Ever felt like a competitor is beating you simply because they appear everywhere? From wholesalers to big-name department stores, those brands have nailed their retail distribution network.
It might seem that replicating their strategy would work for your business, too. Instead of overextending yourself and delivering a subpar experience to more shoppers, however, you should refine your own distribution strategy. Uncover how your customers buy, and where your products should be relevant, rather than losing too much of your profit trying to distribute through every channel.
This guide explains how retail distribution works, and suggests several channels and strategies to consider, along with tips on how to decide which is best for your store.
What is retail distribution?
Retail distribution is the strategy a business uses to source products from a manufacturer and sell it to the end customer. A business can have multiple distribution channels, including wholesale and direct to consumers.
Retail distribution channels
- Direct to consumer (DTC)
- Independent distributors
Direct to consumer (DTC)
Retailers can sell directly to the end consumer and cut out the middlemen. Also known as direct distribution, DTC brands source products from suppliers and sell them directly to the end user, either through an owned online channel (such as an ecommerce website) or a brick-and-mortar store.
This retail distribution strategy is popular since it gives brands greater control over the entire supply chain, which impacts customer experience and brand image.
A reseller is an intermediary who buys a company’s product and resells it either to the end customer or to another business. Let’s break down the three major types of resellers you might encounter as you expand retail distribution.
Lean on other retail stores as a way to sell your product. If you sell coffee beans through your own store, for example, increase your brand footprint and sell to other coffee shops in your area.
The key is to build strong relationships with stores that sell your product. Think of them as an extension of your team. Customers visiting those stores want the same world-class experience they’d have if they bought directly from you.
Manage inventory from one back office
Shopify POS comes with tools to help you manage warehouse and store inventory in one place. Forecast demand, set low stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.
Wholesalers source products from retailers at a low cost, and sell them to other retailers at a markup.
Costco is one of the largest wholesalers in the US, with over 118.9 million cardholders. It buys products from businesses at a lower-than-wholesale price per unit. Those cost savings are passed onto Costco’s own customers, who pay less than the recommended retail price (RRP) for items they can sell via their own business.
An independent distributor is authorized to sell your business’s products to another wholesaler or retailer. Think of them as an added layer in the supply chain process. Instead of selling directly to the wholesaler yourself, an independent distributor manages the process for you.
Types of retail distribution strategies
- Intensive distribution
- Selective distribution
- Exclusive distribution
The intensive distribution strategy happens when a store uses all available retail channels to flood the market. Instead of selling exclusively through a handful of carefully selected channels, the aim is to get the product everywhere a customer wants to buy.
It’s a type of distribution strategy worth considering if your product appeals to a wide range of people. If it’s a niche product that only a specific type of customer would buy, however, it’s not the best option.
- It’s great for building brand awareness.
- Increased market penetration; products appear everywhere a potential customer wants to buy.
- Potential customers will see your brand as more credible if you’re associated with a distributor they already know, like, and trust.
- You have less control over how your product is sold and marketed.
- Several retail distribution channels can be hard to manage.
- It’s expensive to sell products to distributors that don’t have a close overlap with your target market.
A selective distribution strategy is what it says it is. Instead of pushing your product into any channel you can find, you only make it available through a small assortment of distributors.
This distribution model works well if you’re targeting a certain demographic. If you’re selling skincare products, for example, you could be selective and distribute via service-based stores such as hairdressers, barbers, or acne clinics in your local area.
- It works for brands whose customers are happy to shop around.
- Maintains a strong brand image by associating your products with distributors that reflect your brand values and reach your target market (versus being everywhere.)
- It’s easier to expand across different markets if you work with a few select partners in each region.
- Your products aren’t available everywhere a potential customer shops.
- To choose selective distribution channels, you need intimate knowledge of who your customers are and how they buy your product.
- It can take a lot of trial and error to identify the best type of distributor.
The exclusive distribution strategy happens when retailers have a very specific approach to choosing the channels they want to sell through. It’s also known as the “inch wide, mile deep” strategy.
Most often, the aim is to maintain a sense of exclusivity—people can only get your products via a small selection of distribution channels. Brands in the luxury sector are a prime example. You’ll only see luxury brands like Chanel stocked at exclusive, high-end department stores.
- It’s easier to manage fewer distribution channels.
- You can build strong relationships with your distribution partners since you’re actively driving your shoppers toward their store.
- You build brand credibility by leveraging a distributor’s already well-established audience.
- You need to trust that your distribution partner won’t sell inventory to another distributor.
- It’s hard for unestablished brands to convince consumers to buy their products via an exclusive distributor, as opposed to readily available competitors.
- You can turn potential customers away if you’re not present in the places they’re already shopping.
A big key to our success has been a really disciplined approach to distribution.
Target was a dream retail partner for us so we went all in with them and we’re doing amazing retail marketing together – endcaps, sampling, ACV wins, circulars. #inchwidemiledeep pic.twitter.com/GPxzLoElps
— Ju Rhyu (@jurhyu) August 2, 2021
How to choose a retail distribution strategy
- Consider your products
- Examine costs
- Analyze competitor distribution
Consider your products
The type of product you’re selling plays a major role in which distribution channels work best for your store.
Certain items–fresh fruit smoothies, for example–don’t lend themselves to wholesale distribution. The product needs to be with the end consumer as fast as possible before the expiry date passes. The longer it sits in storage, the more likely it is to become dead stock.
At the other end of the spectrum, while you want pre-assembled products like furniture to sell quickly, there’s no risk of them becoming unsellable. Those types of products lend themselves to long distribution channels, such as wholesalers or independent distributors.
Do your research and even ask other brands. You don’t want to be dropped, for example, because you failed to meet volume requirements due to the inability to keep up with demand.
💡 PRO TIP: Want to know which products account for the majority of profits? View the ABC inventory analysis report in Shopify admin to see your best and worst-performing inventory, optimize your purchasing, and increase profitability.
How much profit do you make selling products via each distribution channel?
DTC sales have the highest profit margins since you’re selling units at their RRP. Retailers, however, expect to buy items at less than RRP. They still need to make money when reselling your products to their customers.
Calculate your profit margins for each product and evaluate how much wiggle room you have for distribution partners. If you only make 30% profit when selling directly to the customer, wholesalers—who make bulk orders at a unit price lower than RRP—might not be the most sensible option.
💡 PRO TIP: Shopify POS comes with tools to help you control and manage your inventory across multiple store locations, your online store, and warehouse. Forecast demand, set low-stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.
Analyze competitor distribution
Spying on your competitor’s distribution strategy can shine a light on the channels your customers are using to buy.
Let’s put that into practice and say you have three main competitors that sell through the following distribution channels:
- Competitor A: DTC (online and in-store), wholesale, and retailers.
- Competitor B: DTC (online only) and retailers.
- Competitor C: DTC only (online and in-store.)
All three competitors make direct sales, and two have a retail store they use to sell products in person. It makes sense to include this distribution as part of your own strategy, as customers are known to buy directly from the brand.
However, just one competitor sells to wholesalers. This brand is much more established than you and sells lower-quality products at a cheaper price. While tight profit margins might not make you want to sell wholesale right now, it can be a good long-term goal to work toward.
Tips to improve retail distribution
- Keep inventory as close to consumers as possible
- Partner with a 3PL
- Regularly audit your distribution strategy
- Hire a distribution expert
Keep inventory as close to consumers as possible
End customers are conditioned to take home the products they buy in-store immediately. That applies to resellers, too, who want their products to arrive as quickly as possible. It helps their cash flow if they can quickly turn a profit on stock they’ve bought.
Optimizing your last mile delivery process helps achieve this with any distribution partner. By localizing your stock, unsold inventory is stored nearby your biggest customers. You’ll reduce the ground each parcel has to cover, meeting customer expectations while also reducing delivery costs and carbon emissions.
💡 PRO TIP: Set up local pickup in Shopify to start offering in-store pickup as a delivery option at checkout. Pay less on last-mile delivery, speed up fulfillment times on local orders, and drive more foot traffic to your stores.
Partner with a 3PL
There’s a lot of work that goes into managing retail distribution. The biggest hurdle to overcome? Managing inventory and ensuring that each distribution channel has enough stock to meet demand.
A third-party logistics (3PL) partner can take this pressure off your shoulders. It’s their responsibility to pick, pack, and ship orders to your customers—be that a wholesaler, end consumer, or third-party reseller.
Outsourcing order fulfillment means you can:
- Expand into new markets without the stress
- Rely on a 3PL’s expertise to make smarter distribution decisions
- Reduce operational costs, including storage rent and gas for post office trips
Regularly audit your distribution strategy
You’ve expanded your distribution network to increase market penetration. How do you know if your new strategy is working?
Regularly audit your distribution strategy and pay close attention to:
- Channels you’re regularly running out of stock for. If resellers are constantly asking to restock your products, consider rebalancing your distribution strategy to free up more inventory for third-party resellers.
- Channels that form the bulk of your sales. Over-reliance on one particular distribution channel can wreak havoc if your relationship goes bad, they choose to no longer stock certain products, or stop buying altogether.
- Channels with a low sell-through rate. If just 3% of sales happen via wholesale and the majority happen via your brick-and-mortar store, evaluate whether it’s worth investing time and money in wholesale distribution—or whether you should lean into what’s already working.
Take OLIPOP, for example. The CPG beverage company sells directly to the end consumer through its online store. Its senior ecommerce and digital product manager, Melanie Edwards, says “We’re a DTC company that values the control we have over our brand, image, and product.”
However, the brand has also “partnered with Shopify, Amazon, and brick-and-mortar retailers such as Target, Wegmans, and Whole Foods, etc. to deliver our products directly to consumers.”
These extended distribution channels happened as a result of consumers’ omnichannel shopping habits: “We realized after a few years that we needed to push into the ecommerce space,” Melanie says. “Many customers do their shopping online now, so an omnichannel approach made sense to us as a brand.”
It’s important to analyze your target audience and figure out where they like to shop, how they like to shop, and what’s important to them when shopping. Answers to these questions will allow you to choose the correct retail distribution channel for your business.
Hire a distribution expert
Navigating distribution is hard. Not only do you need skill and experience to identify the best channels for your store, but building relationships with distributors takes time. That’s an already limited resource for many business owners.
Consider hiring a distribution expert to guide you through the process. Have it be their job to:
- Evaluate each distribution method and rebalance accordingly
- Regularly talk with distributors to build stronger relationships with your partners
- Manage inventory and assign stock to each retail distribution channel
It’s time to find the right retail distribution strategy for your store
You know that customers want your products; you want to turn a profit while supplying them. Ironing out the details, including which distributors you want to partner with and how you collaborate with them, is the hard part.
Use these techniques to determine which retail distribution strategy is best for your store. Whether you’re selling to wholesalers or directly to the end consumer, prioritize building strong relationships with your customers while keeping a close eye on profit margins. The last thing you want to do is sell all of your inventory for a tiny profit.
Unify your inventory management with Shopify
Only Shopify POS helps you manage warehouse and retail store inventory from the same back office. Shopify automatically syncs stock quantities as you receive, sell, return, or exchange products online or in store—no manual reconciling necessary.