Volume is what most brands really value
A few years ago if you wandered into a Poundland store you really would not have known what products you’d find on the shelves. This was because the business sourced many of its branded lines via third-parties because the brand owners would not supply the retailer direct.
The issue was that the well known brands thought the discount proposition of Poundland would devalue the products they’d spent years placing on a pedestal built upon millions of pounds of advertising. And what would their biggest customers like Tesco and Sainsbury’s think if they suddenly started cutting deals with Poundland.
Jim McCarthy, former CEO of Poundland, knew that a breakthrough would only be possible if the discounter was selling sufficiently high volumes that the brand owners could no longer ignore his business.
Only then would they start supplying it with the brands it demanded. And so it came to pass that the growth of the discounters (helped by the pressure they put on the major supermarkets) meant that the Procter & Gamble’s and Unilever’s of this world had no real choice but to supply this burgeoning part of the retail market.
It has been a similar story with Amazon. From its early days it has found resistance from numerous different brand owners across the various categories it has gradually chosen to move into – following its initial battle field of books.
Latterly it has been on the offensive with clothing. The argument from the brands has been that the Amazon platform does not do justice to their products and the finely built values attributed to them.
This situation stacked up when the brand owners could rely on a strong channel to market through the department stores. But this group of retailers has come under pressure and now Amazon is doing the sort of volumes that the brand owners can no longer ignore. Nomura estimates clothing could be worth between $45 billion and $85 billion by 2020.
Nike had resisted supplying Amazon for years but fell in-line with the numerous other brands that had succumbed to the temptation to have their products appear in front of billions of potential customers. As it builds its clothing business Amazon is redefining yet another part of the retail sector.
Glynn Davis, editor of Retail Insider
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