Distribution Strategy: The Big Box vs. Independent Retail Debate

Sarah Leung
April 28, 2015

It’s a distribution strategy question faced by many growing brands: stick with selling through independent retailers? Or begin moving into the world of national chains, big box stores, and eCommerce giants? While many wholesale brands have built their businesses selling to main street retailers, the Costcos and Amazons of the world are seen by many as a kind of holy grail––a surefire way to propel a brand to unfettered success. On the other side of the debate, the naysayers see such organizations as facilitators in a price-cutting race to the bottom. For wholesalers trying to sell to both big box and independent stores, the resulting channel conflict presents significant challenges. Let’s take a look at both sides of the debate, and the current outlook for wholesalers choosing to work only with independent dealers on a horizon dominated by strip malls and shopping plazas.

The Pros and Cons of Becoming a Big Box Supplier

The Pros:

Increased Market Penetration & Brand Visibility Perhaps the biggest advantage of landing a spot in the retail big leagues is the resulting increase in brand awareness and expansion into new markets. Scaling your retail distribution strategy becomes a more straightforward task when you have a national chain for a customer. Higher Sales Volume We live in a big box world, and many independent retailers are struggling to stay afloat. From there, it’s a simple numbers game. Assuming that you’ve made it through the sink-or-swim production ramp-up to meet the volume needs of your chain customer or mass e-tailer, the sheer power of numbers can spell success. The Cons:A Weaker Supplier-Retailer Relationship

The experience of working with an independent retailer is often a very personal one. Sales reps often speak with buyers face-to-face at trade shows or store visits, and those buyers tend to be more flexible and open to new lines and products. Working with big box retailers, on the other hand, means working with a corporation. Not only will your prices drop (along with your margins), that corporation will also be less invested in understanding and promoting your product. According to Art Jackson, VP of General Administration at Costco, “If something’s not selling well, we’ll swap it out.” At that scale, such decisions are simple, and they’re much more black and white. Damage to Brand Perception One of the greatest advantages of selling products through independent dealers is the fact that they offer a much more superior experience for the end customer. Store staff will be more familiar with your brand and your products, and provide a level of service and knowledge that can’t consistently be found at a massive chain. Brands can gain strength from this more boutique, service-oriented experience. By contrast, placing your brand’s products on shelves at mass-market retailers can do damage––especially to those brands perceived as more high-end. Mass e-tailers like Amazon, for instance, provide little to no branding options. Every product is subject to the same format, and customers are ultimately loyal to Amazon, not you. Backlash from Independent Retailers Independent retailers are looking to differentiate themselves by stocking unique products that cannot be found at chain stores. Supplying those chains with your products (and therefore making them available at lower prices) spells disaster for your existing base of independent retailers, whose bottom lines will be directly affected. No longer able to compete with this other channel, independent retailers will often drop the line altogether, allowing your competitors to move in.

Can Your Business Achieve Growth Without Big Box Retail?

So the question is, is it possible to achieve significant market penetration without leveraging big box retailers? It’s an age-old question, and it applies to countless businesses across industries trying to take their brands to a national (or global, for that matter) level. One company seems to be proving that it is indeed possible, and they’re proving it in a big way. Founded in 1926, Stihl, Inc. is a manufacturer of handheld outdoor power equipment, including products like chainsaws and lawn mowers. They are the #1 selling brand of gasoline-powered outdoor tools in the United States––an enormous achievement within an $8.3 billion dollar industry. This fact becomes all the more surprising when one realizes that none of their products are sold in big box stores or national chains. Eschewing large retailers like Home Depot or Lowe’s, the company is fiercely devoted to an independent dealer-only model, and they attribute that model to their success. An article by Steve Farwell of the Kellogg School of Management at Northwestern explains, “The real reason Stihl cut ties with these national retailers was their inability to provide consumers with the right customer experience. Stihl had cultivated a network of over 8,000 independent specialty dealers who took pride in providing their customers with the full range of high-touch services and education required to make the right purchase—and use the product safely. [Former VP of Sales and Marketing Peter Burton] and his colleagues felt that distributing in the home centers would eventually undermine Stihl’s quality reputation and brand image with consumers.” According to Ken Waldron, National Marketing Director at Stihl, the company sticks to their independent-only model simply “because it has proven the right distribution strategy for the continued success of the Stihl brand...for those who believe that the days of the independent retailer are over, it is interesting to note that in the last decade, the dealer channel has increased its market share of outdoor power equipment sales by six percentage points." Indeed, by putting their products in stores where staff “are knowledgeable, can match customers with the right piece of equipment, and...service the equipment they sell,” Stihl has built intense customer loyalty and a reputation for quality and reliability. The company expended no small amount of effort to achieve this success, however. In order to appeal to a chain store generation, for instance, Stihl launched the Independent We Stand movement to highlight the importance of supporting small businesses. Independent We Stand remains a large-scale campaign to help consumers find independent stores and pledge to buy local. At the independent website, IndependentWeStand.org, users can search a database of over 100,000 retailers and service providers, including Stihl’s dealers. As we mentioned in our recent post on Big Data, Stihl also actively leverages marketing analytics in order to support their retailers and help them gain an edge over their competitors at chain stores. In 2013, Stihl began a large-scale effort to analyze over 10 million customer records. They took the data and used it to empower over 5000 independent dealers to collectively launch targeted regional marketing campaigns on their behalf. This innovative “micro-marketing” approach has proven to be an effective weapon against the big box behemoth. Considering Stihl’s massive success, it looks like achieving real business growth and market dominance without the help of big box retailers is a very real possibility. Like most things worth doing, however, it’s not easy.

Determining Your Distribution Strategy

In the deciding whether or not to go after mass retailers in order to scale upwards, businesses have a range of key considerations to take into account.

For brands considering big box retail:

  • Are you ready to cut margins?
  • How will it affect your independent distribution strategy?
  • How will it impact the perception of your brand?
  • Are you comfortable prioritizing sales volume over customer experience?

For brands who’d like to maintain an independent distribution strategy:

  • Is there a large enough network of independent retailers in your space to scale growth?
  • How will you develop a sales and marketing strategy to compete with chain stores?
  • Are you willing to invest in building more strategic partnerships with retailers?

This is not to say that one can’t have the best of both worlds. Many brands manage to sell to national chains (though they may not be quite as big as Costco or Walmart), as well as small boutiques and independent stores. Others achieve some level of harmony by creating multiple product lines––lines specifically made for independent retailers, and others for the mass market. Ultimately, developing your future distribution strategy isn’t a process that happens overnight, and there are no one-size-fits-all answers. Care to weigh in on the big box vs. independent retail debate? We’d love to hear from you in the comments!