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Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Where would you go to buy a Swiss Army Knife? To a Swiss Army Knife store, of course. Michael Baker explains why manufacturers are increasingly opening up their own stores to sell their wares.

toy trucks and stores

Direct-to-consumer sales have gone through distinct phases

 

Phase one

Factory outlet centres have their origins in the US back in the 1980s. It was here manufacturers could offload their production overruns and merchandise that was impaired in some way but still usable. Factory outlets have evolved and improved immeasurably. They are now a universal phenomenon and one of the few booming sectors of the shopping centre industry. In Australia, however, they are severely restricted by planning regulations.

Phase two

Luxury brands depart the department store. Upscale brands, led by European luxury couture names like Prada, Bulgari, Versace and Cartier, began to open their own stores so they could create a shopping experience for their customers that were consistent with the brand image they wanted. Prada CEO Patrizio Bertelli was quoted at the end of 2013 that department stores were “on a permanent end of season sales mode.” A staggering 86 per cent of Prada’s revenue now emanates from the company’s own 500-plus boutiques.

Phase three

Mid-level brands want their own stores too. Habitual discounting and shoddy brand management by department stores caused other, mid-level brands to join the luxury retailers in rolling out their own store fleets. Pretty soon, just about everyone in the fashion segment was doing it. Department stores differentiated by housing “edited” or “curated” shop-in-shops, meant to appeal to consumers who were comparison-shopping brands rather than seeking a deep and broad assortment of one brand in particular.

Phase four

Direct-to-consumer reaches basic consumer products. Proctor & Gamble’s (P&G’s) Australian website only offers a bit of marketing fluff, but go to the US site and it’s a whole different story. There, you can shop all of P&G’s products online – everything from baby wipes to electric toothbrushes – and even receive free shipping for orders over $49. According to research last year sponsored by PricewaterhouseCoopers US (PwC) and the Grocery Manufacturers Association report, an estimated 40 per cent of consumer product brands were already selling direct-to-consumer in 2013. 

The migration of direct-to-consumer selling all the way down the product food chain, from luxury couture to baby wipes, is enough to worry supermarkets and other conventional retailers. Clearly, tensions lie ahead between the two sides of retail. 

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