In today’s omnichannel world, the distinction between brands and retailers is of little interest to consumers. They will buy from whoever is best able to “deliver the goods.” Branded manufacturers can take advantage of this unprecedented opportunity to get closer to the consumer, if they manage to acquire the requisite fulfilment and supply chain capabilities.
The Untapped Potential of Branded Manufacturers
Consumers today are spoiled for choice. No matter where they live they have at their fingertips a vast assortment of products, a stunning array of delivery options, and a never-ending parade of novelties, exclusive products, and special offers. The consumer journey is becoming truly frictionless, thanks to advances in digital commerce technologies and disruptive innovations from the likes of Amazon and Alibaba, which continue to push the frontier to enable consumers to buy what they want, how they want it.
What’s more, consumers don’t care who gives them what they’re looking for. Can a retailer deliver the goods? Fine. Is it easier to find and buy what they want from a branded manufacturer? That’s fine too. And, in fact, the lines between retailers and brands are becoming increasingly blurred. Retailers are mimicking branded manufacturers, offering exclusive SKUs and innovative products under their own brand. Amazon, IKEA, and Sainsbury, for example, are investing significantly to expand their private label business. In contraposition, brands are establishing frictionless direct-to-consumer fulfilment options. In many countries across Europe and Asia, online Samsung stores offer products for direct home delivery. Direct-to-consumer is the fastest growing sales channel at L’Oréal and other traditional beauty manufacturers. In the past, retailers tried to discourage – and even thwart – direct sales by branded manufacturers. Today, however, some retailers are actually renting out space where brands can set up a showroom to feature their long-tail SKUs. This tactic, besides allowing retailers to take advantage of surplus space on the sales floor, also enables them to benefit from the brands’ halo effect.
Presently, branded manufacturers’ omnichannel sales – that is, sales fulfilled by the manufacturer, regardless of whether the customer makes the purchase at a third-party retailer, a manufacturer-owned store, or online – typically account for between 5 and 8 percent of total revenue. We believe brands can increase that percentage to between 15 and 25 percent over the next three to five years. Such a shift will not only improve brands’ operating margins, but it will also create greater stickiness with end customers and increase their market power.
Our work helping more than a dozen brands across different sectors such as CPG, Beauty, apparel, and consumer electronics to achieve their full growth omnichannel potential has taught us they must follow a systematic three-step approach to transform their underlying fulfilment capabilities and supply chain:
About the Authors
Michael Hu is a Principal in the Operations Practice at A.T. Kearney. His area of expertise is helping global consumer and retail clients in areas of omnichannel and eCommerce operations, supply chain transformation, and digital transformation.
Sunil Chopra is the IBM Distinguished Professor of Operations Management at the Kellogg School of Management. He has co-authored two books and several academic articles that have appeared in top journals. His book on Supply Chain Management was awarded the best book of the year by the Institute of Industrial Engineers (IIE). His recent research has focussed on risk management and omni-channel distribution in supply chains.