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Interview: Scharff On Managing The Internet

(Filed Under wholesale Lingerie News). The rise of the internet as a retail selling platform presents a host of challenges and opportunities for both the wholesalers and retailers of all types of intimate apparel and related products.

In this interview BODY publisher Nick Monjo questions DG Brands CEO Christopher Scharff about how his company has addressed some of these issues. While Scharff discusses solutions that apply specifically to his company, his answers will be of interest to firms producing and selling a wide variety of different merchandise.

MONJO: Dreamgirl lingerie, costumes and apparel are currently available in physical stores and online. You have announced a number of policies to change and improve the way these products are sold. Can you summarize the three or four ways things will change for the retailers involved?

SCHARFF: DG Brands will be implementing a new Minimum Advertised Pricing (MAP) policy and Authorized Reseller Program.

First, we recognize that our high quality DG retailers invest time and resources to deliver an outstanding customer experience through knowledgeable staff and compelling merchandising. In support and to reinforce our retailers efforts, DG Brands is establishing policies to help allow DG Retailers to earn the profits and margins necessary to maintain a high level of customer service.

This new Minimum Advertised Price Policy and Authorized Reseller program is designed to promote retailer success by stabilizing online pricing. This will be accomplished by controlling the distribution and access to DG Brands products and maintain a consistent elevated DG Brands experience across all sales channels. Retailers who have a question about these new policies are asked to call their DG sales representative.

MONJO: You have stated unequivocally that DG Brands will not be retailing Dreamgirl products directly to consumers. Can you explain and expand a bit on this.

SCHARFF: DG Brands is NOT trying to be a retailer. It does not own retail stores and it does NOT have its own retail site. However, DG will be starting to take control of third party sites like Amazon. People need to remember that Amazon is not a retailer per se but rather a search engine that displays a lot of information on products and pricing. DG is taking control of this channel for proper brand positioning and for price control in an effort to protect all retailers and maintain MAP. DG is doing this for the health of the brand and for the health of the business. By taking control of listings, DG can do a better job enhancing its catalogue of items to reinforce the image, integrity of the brand and pricing to reinforce its retail partners.

Amazon and other third party sites are too important of a channel not to be on it. We need to change everyone’s perception of Amazon. Amazon is not a retailer but primarily:

Amazon is a search engine and is a place where algorithms make decisions and not people. If price is up from every other sell then Amazon’s price would rise. DG doing business with Amazon is actually good for the entire customer base and there is a lot of data to prove this. Research shows that a product catalogue on Amazon lifts online sales in general as long as the listings are well done and the DG product is well exposed. Our interests are to grow the business overall and protect our most valuable retailers and this means it is time for DG to clean up its distribution and manage margins to protect our most valuable retailers.

A lot of costume brands in the costume industry have already started doing this and so have a lot of novelty brands in the adult industry; however, DG is the first in the exotic lingerie segment to take this action.

Finally, we are implementing MAP policy in order to stop erosion and we acknowledge that cleaning up pricing on the internet and especially with third party sites will not be easy. We cannot flip a switch and clean everything up immediately but each quarter, the results of these efforts will become more and more visible. Beginning with Collection 2018, we will take immediate control over brand new styles and will be enforcing MAP with all DG Authorized resellers.

“DG Brands understands more than anyone how the industry and retail environment as a whole have evolved over the last decade. Brands must take complete ownership of their presence in the online channel to restore integrity in merchandising, pricing and consumer confidence. DG Brands is ahead of the curve when it comes to online channel management,” said Alex Brandstetter, senior consultant with Marketplace Ignition, the firm hired to help drive the initiative.

“What sets DG Brands apart from its competitors has always been quality, consistency and innovative business initiatives. In addition to controlling pricing and market distribution, DG Brands aims to elevate its online brand presence through new digital merchandising across all major marketplaces and e-trailers,” said Christopher Scharff recently at the Altitude Show in Las Vegas in September.”

MONJO: How will your new MAP policies affect your existing retailers?

SCHARFF: MAP policies will stop price erosion from impacting retailer’s profits and protect the retailer’s investments in DG Brand products. These MAP policies are for the purpose of nurturing growth of our retail partners who are competing on customer service, shopping environment and value while abandoning those retailers wishing to erode pricing.

MONJO: Can you explain, briefly, the transition you see from “showrooming” to “webrooming” ? How will this apply to Dreamgirl and its products?

SCHARFF: A retail environment where a brand owner does not take control of their product and pricing online results in a phenomenon knowns as “showrooming.”

Most consumers now research products online on the internet or on the web and this helps to form their purchase decision. By taking better control of third party search engines including imagery and listings, DG will be able to better represent its products online in the ecommerce space thereby enhancing the likelihood that consumers will form a favorable impression of DG products.

Often, this may result in a consumer making a trip to the retailer to see the physical product; yet, without any type of MAP policy or Authorized Reseller Policy, the consumer is likely to then buy the product online or wherever he or she can find the product at the best price. This has at times resulted in the phenomenon of “showrooming” where the bricks and mortar retailer loses the sale to a cheaper internet rival.

However, when a brand succeeds in coupling the above phenomenon with a MAP policy and an Effective Authorized Reseller Policy, one can bring about the effect of “webrooming” which means that the consumer researches the product online and then goes to the store to see the physical product. However, because there is an effective MAP policy and Authorized Reseller Policy in effect, the consumer will arrive at the store and then see that the article that they like is for sale at the bricks and mortar retailer at relatively the same price as online and then just buys the product in the store after having engaged in “webrooming” by forming their purchase decision online and then purchasing the product at the retailer owing to a uniform and stringent MAP policy.

MONJO: Can you explain, briefly, how you protect the Dreamgirl images, which you point out are often stolen by unscrupulous wholesalers and used to portray their own styles?

SCHARFF: Dreamgirl has over the past year been employing more and more resources to research and report any instances of copyright infringement or trademark infringement on third party sites. In addition to employing one internal staff member full time and an outside attorney to get third party marketplace sites to remove any instances of stolen DG images, DG is also participating in a number of beta testing programs of market place cites such as the new Brand Registry program at Amazon. Each day, DG Brands Copyright Enforcement Division removes hundreds of third party listings which infringe on its copyrights and trademarks.

MONJO: You have often expressed concerns that companies outside the U.S. have an open and inexpensive pathway to sell their lingerie and costumes directly to U.S. consumers. Why is this a problem? Is there something being done about it?

SCHARFF: Yes, part of the problem for years has been that even a small independent reseller on a third party site operating from Asia in a poor country like Bangladesh or a fast growing economy like China has an advantage to sell cheaply into the United States and third party sites like Amazon or eBay or Alibaba make it so easy.

First, because the reseller is outside of the United States they are not bound by its laws and often engage in intellectual property theft by stealing another brand’s copyrighted images. Additionally, when this reseller ships their item to a consumer in the U.S. who made a purchase through a third party platform, he or she may ship the product through the post office. Because of international postal conventions, half the cost of postage from Asia to the United States is subsidized. While a manufacturer may need to pay a duty of 15% of the value of the item into the U.S., no duty is assessed on small shipments under a few hundred dollars into the U.S. Therefore, an Asian reseller with a lower cost structure can sell directly into the U.S. and have a real postal rate and duty rate advantage while not incurring the cost of intellectual property and as a result unfairly compete with U.S. retailers and the brands which they carry.

MONJO: Many larger companies, including Dreamgirl, are involved in private label production for large retailers. What are the protections that can be provided to smaller retailers, too small to get involved in such programs.

SCHARFF: The most important protection is to make sure that each channel has product exclusive to this channel and that each retailer is treated fairly and on the same level playing field. While a large retailer may have sourced some exclusive product, they can avoid being undercut by rivals because they have a SKU which is exclusive to their company. Similarly, DG is implementing an authorized MAP program and Authorized Retailer program in support of smaller retailers (who place orders too small to support having a SKU exclusive to them) by making sure that all retailers are on a level playing field and not being undercut in terms of pricing by another retailer that carries the same SKU.

MONJO: Dreamgirl and parent company DG Brands, as a large producer of lingerie and costumes, have been affected by many of the changes in the market. Do you want to comment on any other of the forces at work?

SCHARFF: There are stronger global forces at work buffeting the market and causing a storm of changes in our industry. To summarize these forces, let’s recap some of what we discussed.

The disruption of the internet. The internet has served to disrupt whole industries and we have already talked about the detrimental effects of price erosion created by the transparency of third party retail sites. The implementation of Minimum Advertised Pricing and an Authorized Retail program are Dreamgirl’s response to the disruption created by the internet as it relates to price erosion.

The second major change is the force of globalization. We used to talk about the effects of globalization as mills closed through the South of the United States and in Europe and all moved to Asia. This trend increased speed as more and more companies created global supply chains and moved apparel factories to lower wage countries. The net effect was the moving of entire supply chains offshore out of the Americas entirely and to Asia.

The third major shift involves what we discussed above in that in the past five years, the disruption of the internet has collided with the forces of globalization to accelerate the shift towards disrupting the traditional manner of retailing with the explosion of third party retail sites like Amazon where one Chinese person in a little store in Chinese province can retail to a consumer in New Jersey using a third party site which provided a method to communicate, handle payments, handle shipping thereby disrupting the supply chains in place and by using someone’s intellectual property and advantageous duty and shipping rates, retail a product directly to the consumer and undercut the entire wholesale and retail structure.

The culmination of the above forces is creating a “perfect storm” of profound change in the lingerie market which will profoundly affects manufacturers, workers, wholesalers, retailers along with employees and owners alike. Clearly, there will be winners and losers as a result of all of the forces driving change but it is too early to tell who will be the ultimate winners will be although by implementing a MAP policy and Authorized Retailer Program, DG Brands is trying to make sure that its retailers are properly protected from these forces of change and are well armed to make profitable sales of DG Brands “Dreamgirl” merchandise.

more wholesale Lingerie News >>

Published 11-09-2017 by Nick Monjo

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