Friend Or Foe: When P&G (And Other Partners) Push Direct Selling

The growing movement of major league consumer goods manufacturers selling directly from their Web sites is hardly unexpected. But the lack of a defensive reaction from retail IT is. For more than a decade, a mountain of extranet projects has allowed data to flow freely from manufacturer to retailer, with real-time data about pricing, inventory and millions of marketing insights. Is it time to radically reevaluate what is being shared?

The direct-sell CG announcements are all couched in politically sensitive phrasing, with promises that it's just a short-term test to better understand mutual customers and that some of the data will be shared with retailers. Some even argue that these direct-to-consumer moves will help retailers make more money by allowing the manufacturer to better target its products. (That argument is not necessarily impressive, but making it with a straight face is.)

Procter & Gamble, the $80 billion leader of the consumer goods space, is the quintessential example. Back in January, P&G announced the eStore, which would "exclusively feature P&G products to consumers in the U.S. The eStore is planned to launch this spring, following a pilot of the site with 5,000 consumers that will begin in the coming weeks."

In a look at the issue, BusinessWeek recently listed quite a few consumer goods manufacturers that are testing direct-to-consumer efforts, including Levi Strauss, Mattel and Columbia Sportswear.

The question is not whether CG players will make a major move to capture consumer dollars directly. The question is, "What should retailers do about it?"

There's the "do nothing different" approach, which assumes that direct-to-consumer sales will not be significant and that the best use of resources is to do everything to help the chain sell more of that product. Not only is it a short-term profit and revenue boost, but the more money that, for example, P&G makes from Wal-Mart, Costco and Target sales, the less incentivized P&G would be to pour resources into a different channel.

Then there's the other extreme reaction, based on the assumption that the presumably higher margins that a manufacturer makes by selling directly will outweigh everything else. The real issue here is one of brick-and-mortar versus online. The physical stores from the major chains have next to nothing to worry about from a manufacturer's direct site. (Those bricks already have a lot to worry about overall, as online and mobile chip away an overwhelming percent of their revenue.)

But the CG E-Commerce trials are a big concern for the online arms of those chains. Discounting becomes a lot more complex when the manufacturer is hustling, too.

Both schools of thought still have to deal with the information-sharing dilemma. The extranet arrangements certainly help to boost sales and especially profits. And yet, in the hands of a rival that may try and steal back those sales, it could be an amazing weapon.