Manufacturers Find Ways to Navigate Web RetailingAugust 13, 2007E-Commerce ReportManufacturers Find Ways to Navigate Web Retailing By BOB TEDESCHIFOR manufacturers, the Web can be a hazardous place. Consumers expect these companies to sell their products directly online, but retailers have other thoughts.How, then, to satisfy all parties?You don’t, e-commerce executives and analysts said. Manufacturers have realized that they can sell more aggressively to consumers online, which puts them in stronger financial positions and also allows them to serve consumers more effectively. And retailers are not balking too much at manufacturers who sell online because, analysts said, Web sales are not high enough for retailers to fear that a vendor will steal a lot of business.“Retailers aren’t necessarily feeling the pinch from their suppliers’ online sales efforts,” said DanStanek, an analyst with TNS Retail Forward, a consulting firm. “So it’s not been as big of an issue as in the past.”Such news is especially good for smaller manufacturers, who might struggle to get their goods on retailers’ shelves, despite high demand from consumers for their products. Take PeaceWorks, a New York-based maker of specialty foods. Since it began operating in 1993,it has gained a modest following, with annual sales of more than $10 million, but it has not reached the stage where all the biggest grocery stores carry PeaceWorks items, like its Kind brand fruit and nut bars.“People would tell us that sometimes a particular flavor was not available near them,” said Daniel Lubetzky, the chief executive. “But we never wanted to be competing with our retailers, and we didn’t want to get involved with selling to one consumer at a time because we’re used to selling containerloads of product and we don’t have a huge staff for that.”Mr. Lubetzky said that several years ago, the company opted to sell directly to consumers by the case — 48 bars at $2 apiece, one flavor, no discount. “If you insisted on buying that way, we made it quite difficult for you,” he said.Last year, though, Mr. Lubetzky noticed a monthly tally of payments made by credit cards for more than $20,000 of PeaceWorks items, and asked employees why they were allowing retailers to pay by charge card. It turns out the purchases were coming from online customers. “We realized this was serious business,” Mr. Lubetzky said. “We had to embrace it.”This summer, PeaceWorks started a loyalty program, in which those who sign up for a monthly delivery of 48 bars can get a variety of flavors. A small concession, perhaps, but more than 100 people signed up, guaranteeing the company $120,000 in annual revenue. “And, obviously, our margins are very good,” Mr. Lubetzky said, since the company does not have to discount the price on the loyalty-program sales as it does when selling wholesale.PeaceWorks will also use the loyalty members to do surveys and gather other product advice, he said, compensating participants with samples, T-shirts and additional items.So far, Mr. Lubetzky said, he has not heard complaints from retailers. According to Mr. Stanek ofTNS Retail Forward, merchants are in no position to complain. In recent years, Mr. Stanek said, retailers have gotten much more ambitious in selling products oftheir own to compete with manufacturers. These so-called private label efforts have helped merchants like Target and Wal-Mart Stores build profits and sales at the expense of vendors.Meanwhile, manufacturers like Oakley, Tommy Bahama and many others have opened their ownretail outlets, saying the stores help build brand awareness, and thereby sales, for bigger merchants.Mr. Stanek said that manufacturers have also complicated matters by creating more variations of their products to satisfy niche buyers. As a result, the manufacturers are getting used to having some of their products rejected by retailers and thus have more incentive to try to move those products through the Web.There are, of course, manufacturers who leave the business of selling online completely to retailers. Callaway Golf created its Callaway Golf Interactive division after buying FrogTrader, an online retailer that sold Callaway equipment, among other things, for an undisclosed price in 2004.The company then spun out Shop.CallawayGolf.com, where consumers can order golf clubs. Thetwist is that a customer picks up the clubs from a local Callaway retailer. The company’s technology identifies the retailer closest to the customer and awards the sale accordingly.The company declined to comment on the system, but the benefits, Mr. Stanek said, are obvious: the sales go to the retailers and Callaway escapes the task of shipping sets of clubs to consumers.“It’s a very creative approach,” he said.Mr. Lubetzky of PeaceWorks said that its loyalty program was probably as far as the company would go selling directly online. “Our bread and butter are the retail establishments, so we want to be extra loyal,” he said.PeaceWorks’ retail distributors appear satisfied with that approach. Scott Goldshine, general manager of Zabar’s, the New York food merchant, said he had warned Mr. Lubetzky when he first heard about the online sales program. “But they have some ridiculous rules people have to follow to buy,” he said, “so it isn’t a problem for me.”Mr. Goldshine said that occasionally customers told him that they had found one of his products for a lower price online from the manufacturer. “I’ve had conversations with those manufacturers, where they’ve either raised the prices online or we’ve stopped carrying the product,” he said. “I don’t want to look like we’re ripping off our customers. That’s not our
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