Why don’t more producers sell on-line?

Last week, Aussie surfwear giant Billabong announced they had entered the online retail arena via the acquisition of California-based boardsports website Swell.com.

Swell carries a wide range of brands beyond the Billabong stable. Billabong’s argues “the purchase will allow the company to take advantage of higher margins”. This is certainly logical, but it begs the question why more consumer durable producers have not gone down this path.

Firms like Billabong carry an enormous range of products that are distributed in low quantities to a very dispersed (and individually pretty inconsequential) set of bricks and mortar retailers (presumably via margin-eating middlemen wholesalers). Building a front-end in the online world could give firms a much more direct, more responsive and more lucrative customer interface. One can imagine Billabong offering exclusive and limit-edition ranges through the Swell store, and also tapping into more insightful customer preference data.

The challenge resides in the perceived channel conflict. Will other retailers feel threatened by the firm as a competitor (leading to them cutting back purchases)? While Billabong feel restricted in its pricing at Swell?

Likewise, there may be hostility from competitor brands. Will these firms still want to offer product to Swell, given Billabong will be earning a big chunk of their profits?

Billabong have done a smart thing in buying a firm with proven technology, a functioning back-end and known brand rather than going alone with such forward integration.

What are some other examples of such moves in the e-commerce space? And have they worked?

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Tags: Australia, Billabong, business, e-commerce, fashion, fashion industry, finance, forward integration, International business, mergers and acquisitions, retail, Retailing, strategic choices, Strategic management, surfwear, Swell, vertical integration