Bricks vs Bytes: A Distribution Dilemma

Published by Andrew Parisi – Student ID 216218192

On Monday the 2nd of May, 2016 Dick Smith Electronics (DSE) closed its retail operation for the last time. Three days later I noticed an email in my inbox: “ Dick Smith is back and better than ever”. Was this a scam or some company phoenix master plan?

No. Turns out that the bricks and mortar operation was gone, however, Ruslan Kogan of Kogan.com snapped up his own ‘closing down sale’ bargain by acquiring the Dick Smith brand name and using it to sell a vast array of electronic goods online.

The question is, why would a Dick Smith online store work when their traditional bricks and mortar business has failed? The answer lies in the nuances of ‘push’ and ‘pull’ distribution. If Kogan can remodel Dick Smith in its own image, it may just give the old DSE brand a new lease on life.

1200x-1.jpg

Ruslan Kogan: Online Entrepreneur

 Kogan’s Way

Founded in 2006, Kogan.com has had a major impact in the online retail space because it offers consumers the chance to purchase low cost goods with high demand created by excellent ease of channel access.  Their model pulls customers towards Kogan.com with lures such as big discounts, wide distribution, coupons and rebates, providing:

  • Easy access to products that require limited tactile engagement and are therefore suitable for low risk online purchases – for example, a keyboard and mouse pack that requires a relatively unemotional commitment
  • Competitive pricing
  • Upgrades, coupon offers, financing and loyalty points
  • Easy purchase task completion (access to product, its reviews and comparisons, followed by a simple financial transaction and delivery to the consumer)
  • Servicing for Australia’s booming e-commerce market (Exhibit 1)

Compare this to the way Dick Smith pushed out to customers, which involved:

  • Expensive shop front rent in multiple shopping centres
  • Maintaining sales staff
  • Costs of shipping products to store, POS, utilities
  • Traditional marketing including catalogue printing
  • Slow moving items being shipped back and forth to and from the warehouse
  • Shrinkage, security costs and shop soiled product costs
  • Pricing inflexibility due to overheads
Exhibit01_2015-global-omnichannel-retail-index930x515.jpg

Australia is regarded as an e-commerce powerhouse according to research by Strategy&

Ultimately, the DSE model was tied down by bricks and mortar – crippled by the high costs associated with its physical retail spaces. Meanwhile Kogan.com thrived, offering similar goods at cheaper prices in a consumer-friendly online space, driving demand with digital marketing campaigns while saving millions on overheads.

A move from bricks and mortar ‘push’ to online ‘pull’ has saved the Dick Smith brand, but is it the answer for all retail businesses?

Does my bum look  big in this Ferrari?

While it works for electronics, the online-only model may not be appropriate for more personalised purchases such as clothing or other items that you may want to touch and feel before you buy.

As far as fashion is concerned, online businesses such as Threadless and The Iconic are thriving, but so are bricks and mortar fashion stores like H&M and Zara. Many people still want to see if their bum looks good in a pair of jeans, or if the size 38 shoes are a better fit than the 37 or 39.

The success of retailers such as H&M is in part due to a multi channel supply chain which uses both push and pull mechanisms in order to reach a wider target market – physical stores so you can try before you buy, and online stores for quick, simple access.

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High value items may require reasonable consumer consideration

For high value, high emotion purchases, online sales may never cut the mustard, but an integrated  push and pull strategy will use an online presence to support a physical showroom. Someone in the market for a new car may start with online research, for example, but ultimately they’ll want to sit in the car, recline the seat, fiddle with the radio and air conditioning, and know exactly what it feels like on the road. The website offers a little pull, but the final push happens on the showroom floor.

It’s a safe bet that bricks and mortar retail will continue to thrive where the product is not one-size-fits-all.

But as the fall of Dick Smith has demonstrated, retailers who expect people to walk into their store for nuts and bolts items may well have a screw loose.

References:

Low, C. (2016) Dick Smith to close all stores, 3000 staff to go. Available at: http://www.smh.com.au/business/retail/dick-smith-to-close-all-stores-3000-staff-to-go-20160225-gn3ios.html

Government, A., Securities, A.G.A. and Commission, I. (2015) Australian securities and investments commission. Available at: http://asic.gov.au/for-business/your-business/small-business/compliance-for-small-business/small-business-illegal-phoenix-activity/ 

Vance, A. (2016) How Australia’s Ruslan Kogan built an off-brand online retail empire. Available at: http://www.bloomberg.com/news/articles/2016-03-10/how-australia-s-ruslan-kogan-built-an-off-brand-online-retail-empire 

Mitchell, S. (2016) Dick Smith brand to be resurrected by Ruslan Kogan. Available at: http://www.smh.com.au/business/retail/dick-smith-brand-to-be-resurrected-by-ruslan-kogan-20160314-gnibrn.html 

Schlosser, A.E. (2003) ‘Experiencing products in the virtual world: The role of goal and imagery in influencing attitudes versus purchase intentions’, Articles, 30(2), pp. 184–198. doi: 10.1086/376807.

http://www.baylor.edu/business_new/kellercenter/doc.php/194253.pdf 

Schmaus, B., Maekelburger, B. and Bovenspiepen, G. (2015) The 2015 global Omnichannel retail index: The future of shopping has arrived. Available at: http://www.strategyand.pwc.com/reports/2015-global-omnichannel-retail-index (Accessed: 15 May 2016).

http://www.smartinsights.com/marketing-planning/marketing-models/push-pull-product-distribution-model/

https://faculty.fuqua.duke.edu/~jssong/bio/Publications/BSZ_Naval_2009.pdf

 

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