Should Manufacturers Become Retailers

An interesting article by George Koeninger in the 08/06 FDM Magazine

Mr. Koeninger professes that a manufacturing company should be very cautious if it is considering moving into retail. In fact, he basically argues against it altogether. His reasoning is sensible and comes from his 35 years of experience. He gives seven reasons and a few possible alternatives for those who are not necessarily wanting retail but are really wanting extra revenues - and profitability.

Here are the simplified versions of his reasons:

1. Retail takes cash away from manufacturing, often leaving manufacturing technology and capabilities behind the curve.
2. There are few/no returns in a manufacturing environment. If you manufacture and retail, your cash is not assured until after you have made the product, let it sit on a shelf, then it is not returned.
3. Need a stronger brand than the other brands on your store front or people will go to the others.
4. You''ll have to pay for an excellent management team for the retail startup from the very beginning - very expensive. See #1.
5. You will probaby need a completely new software system - retail is a different business than manufacturing.
6. Where are the profits reported? How is your bonus system structured? Will manufacturing personel get smaller bonuses because the retail division is not meeting numbers?
7. "Us v. Them" mindset between retail and manufacturing will always exist.

His main suggestion is that manufacturing companies looking for new sources of profitable revenue should develop new markets abroad in places that are hungry for American products.