How retailers & suppliers can tame the net: price competition from the internet can only grow more intense. Herewith, a modest suggestion on how the industry can pull together to improve customer service, enhance brand status, and improve brick-and-mortar retail profits.

If you have not yet accepted that the internet is a permanent and valid shopping alternative, do it now. People enjoy the access to information it provides as well as the convenience of shopping at 2 A.M if they want to. It's a simple fact of modern life that people are working longer and have less free time than they used to. Anyone can accumulate more information than they would ever want to know about any product from manufacturer websites, user forums, and online product reviews with just a few clicks. It's only logical that many choose to make their purchase online as well.

To counter this, many brick-and-mortar retailers are employing an ever-increasing number of customer retention and "hobby fulfillment" strategies. Programs like Weekend Warriors is one way a store can become a "destination" and not just a source of products. Stores are being forced to do so since their competitiveness on selling gear alone is being seriously eroded. The best retailers are becoming even better and the speed at which retailers are learning successful strategies from each other is also increasing due to national and regional retailer groups like furmm, IMRA, IMMG, MIMM, and others.

However, brick-and-mortar stores still serve at least one purpose for even the most dedicated internet shopper--they are a showroom where people can touch, play and hear the products they're interested in. To an ever-increasing degree, that is also the role those stores are serving for manufacturers--showrooms for the internet. To make matters worse for the brick-and-mortar store, those customers who want to shop for prices below MAP can access 24/7 phone-in sales desks. There they can negotiate a price with an online reseller who, due to their sales volume and other considerations from manufacturers, is frequently paying substantially less for the same product than a stocking, displaying, repairing, teaching, community-supporting, tax-paying local retailer.

We have arrived at a crossroads where local retailers and manufacturers need to either achieve a renewed understanding of the value they offer each other or accept that our paths to success are taking us in different directions. Brick-and-mortar stores, by and large, must remain just that. It's simply not a viable alternative for every retailer to become a full-blown e-commerce reseller. Should they try to do so, we will literally have 1,000 or more retailers setting up shop at the intersection of Google Drive and the Internet Highway. The outcome of this would be no different than if it happened in the physical world and not cyberspace: a short, bloody price war followed by a 95% rate of business failures. As absurd as this scenario is, it is precisely the "solution" some manufacturers are suggesting to retailers: go online or lose out--period!

In the hope of starting a discussion about more practical solutions, I put forth the following plan. It's only a skeleton of the details that would be required in an operational program but I think you'll catch the drift.

It is based on a very few simple suppositions:

1. Manufacturers benefit from having their products shown, serviced and sold at brick-and-mortar locations.

2. Local retailers play a substantial role in building and maintaining the reputation of the products they carry.

3. It is in the best interest of both manufacturers and retailers to see that the end-user's perceived value for their products remains high.

4. Any solution is a two-way street from which both parties must profit.

I propose that manufacturers become the one and only e-commerce reseller for their new products. All other reselling of new goods on the internet would cease. This is not a referral program that would route a sale back to a local retailer. The goods would ship directly from the manufacturers' inventory. All pricing would be at MAP and the profits shared between the vendor and the retail dealer closest to the online purchaser (as shown by ZIP code) who has met the following (and other) program participation requirements:

1. Dealer has bought into the program for an industry-wide, uniform per location participation fee.

2. Dealer purchases a mix and quantity of the vendor's products established by the vendor.

3. Dealer has ordered at least one of any model sold via the e-commerce site into his locale within the previous six months.

4. Dealer has maintained their open account and/or flooring credit status as current.

For their part, the manufacturer would set the wholesale pricing, as well as the stocking and displaying parameters, at levels for all dealers who are in full compliance with U.S. statutes and regulations and make allowances for the verification of such. It would be understood that the manufacturer has the sole authority to set the percentage shared with dealers. Online purchaser demographics that would now be captured by the manufacturer could be shared with the local dealer and used by them to establish distribution based on a much greater amount of real-world data.

While NAMM has consistently reported over the last decade that retailers need to make a 35% profit margin to keep their doors open, this figure pertains to stocked and inventoried goods and need not be taken as a guideline for the profit sharing of online sales under this program. In fact, this plan would increase the "blended" margin for retailers while adding back to the manufacturer's margin some or all of the 10%, 15%, 20% or higher wholesale discounts larger retailers demand and, in addition, provide them with the lion's share of the profit from online retail sales. The intention of this plan is very definitely to return control of the product lines to the manufacturers.

Are We Nuts?

In summary, the e-commerce trend towards price being the only purchase consideration has made it too destructive of the relationships that create and maintain brand value for retailers and manufacturers. By taking control of this evolving distribution channel now, rather than letting it control us, the hard work and good names that everyone has worked so long to establish can not only be preserved but enhanced for mutual profitability.

I have already heard many objections to this plan ranging from "We'd have to be nuts to invite the manufacturers to become retailers; they want to get rid of us all as it is!" to "Great idea, but no manufacturer's management has the long-term vision to do it." to "Bah! I can't trust a retailer to keep his commitments." My short answer to those objections is to refer back to the four suppositions stated above. People who believe those things to be true can and will find ways to reverse the negative trends in our industry. Those who do not are probably already on the road to realizing our worst fears about the future.

Bill Stevens is the administrator Of the NORCAL Music Coaltion, a group of independent retailers. He has been active in the industry at retail and on the supply side for over two decades. [e-mail]