Is cutting out the middleman a good idea?

I often hear small brands boast being able to offer better quality products at lower prices by “cutting out the middleman”.  The middleman they’re referring to is retailers, and they often follow up this statement with comparing themselves to brands like Warby Parker and Everlane who have had great success doing just that. But do we really want to run retailers out of business?

Independent retailers were traditionally where indie brands got their start. When we refer to desirable neighborhoods as being full of cute and cool shops, these are the places we are referring to. They’re stores founded and run by a passionate shopkeeper who curates a collection of merchandise to delight her customers. These are stores with only a handful of employees, and every employee knows the story behind every product and brand, and they’re only too happy to spread the word to everyone who comes in the store. And these are the “middlemen” that will go out of business if the new brands with compelling stories decide that they don’t need them.

I, for one, do not want to live in a world where there are no cute shops. I do not want my only options for in-person shopping to be Target or some bizarre Amazon storefront.

It’s true that “paying the middleman” brings up the cost of the product. For every product you pay $100 for at a store, the retailer probably paid between $40-$60 for it, and the manufacturer probably paid $20-$30 to have it made. This can vary greatly depending on the type of product but is a general rule of thumb.

By skipping the middleman, i.e. selling directly to you, the manufacturer can list that same product for, say $75, which makes it seem like a great deal to you, while at the same time giving them even more profit than they’d make selling to a store.

Alternatively, the manufacturer can create an even higher quality product, with better materials, or more features, that costs them, say, $50 to make instead of $20. Normally the retail price for this product would then be in the $200-$250 range. Instead, they bring this product to market for $150, hoping to lure some of those customers who were comfortable with spending $100 to spend $150 for a much better product with a great story. They just made $100 on that sale, which is a lot more than the $25 they’d make going the normal route, and even better than the $50 they’d make just dropping the price. And both the customer and the manufacturer get to feel good about outsmarting the system and cutting out the middleman.

Once the manufacturer decides to go this route, it’s hard to go back because you’ll never be able to offer wholesale pricing again – the margins just aren’t there. I think that’s the reason they preach about why it is so great to cut-out the middleman. They’re fully committed.

And, in the process, they change the whole value perception for the product. Before, Warby Parker, you’d get your eyes checked once a year or so and then you’d buy a pair of glasses for $300 or $400 or $500.  And it was like a punch in the gut. But now that Warby Parker exists, and you know you can get stylish frames from Warby Parker for $100, you feel like a schmuck for paying so much more for your eyeglasses from your optometrist. Even though he’s the small, local business owner and Warby Parker is the big corporation.

That brings me back to my original point. Do we really want all these small shops to go away? In many ways, what’s happening now reminds me of when Wal-Mart killed main street. From afar, it looked like small town folk were just blindly letting their main streets go to rot by being seduced by the Wal-Mart on the edge of town that had everything under one roof with incredibly low prices. It doesn’t seem too different to me now that people are being lured away from their independent urban stores by online-only brands that offer them the stories and products they’re craving at a price they can’t resist.

Or am I, as a small indie brand still committed to partnering with independent retailers, just being stubborn and not facing the reality? I bet there were a lot of brands that told their Main St. customers that they were going to stick with them instead of pitch to Wal-Mart, and I’m guessing that didn’t turn out well for them. I just don’t want to live in a world without the shops that define the neighborhoods I love.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s