Levin: Vendors Should Embrace Direct Sales

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Carlsbad, Calif. -- Vendors should exploit the e-commerce channel and not worry about channel conflict or retailer retribution, said analysts with Levin Consulting.

The Levin staff, led by company president Adam Levin, called the Web the best weapon in a manufacturer's arsenal for gaining consumer acceptance and giving the vendor total control over how their product is merchandised.

This line of thought may fly in the face of how most vendors and retailers have handled Web sales, but Levin rattled off a string of reasons why vendors should seriously consider opening up an online shop.

"Vendors are much better off now because of e-commerce," he said during the Levin Consulting Client Conference 2000 earlier this month. "They don't have to give millions of dollars to the retailers [in soft dollars], and the Web allows the vendor total control over how their product is displayed and explained -- something that can't be done at retail except through packaging."

Jim Kalasky, Levin's executive VP for software and digital commerce, took this view to the next level and said vendors should always try to make the sale off their website and not redirect consumers to a retailer's site. Kalasky said about $6 billion in online revenue will come from vendor-direct sales this year.

"Customers want to buy direct," Kalasky said, "so vendors should not direct them away. Channel conflicts, well they don't happen now. Retailers are much more sophisticated."

IBM, Compaq and Apple, he noted, are selling about 25 percent of their products direct, and that number is going to continue to grow.

Levin and Kalasky said the vendor-direct sales venue should be used in conjunction with traditional retailers, e-tailers and click & mortar operations.

Courting the ire of the retailer did not strike all of the vendors as a particularly smart move.

"Speaking about vendors selling direct and not worrying about channel conflict is easy when you are standing in front of a bunch of vendors," said one vendor attending the event. "I doubt it would be as simple if retailers were present."

Mike Ostwind, sales and marketing director for digital camera maker Ezonics, said he does not see enough upside to selling direct, primarily because the volume is still miniscule compared to what takes place at retail. He was also uncertain that retailers would not take offense.

In fact, based on retail reaction from Sony's move into direct online sales last month, merchants appear somewhat resigned to the inevitability of e-commerce competition from their suppliers.

"It's every manufacturer's dream to hardwire direct to the end user and eliminate everyone in between," said Warren Mann, executive director of the MARTA buying cooperative. "Some dealers dislike very much competing with manufacturers, but I don't think it will be a significant factor."

Added a spokesman for Kmart, "Everybody's moving that way because these days you've got to have some sort of e-commerce presence to do business."

The Levin staff did caution vendors that becoming an e-tailer was no minor undertaking, and that bringing in consultants to handle the setup would be a smart move.

Jay Kerutis, executive VP of Digital River - a firm specializing in designing and running e-commerce sites - said there is still plenty of time for vendors to jump on the e-commerce bandwagon.

It is extremely difficult for vendors to tackle retail-oriented jobs such as credit card fraud, returns and managing inventory without hiring a person with a retail background or a consultant, Kerutis maintained.

"We are just at the beginning of this thing," he said, adding that the vendor-direct channel will claim the majority of computer product sales by 2004.

It was also suggested that to make a success of an Internet store, a vendor must change its normal mind-set and think like a retailer. Chris Blocker, director of manufacturer sales for the retail sales analyst firm onechannel.net, called e-commerce extremely volatile and unpredictable, but nonetheless growing at an astounding rate.

A vendor must set concrete goals for itself based on what the company feels should be its share of the market, he said. Although this may sound vague, Block said, e-commerce is so new that it is difficult for a company to fairly measure itself against others.

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