The Changing Role of the Distributor and the Impacts eCommerce and China have on Distribution.

I’ve always considered the key engine room for a Retailer’s success to be its product, technology and systems and its supply chain. Today I’m going to focus on the supply chain and in particular the trends and challenges in wholesale distribution. As a number of Retailers in Australia source from China, I will also touch briefly on China and their eCommerce and the impact that that will also have on wholesale distribution. As the world of business gets smaller it also gets easier to do business across countries. A major threat to Distributors is Retailers cutting them out and going direct to the Manufacturers to reduce their costs. Some Retailers are also negotiating with Manufacturers to hold stock on their behalf again cutting out the storage of this product at a Distributor. At the same time Retailers are expanding globally into more and more countries either via online eCommerce, a physical presence or both. Whilst this allows them to increase sales it also creates a logistical challenge in getting stock in a timely manner to these various markets. A traditional method to support this expansion is for the retailer to hold stock of their products in each of these markets to be able to replenish local stores and eCommerce sales in a timely manner. Many retailers simply copy what they did in the one distribution centre across multiple distribution centres in various markets. So whilst sales are increasing and manufacturing costs go down, distributing costs go up. In addition, another challenge for the retailer is forecasting how much stock to hold in each of these markets. The risk to the Retailer is having too much stock in an unsuccessful market and not enough in a successful market increasing markdowns or further logistics costs to move product across markets, not to mention the loss of potential full price sales. This challenge for the Retailer creates an opportunity for Distributors. Distributors can move from simply holding stock to becoming a Business to Business partner. To do this, the Distributor needs to have systems that allow the Retailer to integrate simply so that real-time sales and replenishment data can be passed to the Distributor who can then move the product directly to the appropriate market/stores based on consumer demand. This allows the Distributor to add value to the Retailer by reducing the Retailer’s stock holding costs and markdowns. A further challenge to Retailers who source product from China and use a Distributor in China is China’s own local growth. China has one of the fastest growing e-commerce markets and whilst Consumer to Consumer through Alibaba’s Taobao platform is the major contributor, business to consumer is also increasing. This will become a challenge for China’s wholesale Distributors as they try to keep pace with global and local growth. This in turn, could impact Retailer’s trying to get their own products to the various markets they are expanding into. These challenges will play out in the next few years (and will take more than this short blog for me to address), but I believe the key for Retailers and Distributors is to work together in a more collaborative manner to overcome these challenges. The Distributor is still relevant as long as they move from storing product to becoming a key part of the supply chain for the Retailer and help the Retailers by overcoming the challenges they face with their global expansion.