Supreme Court Decision Makes Huge Impact on E-tail
Today’s Supreme Court ruling allowing manufacturers to set minimum retail prices is a very big deal, and has huge ramifications for many internet retail businesses.
To understand what could happen as a result of this decision, you must first understand the impact that the Internet has made on retail. In a nutshell, it has created a consumer-friendly environment in which both online and offline retailers engage in suicidal price-cutting wars. The reason for this is simple–instead of consumers having maybe only one or two choices of where to buy specific merchandise, they now have thousands of options, and retailers have to fight furiously for their piece of the pie.
I do not know for sure how much gross margin percentages in retail have shrunk since the Internet became popular, but the change has been dramatic. Today’s Supreme Court decision is going to possibly relieve some of the pressure on retail. Specifically, it is going to help retailers that have something to offer rather than the cheapest price.
On the other hand, there is a breed of internet retailers that may be in trouble–specifically, the ones that compete solely on price and have no other differentiation factors. I will be the first to admit that I do not feel too sorry for those guys, and I say that as both a manufacturer as well as a retailer.
Because we own the Vitabase brand as well as other brands, we have long understood the dangers of price-cutting on a brand, and we have fought (successfully) to keep our products priced appropriately and fairly for all of our resellers. I can think of no quicker way to kill a brand than allow price-cutting to get out of control.
On the other hand, we sell other brands at Vitabase, and have been frustrated in the past by price-cutting competitors who effectively kill retail opportunities for good products. Just today, I spoke to a manufacturer who wanted us to carry their products. Our research showed us that because our largest competitor was selling those products at a 70% discount, we would have had to assume a large inventory just for the opportunity to have a tiny gross margin. We passed on the deal, as well as many others.
So, I think today’s ruling is good for retail, and ultimately, good for the consumer, though it may initially lead to higher retail prices. Here is why the consumer will benefit–I believe that monopolies are starting to form in many retail industries. The dominent retailers are the ones with the deepest pockets who are willing to lose money while price cutting in order to eliminate competition. If manufacturers are required to enforce their minimum price without preference to any retailers, it will help prevent those monopolies from forming. Of course, there is no question that monopolies are not good for consumers.