Move over, Amazon. Consumer-products makers, squeezed by private-label goods at retailers like Wal-Mart, are hawking their wares directly to buyers online
Alex Garcia loves his Levi's. He hankered for a plaid trucker jacket from the clothing maker but couldn't find it at any of the stores near his home in Los Banos, Calif., in the state's Central Valley. So Garcia logged on to the Levi Strauss & Co. Web site and bought one straight from the source. "I wear nothing but Levi jeans," says Garcia, 34. "They're just great jeans." To attract more customers like Garcia, San Francisco-based Levi Strauss has taken steps to spruce up its Web site. A growing number of consumer-products companies, including Procter & Gamble (PG), Mattel (MAT), and Columbia Sportswear (COLM), are beefing up online retail operations to cater to budget-conscious buyers. These companies, some of them newcomers to online retail, are also fending off a rising threat from often cheaper private-label products crowding shelves at retailers such as Target (TGT) and Wal-Mart Stores (WMT). "There's a wide variety of folks that have been historically considered manufacturers that are now positioning themselves as retailers," says Sally McKenzie, a former executive at Expedia (EXPE) and Eddie Bauer Holdings who consults e-commerce companies. "It's harder and harder for their products to stand out. The Web is a phenomenal opportunity to assert their brand authority." Direct Sales
Direct sales by consumer-brand manufacturers are one of the fastest-growing areas of online retail, increasing almost 13% in 2009 to $487.6 million, according to Vertical Web Media, a Chicago-based research firm. Online sales from chain retailers and companies that sell through catalogs declined last year, while Web-only retailers such as Amazon.com (AMZN) gained 25%. Besides peddling products, consumer companies also use sites to entice customers to interact with their brands. El Segundo (Calif.)-based toymaker Mattel opened an online store last year, MattelShop.com, where customers can buy Computer Engineer Barbie and Hot Wheels Tub Racers while playing Uno with friends. "These sites are not only a way for them to sell and gather margin, but also a way for them to form a direct connection with consumers," says Jack Brown, president of In-Depth Research in Tiburon, Calif.
Other manufacturers introducing or expanding online stores include Procter & Gamble, the world's largest consumer-products company, which in January said it would open a direct-sales site later this year, and apparel maker Columbia Sportswear, which in August opened a site where customers could buy its products directly for the first time. Private-Label Popularity
The online onslaught is being driven in part by the rising popularity of so-called private-label products from retailers. Wal-Mart, the world's largest retailer, added 80 products including laundry detergent and double-stuffed sandwich cookies to its Great Value brand last year. Target sells its own line of groceries under the Archer Farms label. Kimberly Peterson, a 37-year-old blogger in London, gave up P&G's Tide detergent for a lavender-scented laundry soap marketed under Costco Wholesale's (CSCO) Kirkland Signature brand. "It works just like the name-brand ones but it's cheaper," Peterson says. Private-label goods accounted for 22% of consumer-packaged products sold in the U.S. in 2009, up from 20% the year before, according to The Nielsen Co. "Private label used to be just a bunch of knockoff products," says Brian Wiegand, co-founder of Alice.com, a site that opened in July to let manufacturers including P&G and Georgia Pacific (GP) sell products online. "Now there's sophisticated branding and manufacturing and high-end quality." Another impetus to sell via the Web came with the recession, which prompted consumers to do more shopping online, where comparison bargain-hunting is easier. Online sales are expected to reach 12% of the total retail market by 2012, up from 6%, or $211.7 billion, now, according to Forrester Research (FORR). Retail Challenge
Still, it can be a struggle to keep consumers focused on a niche site, when they can buy a wide range of products on rivals such as Amazon.com, says Brown of In-Depth Research. And to succeed at retail, companies need a knack for warehousing, shipping, and getting the price right, Brown says. Alice.com acts as a middleman, letting manufacturers sell products at no charge and offering such services as free shipping. The site makes money by selling ads. Other companies such as Art Technology Group and Elastic Path Software help manufacturers set up their own turnkey e-commerce sites complete with shipping and inventory management. Some manufacturer sites are having the desired effect. A survey of 13,000 consumers released last year by analysts at Forrester found that almost 66% of U.S. shoppers who had gone to a manufacturer's Web site expected to spend the same amount of money or more at the site in the coming 12 months. Garcia is a case in point. The trucker jacket was his first purchase directly from Levi's online store. He says that next time he has trouble finding the right item in a brick-and-mortar store, he'll be back to Levi.com.