There has been a trend this year of retailers—scared for their survival in a massive economic mess—questioning their Internet/E-Commerce investments and whether their dollars wouldn't be spent better elsewhere. The best example is likely Borders, but Canadian Tire, Sears and even Circuit City—in its last days—also provide good evidence of the trend.
But other retailers are re-evaluating their E-Commerce strategy and are not necessarily pulling back. Many are questioning the impact on their brand strategy—let alone their channel strategy—of having a high percentage of their product sold by huge E-Commerce sites that sell hundreds of thousands of other—often unrelated—products. Amazon, EBay and Overstock are probably the three most well-known generic e-tailers, but it's a very long list.
Cloud B, a maker of fancy sleep products for children, is a good example of a specialty manufacturer who has opted to make such a change and pull its products away from Amazon. That wasn't an easy decision, given that Amazon's sales have accounted for about 10 percent of all of Cloud B's revenue. Nevertheless, for some manufacturers who believe their main competitive strength is their brand, selling to mammoth "vanilla" sites equates to sacrificing long-term success for short-term gain.
In announcing the pull-out, Cloud B said it wanted to "stay true" to its business philosophies by supporting smaller retail partners as they struggle through the recession. However, Cloud B President and CEO Nader Hamda said there are other drawbacks to dealing with Amazon when you are a specialty manufacturer with a brand built on exclusivity.
"We are a higher-end brand and going down the Amazon route wasn't in synergy with our brand positioning," Hamda said. "During a company's evolution, you get to a crossroad where you decide whether you're going to play with the big angel or opt for slow, steady growth. It's a very scary decision. Often, you are looking at immediate gains (by selling to Amazon) and you almost can't walk away."
Cloud B, in business for six years, sells its products in about 3,000 specialty stores nationwide and 23 countries worldwide, Hamda said. Not all its sellers are small; Cloud B merchandise is sold by Nordstrom, Harrods, Bloomingdales and other big, but "fine," retailers. It sold through Amazon for about a year.
The decision to use Amazon didn't have an immediate impact on Cloud B's relationships with its other retailers, but Hamda said "people started to be a little bit confused as to where the brand really was in terms of the market." He said selling through Amazon seemed to send a "mixed message where, all of a sudden, we're selling into a mass-marketplace."
He noted Cloud B items can't be found at many big-box brick-and-mortar stores. "If we were to sell to Wal-Mart, that would be a disconnect for the brand," Hamda said. "But Amazon and a lot of click-and-mortars are in this gray area of brand positioning, which is kind of nice for a lot of manufacturers that want to leverage that and get revenue without completely compromising the integrity of their brand."
In other words, Cloud B could have stuck it out with Amazon. Unlike a move to Wal-Mart or Target, its brand would not have been completely diminished. But Hamda said the nail in the Amazon coffin was pricing. "The problem with the Web is it exposes everybody's price points right there for everybody to see," said the CEO.
"We ended up spending 10 percent to 15 percent of our salesforce's time continuing to police all the retailers on Amazon alone to make sure price-matching didn't get out of hand and all of a sudden our products were being sold just above wholesale," Hamda said. "It's just part of the Internet."
Hamda said withdrawing from Amazon will immediately erase eight- to 10 percent of Cloud B's revenue, but he believes it will be worthwhile in the long-run. "We needed to better understand how we could better serve all our retail customers where it's not always about lower price but it's about dealing with the best companies with best distribution channels and the best customers and the best market reach," Hamda said.