walkitout (walkitout) wrote,
walkitout
walkitout

Disintermediation

h/t my husband

From the NYT:

http://www.nytimes.com/2013/04/01/business/e-commerce-companies-bypass-middlemen-to-build-premium-brand.html

The 2 page story is about up-and-comers exploiting manufacturer knowledge of what established brands are doing to help the New Guys produce cheap, on-trend items. The manufacturers are playing along because the established brands have had to retrench since the bust, and because they are mad at established brands being unusually slow to pay.

The story also mentions, but completely buries, the difference in payment model, which is the exact same payment model difference that led to discount stores in suburbia decades ago: pay when ship, rather than months later. This is another form of delevering or deleveraging, and when discount stores did it decades ago, they took on the capital risk of having paid for the item before they had sold it. With web retailing, the new guys are able to take the order, have it made, pay for it and ship it all very close together in time, thus limiting or eliminating their capital risk (they eliminate it if they take payment from the customer before having the item made; they limit it if they just shorten up the production and delivery time frame. I believe they are doing the latter, but making ONLY enough for what you already have orders for eliminates inventory costs as a segment of capital risk. I sure hope I got the vocabulary right. I know I got the underlying idea right, so if the words are wrong, please let me know).

Of course, you still have to deal with quality control, which even large retailers have difficulties with (the first iPhone, the current Lululemon yoga pant scandal, etc.), and the costs associated with establishing a brand. Retailers who maintain a commitment to in-person retailer (brick-and-mortar stores) continue to believe that touching and feeling is an important part of connecting with a brand and one that cannot be entirely dispensed with.

They may well be right, at least part of the time.
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