Nordstrom And Macy's Figure Out That Small Suppliers Don't Like Showrooming Either

A Houston 15-year-old is selling her line of $20 children's flip-flops through Nordstrom (NYSE:JWN), and Macy's (NYSE:M) is asking her to design a product line for them, according to Yahoo Small Business. That might just be a heartwarming young-entrepreneur story, except that neither Nordstrom nor Macy's are in the heartwarming business.

Nordstrom put the custom-designed line of "Fish Flops"—flip-flops decorated with cartoon fish and flashing LEDs—in 60 of its 225 stores and on its e-commerce site last year after the just-turned-teenager wrote a letter to the chain's buyers. Before Nordstrom, the merchandise was only being sold in small boutiques after Fish Flops launched in 2011. In 2012, the business sold 60,000 pairs. That's tiny. It's also a big part of what makes this an interesting case.

Showrooming? That's not going to happen when a retail chain is dealing with a tiny supplier who has a fundamental interest in building that relationship. It's also literally impossible when the tiny supplier is doing custom designs for each major retailer it supplies. A customer who wants a flip-flop designed for Nordstrom isn't going to want a knockoff, or even one from the same company but sold at Macy's. Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY)? Forget it.

That's the advantage of big (or even medium-size) chains using small suppliers. The product is naturally scarce, and the supplier wants to grow the business but not undercut the product's value—which fits in perfectly with what an upper-level chain like Nordstrom or Macy's or the small boutiques that originally ordered Fish Flops want.

Big chains have historically put a high priority on not being out of stock, which meant the bigger the supplier, the better. But that's a recipe for showrooming, since big suppliers will sell to anyone. By going to little suppliers who literally can't afford to flood the market with their products, chains risk running out but not watching their merchandise sit on the shelf.

There's an irony here: The very biggest of big chains uses smaller suppliers in exactly the opposite way. Walmart (NYSE:WMT) dangles the opportunity to get products into its stores in front of small suppliers, then squeezes the supplier on price until there's far less reason for that little, typically local supplier to value the relationship. Nordstrom and Macy's have reversed that dynamic—and made it a showroom-buster.

For more:

- See this Yahoo Small Business story

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