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Tiffany Montgomery
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Vipe Desai weighs in on retail debate

By Tiffany Montgomery
December 31, 2007 7:22 AM

Vipe Desai has an interesting take on the discussion about manufacturers opening their own retail stores. He's worked on both sides of the fence, and thinks the relationship between retailers and manufacturers needs to evolve and professionalize.

Vipe owned a store called H20 Surf & Snowboard in Sunset Beach for eight years. Now, he owns and runs Propaganda Headquarters, a brand strategy firm. He helps companies outside action sports tap into the industry, helps brands fine tune marketing strategies and manages events and athletes.

Here's what he had to say:

"The debate over brand-operated stores is raising concerns and questions across the industry. How will this impact retailers? Will other brands do the same?

The business side of the action sports industry is changing, and the relationships between retailers and brands need to evolve as well. But first, a little history.


How we got here

In the early 90's, maintaining exclusive distribution within a territory was very important for independent retailers. Some retailers took the opportunity to expand their retail business and started opening up stores close to others. This was the first wave of challenge for retailers because it increased the availability of specialty brands and created more competition within a radius. It was also an opportunity for those who took the road to expansion to strengthen their buying power with brands.

During this time, brands also started pressuring stores to carry more product in order to allow retailers to maintain exclusivity. This also led to some retailers over-buying goods. When independent retailers buy too much they send unsold inventory back to the brands in order to maintain their bottom line. This was one of the first challenges for brands.

After years of taking goods back, brands had to open up outlet stores. This was met with harsh criticism, but everyone got over it pretty quick. The 90's were experimental times, and many retailers and brands experienced record growth and leveraged emerging opportunities like the Internet to expand their business online.

The online moves led to further debate. Which retailers would be "official" online partners and how would this affect exclusivity? Now most retailers have an online presence and a few brands are even drop-shipping goods directly for select retailers. Some brands are even selling direct online.

Looking back on the 90's we can see some of the patterns emerging for future changes at the independent retail level. But all were based on profitability and growth. Now that the economic climate is more challenging, the business decisions are tougher.

Retail and brand relationships in modern times

The multi-store retailers are another reason why brands are going direct online and also opening their own store operations. The requirements from influential chain stores over pricing, design and in-store buildouts can get expensive. The brands want to control their own destiny with their own stores instead of jumping through hoops meeting the demands of certain retailers.

After years of enjoying the growth that these chains provide, the reality has set in about the sustainability of this type of relationship. For both parties sake, it needs to be adjusted. The demands from certain retailers erode the profit margins for brands, which face pressure from investors to improve profits and sustain growth.

Retailers are also under pressure from high rents and increased payroll costs. To stay competitive they need to find ways to be efficient within their operation. Too often, retailers look for the quick solution to find ways to squeeze margins from brands instead of taking a hard look at their own business.

The outside threat

Vertical brand such as Hollister, H&M and Zara are taking the retail and manufacturing business to another level. The direct to consumer, high-profit, efficient distribution, inventory cooperation and pure brand environments is an appealing model.

To compete and stay in business, our industry's brands and retailers need to review their relationships and create a new way of working together. Specialty retailers should also seek ways to become more sophisticated in their businesses and study non-endemic retailers to strengthen their operations for better efficiency.

The brands are going to continue to open their own stores and communicate directly with consumers, and together as an industry both sides need to identify which path is going to fit within their strategy. Larger brands will have to maintain a healthy balance between independent, multi-chain and self owned stores while leveraging direct to consumer channels.

Specialty retailers will need to have a product mix made up of select anchor brands, wider selection of micro brands that specialize in select product categories, highlight some private label offerings and seek and support emerging action sports.

Multi-chain stores will need to go deeper with select offerings with anchor brands, dabble lightly with boutique brands and completely overhaul their private label strategy."

Thoughts? Feel free to email me at tiffany@shop-eat-surf.com.

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