Retail reaction to first Thomson’s, then Maytag’s, direct-to-consumer sales models is ranging from bemused indifference to surprise and outrage.
Most merchants and buying groups contacted by TWICE were doubtful that manufacturers could – or would necessarily want to – muster a meaningful retail business. Rather, they view vendors’ Web-based efforts as part of a headlong rush into cyberspace by companies seeking a toehold in the growing Internet economy.
Nevertheless, outcry by some dealers over the latest incursions into e-commerce was loud enough to compel Maytag to scale back its original direct-sell plans (see story below), while others implied that RCA will be getting the cold shoulder on their sales floors.
“We don’t think Thomson is foolish enough to believe that they can do for the customer what we can in terms of service, installation and breadth of product,” said Dick Schulze, CEO of Best Buy, the nation’s largest CE chain. “Manufacturers are not equipped to deal with any of that.”
Schulze acknowledged that “manufacturers feel they need to have a presence on the Internet” and that concern for brand stability would likely preclude any pricing challenges from suppliers. Still, he stressed that “while we value our relationship with RCA, as we do with Sony, Panasonic or any major brand, we would prefer that they chose to sell their products through us or others that are better prepared to provide a satisfying selling experience.”
Sears, by contrast, took the softer side of the RCA debate. “We’re not looking at this as a competitive situation,” said Chuck Cebuhar, VP/general manager of home electronics and home office for the country’s fifth largest seller of CE products and number one appliance store. “They’re not looking at this as a retailing site, and we don’t think that’s how it’s going to evolve. There are some people out there who would prefer to buy directly from the manufacturer, and they want to provide a service to their loyal customer base.”
Cebuhar said he was hardly surprised by Thomson’s move, given the impending IPO of its new e-commerce spinoff, Thomson Direct Inc. He also advised retailers to expect more of the same.
“They’re following the trend of a number of people to showcase and sell products online,” he said. “There’ll be more and more of this in the Internet age.”
Cebuhar’s appliance counterpart at Sears, VP/general manager Tina Settecase, declined to comment on Maytag’s direct-sell plans. Similarly, Tandy CEO Len Roberts remained mum on Thomson’s new e-commerce strategy, which comes five months after RadioShack chose RCA as its predominant A/V brand.
Cebuhar’s stance was echoed by Joe McGuire, CFO of Tweeter Home Entertainment Group. “Some people are very upset about it, but that’s an overly simplistic view of the world,” he said. “We don’t view Sony’s stores as a threat; they’re a nice showcase. Besides, lots of manufacturers have dabbled in direct sell before and most typically get their toes stepped on. They are neither organized nor have the necessary skill sets to make them formidable competitors. As long as they’re selling at or above MAP, it’s OK.”
Moreover, McGuire actually admires the effort. “The Internet has such a large buzz that it’s not a bad idea strategically for manufacturers to teach themselves about it by putting up a site and learning what the issues are,” he explained. “You could also make a compelling argument that they’re trying to have a meaningful dialogue with consumers.”
However, McGuire does fault Thomson for its bombshell execution: “There was no advance warning, and it just stuns me that that’s how they would handle it. It strikes me as bad business to just say `Surprise!’ They had to know it would create a fair amount of fear. The CE business is not huge, and people have long memories.”
Indeed, many retailers and their buying groups more than hinted at a brand backlash. Said Bob Lawrence, executive director of Associated Volume Buyers (AVB), “We are not happy at all with Thomson’s decision. We don’t need to compete with our suppliers. We hope they’re successful, because they will lose sales from a lot of independent retailers.”
Added the VP of a major regional chain, who requested anonymity, “We called Maytag headquarters and expressed our deep concern over the plan. Basically, we went ballistic. We told them it would endanger our relationship with the brand. We can’t tolerate a supplier that’s also our competitor. We’ve been making gains with Maytag, but we would cut back on them drastically if they started selling online.”
Bill Trawick, the newly seated executive director of NATM Buying Corporation, concurred that “a whole lot of members are not happy with the Maytag issue and are not happy with RCA. No one in retail is going to sit there and applaud.”
The manufacturers’ take, he said, “is that they want to push their customers onto our web sites. To which I say fine – then don’t offer a selling price.”
“It’s very disappointing,” agreed Ed Kelly, director of Nationwide TV & Appliances. “We think they’re going to have a very difficult time distributing goods, particularly major appliances. There’s warehousing, service problems, and the cost will be considerably more than they anticipated.”
“Even if they look to the independent dealers for fulfillment,” Kelly said, “how do you divide the profit up? We’re operating on 18% to 20% gross margin. How do you split that?”
Chuck Wolf, president of the 700-unit Wolf Camera chain, cited The Home Depot as an example of a leading retailer that refuses to compete with manufacturers over the Internet. In a prophetic speech before the PhotoImaging Manufacturers & Distributors Association in September, he noted that the home-improvement chain no longer carries products that are sold online by its suppliers.
“It was interesting to me that The Home Depot said they would not be put in the position of purchasing products from vendors who were also, in effect, competitors,” Wolf said. “I’m not exactly sure how this will all play out, but there are a lot of us in the retail business who are watching the situation with interest.” – Steve Smith and Cathy Ciccolella contributed to this article.
