Will retail chains lose their dominance?

In most industrialized nations, the supply chain of goods from origin to origin

the end user has changed little over many years. First there are the producers. Then the wholesaler, then the retailer, and then the customer and the consumer.

In the US, the supply chain has always been driven by downstream consumers.

Europe had a different history where a mixture of world wars and interventionist

governments led to supply chains that were driven from the top end.

Certainly, the rationing of the 1940s and beyond led to a culture of consumers.

who received what was given to them and thanked the little mercies.

As Europe has become more prosperous, consumers have flexed their muscles and

it demanded an ever-expanding range of products at a range of prices and standards. Have

now joined the US and most other industrialized nations with

supply chains.

One feature of this has been the trend toward large retail chains. Many of

These chains have become so large that they have practically dispensed with

wholesalers, preferring instead to buy goods directly from producers. Them

They have also established the so-called “own brand”. This is where they

have dictated the product specifications to the producer and told them to mark

as your own product. And there’s more: some of the larger chains have

became increasingly involved in all aspects of the supply chain from

sourcing of raw materials, procurement and design of packaging, all aspects of

distribution and even the hiring policies of its suppliers.

This has resulted in a shift in the balance of power from top to bottom.

down river. Now that all aspects of the producer’s business, including its

all major costs, have been tied up by the ever inquisitive retail chain,

Has the pendulum swung as far as it could? We all know what happens to pendulums

when they have gone as far as they can in one direction. Now surely I can’t be

the only person who has thought of this. I am sure that directors of some of

the big producers must have thought to themselves “how could we

allow this to happen? “. Perhaps some of the smaller producers whose management

I can’t even visit the bathroom without permission from the retailer (it seems)

they are also thinking “enough is enough”.

Just think about this: who has invested the capital and risk in the very expensive ones?

plant needed in a production environment? Not the retailers. Who has the

qualified personnel, including engineers and designers? Certainly not the retailers.

Who has a detailed knowledge of the product within their own spheres? Retail chains, by

its very nature specializes in putting mostly unskilled personnel into large

buildings with rows of bookshelves and a row of boxes. They can only have

a cursory knowledge that spans the vast ranges of products they sell.

I know I have painted a picture of oppressed poor producers who have been

conquered by those nasty retailers. First of all, retailers are not unpleasant at all:

They are simply doing their job, so let’s not blame them. And there will be many

producers who prefer the status quo and do not want to shake the

boat. Okay, they don’t get the kind of profit margins they’d like, but

them do get volume. Although in my opinion, the reason why many producers

they want to leave things as they are is that they are slaves, although not

do it.

It is a kind of drug addiction, but being the drug a large volume of sales and

the drug dealer is the retail chain. It is a familiar pattern. The producer is

forced to cut costs by a retailer promising higher volume in exchange for a

greater participation of the margin, so the producer invests in a greater production

facilities, faster machinery and occupies more personnel. This is fine until

The producer realizes that he is now dependent at the retailer. The producer

is now in the position where he has to receive volume orders for

Amortize your costs. Retailer Says: I Can Give You Volume, But You Must Give

us more margin. For some producers, the moment of truth comes when they need

jump into a large new production facility to keep up with these

demands. So they take a loan and expand the business. Now they need a

constant turnover solution, not only to keep the factory running, but also in

order for your business to avoid bankruptcy. Some producers who have become

they have come so far to this high volume business and have become so associated

closely with their main retailer that they simply see themselves as a

extension to the retailer and will not contemplate changes.

Others may feel differently. Can be run by more independently minded people

bosses, or may have maintained sales to other outlets in order to maintain some trading

going outside the realm of the retail chain. I’m sure some

Producers want to see the pendulum start to swing back, even if it is

only a little. But what can they do? Well things are changing out there so

opportunities may arise earlier than expected.

First of all, there is safety in numbers. Ask the unions or a herd of

more wild. I can see alliances taking shape in the next few years between

non-competing producers who, among themselves, can offer a full range of products to

consumers. Why can’t they open their own outlets? Remember, the billions

manufactured by today’s retail chains will no longer need servicing, so prices

be very competitive and have a healthy margin.

Second, there is pressure on fuel supply and prices. There has been a

recent problem that could fall again, but most experts agree that the long-term

The trend is for prices to go up. As fuel costs start to affect margins and even

product prices, there will be pressure for retail products to move closer to their source

it’s possible. It may even make sense to sell goods directly from the producer himself.

shop. In the UK, local farmers markets have taken a significant share of

business away from supermarkets. I suggest here that this principle could

be extended to plus local sales opportunities of producers and not

only farmers.

Third, there is a growing trend, driven mainly by legislation, to

reuse parts in end-of-life products and reuse

packaging. This inverse distribution will once again benefit from having

producers as close to consumers as possible and you can benefit even more if you

eliminating the retailer entirely for the return of merchandise.

Finally, of course, there is the Internet: online shopping. It is not a cashier or

a shopping cart in sight. Yes, distribution infrastructure is still required,

but remember that many brick and mortar retailers have yet to achieve

learn the structures necessary to distribute sales over the Internet. Tea

The Internet offers producers a wonderful opportunity to change the order of things.

to your benefit and sell directly to end users.

What many large retail chains have done has been impressive and can only be

Estimate. They took control of their supply chains and used their new influence

and power in his favor and, therefore, for the benefit of his

shareholders. However, remember that retail chains consist of

buildings, equipped with unskilled labor and with a low-tech plant. They do not

they produce goods (generally) and do not own any brand other than their own.

Its main asset is the goodwill of the client with the large number of clients.

visiting their sites. If this performance is threatened by high fuel prices or

due to alternative attractions, these large buildings will turn white

elephants. If this ever happens, the decline could be rapid and decisive, as

Those retailers are just as addicted to their customers as the producers to

them.

There is a lot to be said for buying your products as close to

its source. Arkay Hygiene sells fly swatters. Yes, they are stored by

retailers, but Arkay Hygiene sells most of them directly from their website at

http://www.eeeee.co.uk. They may already be ahead of the game.