In today’s retail world, with an ever-growing percentage of sales happening via E-Commerce, a new brand of retail fraud is proliferating:  unauthorized, online sales of durable consumer goods, often below the manufacturer’s Minimum Advertised Price (“MAP”).  These illicit sales have a tremendous impact on E-Commerce, from harming relationships between manufacturers and authorized sellers, to creating a negative impression of manufacturers’ brands in the eyes of consumers.

 

Even if your business has not yet been targeted by unauthorized sellers, chances are you will feel their impact as your brand continues to grow and gain market share.  In fact, unauthorized sellers are constantly on the look-out for hot, new items they can exploit.  To make matters worse, these rogues are not afraid to infiltrate any of the traditional distribution channels.  E-Enforce™ has been tracking, identifying and stopping these thieves for over five years.  In that time, we have seen them enter nearly every market segment and distribution channel out there.

Impact on Major Brands Across Multiple Market Segments

To effectively understand unauthorized sellers, you need to first look at where they operate.  Amazon, while certainly not the exclusive venue for unauthorized sellers, is certainly a popular breeding ground for them.  Some industry watchers predict that Amazon brings in 51 cents for every dollar spent on the internet.  What many people may not understand about Amazon, however, is that a relatively small portion of its overall sales are direct sales.  According to Wall Street analysts, some 83% of the retail giant’s sales are made through third-party retailers.   While many of those retailers are legitimate, a good portion are not.

Those problem third-party sellers have infiltrated almost every category of Amazon sales.  They brazenly take on major, high-end brands.  In fact, according to Reuters, by as early as 2012, Amazon was receiving unauthorized seller protests from brands such as:  Adidas (Sportswear); Wüstof (German knife maker); Swiss Gourmet (Cookware); Ralph Lauren / Hugo Boss / Guess (Clothing); and LG (Electronics).  Since that time, the unauthorized sales racket has continued to grow and spread throughout product categories like wildfire.

No Distribution Model Safe from Unauthorized Sellers

As quickly as they have spread throughout product categories, unauthorized sellers have permeated all the traditional distribution channels.  Everywhere they go, these rogues impact sales, harm relationships and make it harder for manufacturers and authorized sellers to do business.  Consider the effects on these different sales channels:

  1. Direct Sales

In Direct Sales, companies manufacture and distribute goods directly to consumers, often through teams of authorized representatives.  Distributors such as Amway, Herbalife and Mary Kay are perfect examples in this category.  In these sales channels, authorized Distributors build networks of sells representatives to work underneath them.  When unauthorized sellers operate below MAP online, they undercut both distributors and sellers whose customers are internet-savvy enough to seek out the lowest prices.  As a result, these Direct Sellers are finding it harder and harder to retain top sales representatives.

  1. Specialty Brick & Mortar Sales

Another distribution channel suffering from the unauthorized sales epidemic is the specialty brick and mortar retailer.  Prime examples within this category include hair salons that have distribution rights on high-end hair care products, or physician’s offices that are authorized to sell certain skin creams.  For years, this was a profitable method of generating revenue.  Today, however, customers and patients can sit in the waiting room on their mobile phones searching for lower priced goods on the internet.  Not surprisingly, they are likely to find sub-MAP pricing from illicit sellers who, unlike salons or physicians, have very low overhead.  As a result, fewer and fewer professional offices are selling these products in-house, where they can be discussed with consumers.

  1. General Retailers

General retailers include brick and mortar stores that carry a large variety of product types under one roof.  These retailers have traditionally held long-standing, authorized sales contracts with manufacturers.  Stores such as Walmart, Sears and Target are good examples of these retailers.  One growing trend is that millennials will “window shop” at these stores to try out the products they want, then buy them from unauthorized sellers online, often at up to 50% off.

The impact of these buying trends cannot be understated for the manufacturer.  More and more, once General Retailers find sales dropping on a given product due to saturated sub-Map pricing online, they may stop selling a product all together.  Alternatively, they will use their massive buying power to demand wholesale prices that shrink the manufacturer’s margin.  Either way, the manufacturer’s bottom line suffers.

  1. Exclusive Online Sellers

In addition to competing with brick and mortar stores, online sellers also compete with other online sellers.  Often, it is authorized sellers competing with unauthorized sellers who experience disastrous results.  Over the years, E-Enforce™ has seen unauthorized sellers so dominate the marketplace for a particular product that they were able to increase sales of that SKU by 40% just by knocking out the competition.

As unauthorized dealers proliferate throughout distribution channels and product categories, authorized retailers suffer and manufacturers lose sales.  That is why it is critical that your company prepare for the rogue seller onslaught.  Enactment of appropriate policies, combined with solid legal and enforcement strategies, can save your company time, money and the headaches associated with unauthorized sales.

For more information, contact the E-Enforce™ enforcement team at sales@e-enforce.com, or call us at (800) 892-0450. You can follow us at e-enforceCIS@twitter.com, e-Commerce Enforcement Group On Linkedin and E-Enforce.com.

SOURCES

http://www.reuters.com/article/us-amazon-sellers-idUSBRE89M1CT20121023

http://www.forbes.com/sites/walterloeb/2016/01/04/every-sign-is-saying-retailers-must-restructure-in-2016/#66dff7b5f940

http://www.slideshare.net/BrunoSanlaville1/the-everything-shipper-amazon-and-the-new-age-of-delivery-by-bi-intelligence

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