with me. Have you tried multichannel distribution? Have you come up with a new multichannel idea?

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