What Is Retail Distribution?

Do you have an eCommerce business ready to take the plunge into physical retail distribution but need clarification on what it involves? Retail distribution can be a great way to help your business grow by reaching more customers and increasing your visibility in real life. Knowing what the process looks like and which channels are available will put you on the path to success. This post will explore the ins and outs of retail distribution, including how to choose where you want to sell and tips for setting up efficient processes and logistics. Read on for everything you need to know about retail distribution!

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What is Retail Distribution And How It Works?

Retail distribution is the process of getting products from manufacturers to consumers. Retailers can use several different channels to distribute their products, including direct sales to consumers, wholesalers to other retailers, and intermediaries such as agents and brokers.

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The most common way retailers distribute their products is through mediators such as wholesalers. Wholesalers buy products from manufacturers and then sell them to retailers or consumers. This allows smaller retailers to purchase products at lower prices since they don't have to go directly to the manufacturer. It also allows manufacturers to reach more consumers since they can sell their products through various retail channels.

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Retailers can also use intermediaries such as agents and brokers to help them get their products to consumers. Agents are generally paid a commission for each sale they make, while brokers typically receive a flat fee or percentage of the total value of the products sold. 

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In addition to these traditional channels, retailers have increasingly utilized e-commerce platforms to distribute their products. Through these online retail stores, retailers can reach customers that would be difficult or impossible to access through more traditional methods. This allows them to expand their customer base and increase sales by making it easier for shoppers to purchase products from any location with an internet connection.

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Related: Retail vs. Wholesale: What is The Better Choice?

How Does Distribution To Stores Work?

Retail distribution strategies come in wide different varieties. There are differences in the process and the number of outlets used, but each tactic finally gets the items to the clients.

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Intensive Distribution

This strategy aims to sell things to as many potential customers as possible by flooding the market and using all accessible venues. An extensive distribution plan is often the best option for products with intense competition.

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Selective Distribution

Because it uses outlets in specific places, selective distribution requires a more focused approach to retail distribution. Therefore, although not as dispersed as with an extensive distribution plan, products are nonetheless readily accessible to interested clients.

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Exclusive Distribution

This is a highly targeted distribution strategy, as the name would imply, when the distribution is limited to a single distributor, wholesaler, or retailer in a particular region. 

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The Different Types Of Retail Channels

There are five types of channels: 

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1. Direct-to-consumer (DTC)
2. Resellers
3. Retailers
4. Wholesalers
5. Independent distributors

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Direct-To-Consumer

DTC brands procure goods from suppliers and sell them to customers online or in person. This practice is sometimes referred to as direct distribution. Direct-To-Consumer (DTC) brands work directly with customers instead of through third-party retailers or wholesalers. By procuring goods from suppliers and selling them to customers directly via online or brick-and-mortar stores, businesses maintain a high level of control over their products, pricing, and the customer experience they provide. Furthermore, direct distribution allows them to build relationships directly with their consumers, allowing for increased loyalty and brand recognition. With greater visibility into customers' needs and wants, these companies can make more informed decisions on maximizing their profits and growth.

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Resellers 

Resellers are businesses that buy products from manufacturers or other companies and then resell them to the final consumer or another company. By working as intermediaries between the provider of a product/service and the buying party, resellers benefit both parties by making it easier for a manufacturer to reach more consumers, and customers can access more products than they would typically be able to. Additionally, these businesses can often leverage their relationships with manufacturers to access better pricing, allowing them to offer competitive prices without sacrificing quality.

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Let's examine the three main categories of resellers you might deal with as your retail distribution grows.

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1. Retailers

Lean on other retail establishments to help you market your goods. Increase your brand's reach by selling to nearby coffee shops if, for instance, you sell coffee beans through your store.

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2. Wholesalers

Wholesalers purchase goods from retailers, often in bulk quantities, for a fraction of the price they would usually cost. They then resell these goods to retail stores, businesses, or consumers at a premium, allowing them to profit from their purchases. Wholesaling benefits both parties by enabling manufacturers and retailers to capitalize on economies of scale and access larger markets while providing customers access to various products at competitive prices.

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Related: How To Sell Wholesale On Amazon?

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3. Independent Distributors

Independent distributors can purchase goods from manufacturers or wholesalers and resell them to retailers and other businesses. This allows manufacturers to access larger markets without having to invest in sales staff and other overhead while allowing independent distributors to benefit from economies of scale and the ability to access more competitive pricing. Furthermore, independent distributors can also provide specialized services such as marketing expertise, product customization, and transportation services that otherwise may not be available through direct relationships with manufacturers.

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Related: Cheapest Overnight Shipping Options for Retailers

Benefits And Drawbacks Of Each Type Of Retail Channel

Types of retail distribution strategies

• Intensive distribution
• Selective distribution
• Exclusive distribution

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Intensive Distribution

It uses a comprehensive distribution strategy when a store floods the market using every retail channel possible. Instead of limiting sales to a small number of carefully chosen media, the goal is to make the product available anywhere a buyer wants.

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PROS

• It's excellent for increasing brand recognition.

• Product availability is everywhere a potential client could look to purchase.

• If your brand is linked to a distributor they already know, like, and trust, potential customers will view it as more legitimate.

• Increased visibility for the product, resulting in higher sales potential.

• Greater accessibility for potential customers who may otherwise be difficult to reach

• Lower costs associated with having fewer suppliers and distributors

•  Easier management of the distribution channel as there is one centralized point for ordering and delivery of products

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CONS

• Managing many retail distribution channels can take time and effort

• Selling goods to distributors that are different from your target market is pricey.

•  Reduced bargaining power with suppliers due to a limited number of sources 

• A lack of flexibility when it comes to pricing, as all customers may need to pay similar prices 

• Lower profits due to competing on price with other retailers carrying the same product 

• The risk is that if the distributor stops carrying the product, the manufacturer must find another source quickly or face lost sales.

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Related: The Definitive Guide To Amazon Retail Arbitrage In 2022

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Selective Distribution

The strategy is exactly what it claims it is, selective. You only distribute your goods through a limited number of distributors rather than trying to get them into as many channels as possible.

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PROS

• It works for businesses whose clients are content to compare shops

• By connecting your products with distributors who share your brand's values and have a presence in your target market, you can maintain a strong brand image (versus being everywhere.)

• Expanding into new markets will be simpler if you cooperate with a few carefully chosen partners in each area.

• The ability to tailor the distribution of products to specific needs or locations 

•  Greater control over the positioning and branding of products due to fewer distributors 

• A more stable pricing strategy, as manufacturers can control how much is charged at varying outlets 

• Improved visibility for customers since select stores are chosen carefully with a focus on product visibility

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CONS

• Potential customers can only buy your stuff sometimes they go shopping.

• You need to thoroughly understand who your clients are and how they purchase your goods to select selective distribution channels.

• Finding the ideal distributor type may require a lot of trial and error.

•  Higher costs associated with selecting and managing fewer, higher-end distributors 

•  Increased risks from relying on a limited number of distributors who may not all be reliable or effective in delivering sales 

•  Potential legal issues such as antitrust laws related to monopolies controlling specific markets or geographic regions 

• Reduced customer access as they may need help finding the product in their area.  

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Exclusive Distribution

When merchants choose the channels they want to use for sales, the exclusive distribution strategy results. The phrase "inch wide, mile deep" is yet another name for it.

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PROS

• Managing fewer distribution channels is simpler.

• Since you actively direct your customers to your distribution partners' stores, you can develop strong relationships with them.

• You can increase brand credibility by utilizing a distributor's well-established audience.

• A higher degree of control over the product's positioning in the market since only one distributor is used 

• More remarkable ability to set prices, as there is no competition from other distributors carrying the same product 

•  Reduced risk of counterfeit products due to better monitoring at a single point of sale 

•  Easier management of the distribution channel using fewer resources

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CONS:

• It would help if you trusted your distribution partner to keep inventory from being sold to another distributor.

• Companies need help persuading customers to purchase their goods from an exclusive distributor rather than one of their competitors.

• If you're not present where potential clients are already shopping, they may avoid you.

• Reduced bargaining power when negotiating with suppliers, as there is only one vendor available 

•  Higher costs associated with managing and maintaining contracts with just one distributor 

• Potential legal issues related to monopolies and antitrust laws 

•  Loss of potential buyers who may need access to the product due to restricted distribution. 

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How To Choose The Right Retail Channel For Your Business.

Which distribution channels are most effective for your store will depend significantly on the kind of products you're offering. So, for that, 

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Consider Your Product

The type of product you're selling will inform the channel you should choose. For example, a physical retail space may be your best option if you are selling a luxury item requiring personalized customer service and attention. On the other hand, if you're trading convenience products like cleaning or health supplies, an eCommerce solution would likely provide better reach. 

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Think About Cost

different channels have different costs, so it's essential to consider these when deciding which is right for your business. If you have little money to spend on marketing or promotion, going online could be a cost-effective way of getting your product out there. Alternatively, you can gain more customers through face-to-face interaction if you have enough funds to invest in a physical store.

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Analyze your customer base

Understanding your target audience is critical when determining your product or service's most influential retail channel. If you're selling products that appeal to an older demographic, a physical store may be more suitable, as many members of this group are less likely to shop online. On the other hand, if you're aiming at millennials and generation Z shoppers, then e-commerce is likely the way to go. 

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Take Advantage Of Multiple Channels

You can use a combination of channels when marketing and selling your product. You could have an online or a physical store and use third-party platforms like Amazon or eBay to reach a wider audience. This will help you to diversify your customer base and increase sales potential.

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Test it out

The best way to determine which channel is right for your business is by testing each. Take some time to research how different channels work and experiment with them until you find the one that works best for you. By doing this, you can ensure that you're making the most of all available opportunities.

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Tips On How To Successfully Manage A Retail Distribution System

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Choose a 3PL Partner

A third-party logistics (3PL) provider can quickly help you store and ship products. They have the expertise to manage your business's inventory, purchasing, shipping, and returns. By partnering with a 3PL, you can keep your list closer to consumers, reducing transit times and the cost of delivery. 

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Regularly Audit Your Strategy

Distribution systems are constantly changing in response to customer demands, new technologies, and market trends, so it's essential to stay on top of these changes by regularly auditing your strategy. Review performance metrics such as order fill rate, on-time delivery percentages, and overall customer satisfaction scores to determine if any adjustments need to be made within your distribution system. 

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Hire a Distribution Expert

Ensuring your retail distribution system is optimized requires expertise. Consider hiring a distribution expert who can help you analyze the data and develop solutions to improve your supply chain operations' efficiency, accuracy, and cost-effectiveness. They will be able to identify opportunities for improvement and provide valuable insights into how to make your retail distribution strategy more successful. 

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Keep Inventory As Close To Consumers As Possible

When it comes to retail distribution, the closer you keep your inventory to customers, the better. By stocking shelves in local warehouses or stores, you can reduce shipping costs and provide faster delivery times for customers. This will also allow you to respond quickly to changes in demand, ensuring that products are always available when needed.

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Related: USPS Lost My Package: What Do I Do?

Conclusion

In conclusion, if you want to capitalize on the eCommerce space and ensure your business is successful, it's essential to consider retail distribution as a strategy. By understanding the different aspects of retail distribution and how it works, you can trust that you'll be in the best position to increase your market reach, expand your product offerings and grow your brand presence. Taking control of the entire fulfillment process for Amazon orders requires professional help. Simpl can provide beneficial end-to-end services like strategic planning and optimization, order processing, shipping and returns management, reconciliation, inventory management, and more – sign up today to get started!

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Recommended: What is Physical Distribution in eCommerce?