Why Brands Should Re-Evaluate Their Retail Distribution Agreements

By Jordan Taylor

With the rise of e-commerce giants like Amazon.com projected to make up 50 percent of U.S. e-commerce revenue by 2021, online retail has changed the industry landscape significantly. Online stores and Amazon storefronts allow for retailers to forego the overhead costs of owning a physical store and rake in a majority of their sales without customers ever having to visit a single physical location. This new landscape prioritizes e-commerce and highlights the importance of re-evaluating distribution agreements with retail partners.

In today’s retail world, individuals can easily set up online stores on Amazon and sell whatever products they choose. Due to the saturated marketplace, relationship agreements need to be more explicit in where retail partners can sell and, specifically, where they cannot. Additionally, all retail partners should be warned that, should they breach this agreement, the brand and/or manufacturer has the ability to and will notify the retailer with a Cease and Desist notification.

Why is this so important? Ultimately, creating and enforcing strict distribution agreements are crucial to the long-term success of both the brand and its associated retail partners. If brands don't establish and own their Amazon presence, someone else will. Here’s what brands need to consider as they evaluate their distribution agreements:

Distributors can affect the reputation of your brand and products. Oftentimes when an Amazon seller provides a poor customer experience, consumers attribute it to the brand and product, not the individual seller. As a result, many consumers will write poor reviews on product detail pages rather than writing a specific review on the seller.
Individual sellers can affect price, a brand’s top-line sales and, ultimately, a brand’s bottom line as well. On Amazon, only one offer for sale can occupy the Buy Box at a time. The Buy Box can be affected by a number of factors; however, the Buy Box is generally occupied by the offer for sale, which is the lowest Prime or Amazon wholesale offer available. Consequently, if a brand intends to maintain control over their Amazon presence, it's wise to ensure that distributors don't sell on the platform. If they do, and the sale price is equal, the brand will lose sales because of the distributor's competing offer. If the distributor attempts to undercut the brand’s price, the brand will be forced to engage in a price war in order to compete, which can essentially be a race to the bottom. The lower price will ultimately decrease the profit margin for the brand.
Enforcement of the distribution agreement needs to be thorough and comprehensive to prevent additional problems down the line. If any current distributors see another distributor selling on Amazon without obstacles, it may encourage others to breach the agreement and join the marketplace. It's important to protect the cleanliness of your channel with rigor, and leave no stone unturned.

While many retail relationships are adhered to without enforcement, the increased presence of professional sellers and retailers selling product without the brand's permission has ushered in a new need for brands to be cognizant of distribution control across both online and offline marketplaces.

Jordan Taylor is the co-founder of Kwontified, a Seattle-based e-commerce management and SaaS firm.