One Topic - Two Opinions: The Wholesale Model Is Dying

It was a bold thesis that e-commerce expert Jan Kegelberg put forward in his contribution to the ISPO Re.Start Days: "In five years at the latest, the wholesale retail model will be dead." This sentence from the former Chief Digital Officer and co-director of SportScheck carries weight. Can you leave it like that? We asked Jan Kegelberg to explain his position and then gave Markus Hupach, co-director of Sport2000, the opportunity to respond. An argument about the future of our retail landscape.

Jan Kegelberg: "Some brands still emphasize that they want to continue working with retailers as their most important distribution partner. The question is, how much longer? I say that we will see a massive decline in wholesale business within the next five years. The sports industry is facing a tsunami that will completely change the business.

The wholesale model is doomed to failure for two reasons. First, the selective distribution policy of the brands. Many brands distribute selectively because they want to prevent their products from ending up in the wrong channels, such as marketplaces. In this way, however, they now also determine that fashionable sports collections are sold in fashion stores and no longer in specialist sports shops. As a result, lifestyle models that are relevant to the customer in sports retail reduce both sales and, above all, margins. For example, SportScheck used to make several million euros in sales with Adidas Originals only. That has completely disappeared. The customer does not understand why this is so. He thinks the sports retail trade is too stupid to buy the cool sneakers. He doesn't know that the sporting goods store can't buy them.

Secondly, the brands are moving towards selling their most attractive sports models themselves in D2C (Direct to Consumer). This means that here, again, assortments are withdrawn from retail, either completely or only temporarily, as the example of the DFB soccer jerseys has shown. At the end of the day, retailers are left with only those product ranges that are sold in large quantities but are in price competition from day one. This means that there is no longer any sustainable, profitable business to be made.

The classic sports retail trade is now only needed for two reasons: First, to present the brand to the customer. This means that the brands are no longer primarily concerned with sales, consumers should preferably buy directly from the brand. Secondly, most brands in D2C do not yet succeed in bringing the commercial assortments to the market in the necessary mass. So far this has only been possible via the retail-wholesale model. But: the retailer does not earn any more money from this on a mass scale.

But it is not only offline that the wholesale model is losing its appeal. The platform strategy of the relevant players is also displacing wholesale in online trading. With the launch of a marketplace model, the profitability of wholesale online business shifts. If I as an online shop also operate a marketplace and the marketplace share of the shopping cart increases, the profitability of the wholesale business automatically decreases. In other words, the proportion of wholesale items in the shopping basket decreases, but the process costs remain almost the same. The stronger the marketplace business becomes, the less attractive the wholesale model becomes for the online retailer. Large online retailers will therefore increasingly focus on the marketplace model. There they will receive a fixed margin, sell Retail Media as well and have no inventory risk. At the end of the day, there will only be pure technology providers who will let the brands pay for the reach.

Perhaps my statement does not yet apply to 100 percent of the market. Exceptions could be the bike and outdoor sectors. The reason: in both areas there is still no pronounced brand preference on the part of consumers. There the customer comes into the store and says he wants an outdoor jacket, not a Jack Wolfskin XY jacket. To find the right jacket, he needs the salesperson. The customer does not buy by brand, but by need. This is completely different in other segments such as running or fitness. But online, the marketplace-wholesale-conflict will also arise in these segments in the near future. If wholesale in these categories collapses, most brands will have a very serious problem. If outdoor brands can only sell at Zalando etc., it will be extremely difficult to compete there against the other 150 outdoor jackets."