EcommerceBytes-NewsFlash, Number 2841 - July 05, 2012     1 of 3

Why Other Brands Might Follow Adidas off eBay and Amazon

By Kenneth Corbin

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When Adidas confirmed that it was pulling its merchandise from online marketplaces, many in the ecommerce community were taken aback. After all, here was an internationally recognized brand cutting off distribution across some of the most prominent - and fastest growing - channels.

But Adidas was not unique, and the company was likely responding to similar pressures associated with selling on marketplaces that other brands, of all sizes, have been facing, according to Wes Sheperd, CEO of Channel IQ, an online services provider catering to manufacturers, distributors and retailers.

"Adidas isn't the first, and they're definitely not going to be the last to do what they did," Sheperd said. "There's a storm brewing here."

Downward pressure on pricing levels and worries over knock-off merchandise are high on manufacturers' list of concerns, but broadly they can be categorized as a fear of losing control over the marketing, sales and distribution of their prized brands.

"Right now marketplaces just don't provide enough structure as a channel for manufacturers in their eyes," Sheperd said.

He declined to name specific Channel IQ clients that have either pulled their merchandise entirely from marketplaces or significantly shrunk their listings, but said that the categories where brands are most concerned with the channel include luxury goods, apparel, footwear and consumer electronics. For instance, he pointed out that Nike, not a Channel IQ client, has dramatically scaled back its presence on Amazon.

But even as many brands fret over their marketplace strategies, and perhaps contemplate shutting down the channel, only a small minority have actually taken that step, according to Rob Caskey, vice president of marketing and direct sales at Liquidation.com, a marketplace for surplus inventory.

"That's a pretty hard stance," Caskey said when asked about Adidas's move. "It seems like an anomaly to me at this point."

Caskey's view of the trends unfolding in manufacturers' approaches to marketplace certainly contrasts with what Sheperd has observed, but both ecommerce industry participants stressed the challenges of operating in the channel. By definition, the customer experience, defined by any number of factors ranging from signage to pricing and support, is to an extent taken out of the hands of a manufacturer when it chooses to sell to an online marketplace such as Amazon.

"Brands do a great job of controlling that experience," Caskey said. "But then they cede some degree of control potentially when (they enter marketplaces)."

Indeed, Amazon poses the most significant challenge for brands, according to Sheperd. For many manufacturers, it's simply too big to ignore, but they also view it as one of the chief culprits in driving down prices.

Manufacturers have responded to price deflation by implementing minimum advertised price (MAP) policies, which Amazon has resisted. Meantime, some manufacturers have complained that MAP policies are difficult to enforce, while sellers on the marketplace have observed that they are enforced unevenly on Amazon's marketplace. Some sellers have pointed out that Amazon itself at times appears to get away with undercutting MAP levels, while smaller shops on the site cannot, creating an unlevel playing field, particularly when Amazon's cut of the sales on its site is considered.

Then, too, manufacturers looking to enforce their policies often find they have little recourse with corporate buyers and other Amazon staffers, Sheperd said.

"They've been very good at erecting walls to the outside world," Sheperd said of Amazon. "Unless someone's doing something illegal, there's very little you can do."

A spokesman for Amazon declined to comment for this story.

Sheperd drew a sharp contrast between Amazon and eBay, which he praised for its Verified Rights Owner (VeRO) program, pricing transparency and willingness to work with manufacturers to address problems on its marketplace.

"eBay's actually a pleasure to deal with," he said.

Down the road, however, Sheperd envisions Amazon yielding to the mounting demands of brand owners, at least to an extent.

"I expect that over time Amazon's going to get better because they're getting increasing pressure from manufacturers," he said.

As a general matter, Sheperd does not advocate brands follow Adidas's path and foreclose on the marketplace channel altogether. "You can't ignore Amazon," he said. But he suggested that if manufacturers sense their product line slipping out of their control, and observe brick-and-mortar sales suffering at the hands of online markdowns, they could limit the number of SKUs they make available on third-party websites. Of particular concern is the phenomenon known as "showrooming," where consumers visit a physical store, mobile phone in hand, and browse the Web for the lowest price for the same items they are looking at in the store.

Additionally, he touted the importance of keeping close tabs on the diffusion of a manufacturer's products across various stores and marketplaces, a specialty of Channel IQ. A badging system, such as the one Sheperd's company just rolled out, can help inform consumers if they are shopping with an authorized seller.

He also suggested manufacturers concerned with loose distribution engage in anonymous purchases. If they have serialized their merchandise, they can track individual items purchased from an unauthorized seller back to the distributor that supplied the product.

From a consumer perspective, Caskey also suggested that manufacturers take a more hands-on approach to manage the shopping experience. That includes quality control, signage, marketing and pricing communications and other factors.

"The key would be to ensure that you're representing that brand in a way that is consistent with and approved by the brand owner," Caskey said.

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About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.


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