e-Commerce companies are coming for you, middlemen.

Up and coming companies are making an entrance in a way that has not been executed very well in the past. “e-Commerce companies” are taking tackling the business world, without stores. Instead, new start-ups are finding success through the use of almost purely online stores. By going online and straight to the customers, these companies are cutting out the middlemen. The New York Times article, “E-Commerce Companies Bypass the Middlemen”, mainly follows the structure of one company, Warby Parker. Warby Parker is a new and forward eyewear company that combines style with sensibility, while still manages to mostly sell their product directly to customers via the internet. Company co-founder, David Gilboa, claims that by eliminating the middlemen and “being involved in every part of the process, the companies are able to build relationships with customers and get direct feedback.” This process allows for an efficient supply chain, and for the company to gain knowledge of the customer’s needs.

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Warby Parker is not the only company to adopt this strategy. in fact, other companies have begun to catch on as well. Many other companies have cut out the middleman in an effort to increase profit margins, cut costs and sell products at lower prices. As a result, they may seem more appealing than other companies selling their products at higher prices. An example of a company that attempted the same approach is the furniture company “Deal Decor”. They had a goal to sell furniture directly to customers at lower costs. To do so, the company used big factories that were being used by other large companies such as Target to produce the furniture. However, the advantage that Deal Decor had was that they were able to pay the factories as orders rolled in, rather than weeks later. They were able to do this because other big companies, like Target, had to make orders in bulk. Rather than ordering completely new pieces to be ordered, Deal Decor would just tack their order an order that the larger company had made, with similar items. This process is also used by other companies to see what trends other big companies are following.

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However, just as many other e-commerce companies do, Deal Decor ran into some problems. Their biggest problem was that the Deal Decor brand was almost unrecognizable. Although they had been somewhat successful, they had failed to build a brand efficiently because of lack of funds to do so. Another problem some of these smaller companies face is that they are sometimes confronted by other companies concerning patent problems due to their use of the same factories.

I think these new start up companies are smart to cut out the middlemen if they can be successful selling things online. I think things such as electronic products sod online can be easier to do, whereas it is much harder to sell something like clothing online because there is a lack of experience. By experience, I mean being able to see how one looks in the clothing and it may look different in person than it does on the website. Also, personally, it is hard to stray from dependable brands and switch to a brand that you do not know much about. Why buy a couch form Deal Decor, which you do not know much about, when you could go to a big name such as Macy’s or Sear’s and buy furniture that you are certain about. I think that the middlemen are definitely something that seems sensible to cut out, but they are what makes a brand. Companies buy space at stores such as Nordstrom just in order to get their product known by the everyday person. Although I am sure that companies will continue to attempt to cut out middlemen, I think they are an essential part of the supply chain for most industries, and therefore will remain to be a large power.

Check out the “E-Commerce Companies Bypass the Middlemen” by following this link to The New York Times website: http://www.nytimes.com/2013/04/01/business/e-commerce-companies-bypass-middlemen-to-build-premium-brand.html?pagewanted=all&_r=0

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8 thoughts on “e-Commerce companies are coming for you, middlemen.

  1. This post was really interesting, because it looks at the value of a middleman in a different light from what we discussed in class. I thought the images you used to enhance your post were helpful in understanding the direct online sale these companies are implementing. However, I think it would have been interesting if you had found a picture or video comparing which industries have had better success with selling directly to customers as you described in your analysis paragraph. This blog also highlights the importance of labels in today’s world. Especially among young people today, mainstream labels are everything. The logos and brand names are what drive people to desire to buy a product. People observe others and see what they are wearing and immediately know who made it by the logo or symbol on the product. This is the main basis of trends. I thought it was great that you recognized this and pointed out how the middleman builds on this idea. I had never thought about that before, how the middleman contributes to a products image and status. After learning about middlemen in class it was hard to understand how middlemen still exist, but this blog post helped display the pros and cons to them.

  2. I was really interested in your post because e-commerce is such a current topic right now. Many companies that used to solely run as “brick and mortar stores” are now emerging on the e-commerce market and it is entirely altering the way companies do business. Your blog was informative in explaining how Deal Decor runs as a company whose business model was formed around selling furniture for lower prices online by avoiding the middleman. It was great how you brought up the importance of branding because it sounds like Deal Decor is struggling with that even though they are trying to promote some of their products in retail stores like Nordstrom. This indicates that perhaps brick and mortar stores will always have a place, even if e-commerce does take up some of their market share over time. I have been researching TJ Maxx companies in another class and they are having the opposite problem. They began solely as a brick and mortar store with no online offerings. They serve as the middleman, gathering designer brands in bulk and selling them at lower prices. Now with the push toward e-commerce, they are finding that they need to compete by offering an online ordering website for customers, but this may greatly change their business model. A benefit would be attracting new customers to the online site, but TJX also may find that their company loses their niche market or stops attracting customers to the store. Personally, I think there will always people who want to go to the physical store to try on clothing or see furniture in person prior to buying. I think e-commerce is going to eat up some of that market share, but I do not think it will dominate entirely. I think if prices for online goods get pushed even lower, then there may be more competition because shipping costs will become less of a factor for consumers.

    • I agree with you that E-commerce cannot possibly eat up the whole market share. We still have the desire to see the item, try it or sit on it, before making a decision. However, would it change the purpose of retail stores etc if E-commerce continues to grow?

      • I think Prof. Kane’s comment in class about retailers starting to charge for browsing and not buying in-store is an interesting point regarding the move to e-commerce. I definitely think people have already started going to retailers only to browse because the items can be found online far cheaper. Perhaps fewer retail stores will be available, but I hope they don’t dwindle out of the picture too much!

  3. Great Post! Another good example of how the internet has affected the way businesses used to be! My father started off his business career as the middleman for foreign companies and Chinese company through Hong Kong. Before the emergency of technology (which made businesses able to connect with one another much easier) and the opening up of China to foreign investors, he was able to make alot of money by introducing foreign clients to Chinese companies. Ever since the millennium it has been increasingly difficult for this business model to survive. eventually he changed his business model and begin looking at alternative fields. Many trading companies have cease to exist or are struggling (I know this first hand from working for Kanematsu HK Ltd. which is a trading company that sells the product of its parent company Kanematsu to clients) because of the development of technology and the desire for business to cut the middleman from the supply chain.

    E-Commerce is not really a new thing. As consumers, we should feel happy that our options have increased and more money can be saved. Yet for all the retailers out there in the world, it may be increasing difficult for them to continue doing business in the traditional way. retail store spaces are often really expensive, as a resident of one of the biggest city in the world (HONG KONG = DA BOMB) and often sales figures do not cover the rent expense and general administration expense etc. The store is there for show and promotion. It is nice to see start-up being able to exist and offer consumers more options, yet I agree with Allastewart that branding is everything. THAT’s Why retail will still exists, not necessary to sell, but to promote the brand image.

    In this age, brand recognition is almost everything. It doesn’t matter how hideous the item look, if its a famous brand, it will sell. In any cosmopolitain places in the world, people tend to want to buy the best and most recognizable thing there is (that is if they need that item). This trend does not seem like it will stop.

  4. Nice post! Your take on what the middlemen bring to the table is very interesting. I agree that brand is everything and that people will buy the most popular brand even if it is not the best product. However, e-commerce presents a different advantage for consumers; by cutting out the middle-men they can sell their goods for much less than regular retailers. I wonder if it will ever come to a time when brand does not mean as much to consumers and instead price starts to be the most important factor. If that were to happen, e-commerce companies would boom and that would completely change the whole idea of buying products.

  5. Great post. You covered the same article as one of your classmates. I really liked your own examples of companies you saw using this strategy. I especially liked the Deal Decor site since I will soon be in the market for furniture after college.

  6. Great post! Your blog perfectly related something we covered in class to a current example. Concerning your first example, Warby Parker, it is hard for me to really understand the competitive advantage they believe they now have after cutting out the middleman. Sure their products are less expensive but today there are so many cheaper sources of getting glasses. My dad owns an eyewear store where he makes the prescriptions and also sells affordable sunglasses and glasses to designers such as Prada. Although there are other non-chain stores for eyewear (even another in the same town), his biggest competition is the huge chain stores like Walmart and Costco that sell at discounted prices. I understand what companies are trying to do by cutting out the middleman and having online stores only, but how are they competing, like you mentioned, with established brands. Is the struggle and time consumption of the task of creating a brand really worth it?

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