Helping to smooth 'channel conflicts'
- Article by: TODD NELSON
- Special to the Star Tribune
- December 6, 2009 - 4:55 PM
Strong online sales reported over the Black Friday-to-Cyber Monday weekend may prompt some companies to consider taking the e-commerce plunge.
But although selling online direct to consumers could provide a quick sales boost, for many companies it also risks alienating distributors and retailers typically cut out of such transactions. That's why just 15 percent of the 800,000-plus U.S. manufacturers who could be offering their products to consumers through their own websites actually are doing so today, according to James Moar, CEO of St. Louis Park-based Reshare Commerce.
Reshare, Moar says, can help raise that percentage -- and increase sales -- by helping brands and their manufacturers resolve so-called "channel conflicts'' often inherent in online sales.
Moar said Reshare's patented software can drive e-commerce growth because it enables brands selling online to share a portion of that revenue with distributors and retailers. Online sales over the Thanksgiving holiday weekend saw double-digit increases from the year before, while sales at brick and mortar stores were up only 0.5 percent, Moar noted, citing a Star Tribune report from last week.
"It must be frustrating for a retailer to see flat in-store sales, and brands increasing sales via the Internet," Moar said. "We solve the major problem preventing you from selling direct to your customers via the Internet by turning channel conflict into channel collaboration."
Buyers making purchases on websites that incorporate Reshare's software choose a preferred local retailer where they otherwise would have bought the product, Moar said. Depending on the product, the website then might offer local options for installation, service contracts or accessories.
The process can work in-store, too, Moar said, with stores getting compensated as the preferred local retailer when they order models they don't normally stock from the manufacturer's website.
Reshare, which has six employees and projected 2009 revenue of "well under" $1 million, has the potential to grow rapidly. Moar projected revenue of $2 million next year and up to $100 million by 2015 if the business model catches on. The large revenue gains are possible, Moar says, because, like credit card companies, Reshare charges a small up-front licensing fee and receives a small percentage of each transaction its software processes. And there are tens of thousands of manufacturers who are potential customers.
Ahead of its time
Reshare, meanwhile, has been busy addressing some internal issues that appear to have hampered the company's growth. For one, founder Adam Southam launched Reshare "substantially before its time" in 1999, Moar said. That's back when many of us still used dial-up modems to go online, and the emerging face of e-commerce was the Pets.com sock-puppet pooch.
Manufacturers who are not mindful of potential channel conflicts can face a backlash if they start selling online directly to consumers, said Jim Gabbert, former chairman and CEO of Gabberts Furniture and Design Studio, who was a Reshare board member from 2002 until a few months ago.
"If you become a competitor with your distribution channel, all of a sudden the retailers are saying, 'I don't need you to compete with me. I'll do a private label or go with your competitor,''' Gabbert said.
The recession likely has more companies thinking about going online now, Gabbert said. And some are finally catching on to how Reshare can help them.
"Southam is a visionary," Gabbert said. "He saw this opportunity long ago. Sometimes visionaries don't see how far behind other people's thinking is."
Perhaps because it was so far ahead of its time, Reshare also has been chronically undercapitalized. The company is out to fix that and other problems and hoping to take advantage of the explosive growth e-commerce has seen in recent years, Moar said. To that end, Reshare "hit the restart button" in mid-year. Actions taken so far include:
• Southam "firing" himself and hiring veteran executive Moar as CEO in September. Southam remains as the company's chief strategic officer. Moar brings extensive sales channel experience, after spending 25 years in the Twin Cities with four companies with revenue ranging from less than $100 million to more than $400 million. He recently hired a new vice president of business development, David Basic.
• Filing a patent infringement lawsuit against six defendants -- five brands and one competitor. "We believe that various parties are using our solution without our authorization," Moar said. "Since the patented solution is the foundation of the company, you have to defend and protect the patent." Reshare hopes the suit will result in payment for past use and an injunction that prohibits future use in the absence of a licensing agreement.
• Launching an effort to raise $2 million from investors.
• Ramping up an aggressive push-pull marketing campaign. The aim is to increase manufacturers' awareness of Reshare, while also building partnerships with e-commerce firms who could help sell Reshare to manufacturers.
• Recruiting new board members with experience in running startups, raising money, retail and e-commerce.
Black Friday debut
Allvus, a Las Vegas-based start-up, began working with Reshare two years ago to avoid potential channel conflict as its prepared to introduce shears and other products to the beauty industry, president Kurt Garehime said.
Allvus, which markets its products under the brand of stylist Sam Villa, wanted to incorporate e-commerce and off-line distributors in its business model, Garehime said.
Reshare made its debut on the Sam Villa website on Black Friday, recording more than 100 sales, Garehime said.
"It's encouraging to see that it did not stop the selling process," Garehime said. "This is the ideal, perfect solution. It helped us to sell our way into a very established (off-line) network."
The expert says: Avinash Malshe, assistant professor of marketing at the University of St. Thomas Opus College of Business, said channel conflict has long been a dominant supply-chain issue. Reshare's proposed solution, in which manufacturers would share some of their online revenue to avoid alienating distributors and retailers, appears to be a novel approach and an interesting business proposition. For such revenue-sharing to make sense, Malshe said, manufacturers would need to see a substantial increase in online sales.
"This goes to the heart of where does the power in the channel lie, is the manufacturer more powerful? Or [is it] the distributor and the retailer?" Malshe said.
"It's a trade-off. Basically you're guarding yourself against any potential backlash. This may only be appealing to certain kinds of industries or product categories where there's an opportunity to substantially increase sales by setting up an online channel."
Todd Nelson is a freelance writer in Woodbury. His e-mail address is email@example.com.
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