How to Develop a Retail Distribution Strategy: A Comprehensive Guide

A retail distribution strategy is every step involved in getting products to shoppers. Having a meticulously planned, easily scalable strategy is the difference between setting your business up for success and relying on luck.

But what should your retail distribution strategy touch on? And what channels should it include?

We’ve put together this guide to help:

• What is retail distribution?
• How to pick retail distribution channels
• Establishing strategic partnerships
• Supply chain management for retail distribution
• Data-driven decision making

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What is retail distribution?

Retail distribution encompasses everything involved in sourcing products from a manufacturer and selling them to customers. This can be through direct sales from a producer, through ecommerce, via stockists and more.

Retailers looking for the best possible strategy aren’t locked into one channel. Product distribution often takes place over multiple distribution channels, and one study found that using three or more channels increases order rates by 494%.

Your retail distribution strategy vs your distribution channels

Your strategy determines the what—what role you play, what you produce, what you need to coordinate—while your distribution channels determine where those products are sold.

The key players in a retail distribution strategy are:

• The manufacturer: the maker of the inventory that will be distributed.
• The agent: sometimes, instead of dealing with wholesalers directly, manufacturers employ agents to sell products to wholesalers for them. 
• The wholesaler: the party that sells a manufacturer’s products to retailers (and sometimes directly to customers). The manufacturer and wholesaler may be the same company.
• The retailer: if you’re reading this guide, this is probably you. The retailer is who customers buy goods from, be that online or in-store. Sometimes there are multiple retailers in a distribution strategy.
• The customer: the person the whole strategy is trying to reach. The customer buys goods from retailers, though depending on the strategy, customers may also buy directly from the manufacturer (direct-to-consumer sales).

Your strategy and role determine which channels you use. Distribution channels can be direct or indirect and break down into levels:

• Level 0: direct-to-consumer sales, where a manufacturer sells directly to a customer. Eyewear brand Warby Parker defined the digitally native (i.e. ecommerce-first) direct-to-consumer model. 
• Level 1: the manufacturer sells goods directly to the retailer, who sells to consumers. Brick and mortar retail where the retailer doesn’t go through a wholesaler is an example of this distribution level.
• Level 2: a manufacturer sells goods to a wholesaler, who sells goods to a retailer, who sells goods to a customer. Dropshipping is often a level 2 distribution channel.
• Level 3: a manufacturer employs an agent to sell goods to a wholesaler. From there, a retailer buys goods to sell to a customer. In some areas, alcoholic goods are sold through a level 2 or 3 distribution channel thanks to laws that require middlemen.

How to pick retail distribution channels

When selecting a retail distribution channel, go over your:

• Sales goals: can you reach your current goals with distribution channels you control, or should you make use of stockists as well?
• Target audience: where does your target audience shop?
• Current channel infrastructure: do you have the infrastructure in place to run a brick and mortar store, sell to wholesalers and manage an online store, or do you need time to launch those channels?
• Competition: How and where is your competition selling their goods? If you’re selling your tea online, but your main competitor is selling tea online and in grocery store chains, you might want to think about working with distributors to catch up. 

Here are the main channels to consider.

Brick and mortar

The classic, heavy hitter that’s still driving the retail industry. In this context, we’re referring to running your own brick and mortar store–we’ll cover using stockists and distributors to sell in other stores later in this guide. 

This is a form of direct sales if you’re marketing and selling products you make yourself. 

When deciding if you want to operate a brick and mortar distribution channel, consider:

• What country you’ll be selling in: not all countries value brick and mortar equally. While it’s by far the preferred shopping channel in Austria and New Zealand, shoppers in the United States express a strong preference for shopping online. Though that preference doesn’t translate to sales volume—the vast majority of sales still happen offline in the US—it’s a factor you’ll need to keep in mind for a brick and mortar strategy. Any offline retail in the US will need to be accompanied by an online sales channel. 

• What kinds of products you’re selling: how heavy are your products? How perishable? How fragile? If they can’t be easily and affordably shipped, you’ll need to sell them through brick and mortar (and potentially buy online, pick up in store sales).

• The physical location of your stores: Is the foot traffic worth it? Can you balance payroll, lease and utilities costs against the potential revenue? 

Pros of brick and mortar retail as a distribution channel

• Personal touch from sales associates
• Organic discovery boost from highly visible stores
• Ability to double as a warehouse to enable an online ship from store sales strategy
• Satisfies customer desires to see and touch (i.e. showroom) products before buying 

Cons of brick and mortar retail as a distribution channel

• Potentially high commercial lease costs
• Store reach local to specific geographic areas

Ecommerce

The up and comer that’s been revolutionizing the way people shop for a while now. While sales numbers are still tipped in favor of brick and mortar, customers like online shopping. A distribution strategy that includes online sales is prepared for the future.

Ecommerce includes more than just your site. If you decide to operate an online distribution channel, consider including marketplaces like Amazon and social media selling in your strategy.

Like brick and mortar, ecommerce can also be a direct sales channel if you’re selling products you manufactured.

Factors that may influence your decision to operate this distribution channel include:

• Online sales demographics: who is in your ideal target market? If it includes shoppers between the ages of 25-34, ecommerce—and social selling—is the way to go.

• Shipping: Can you easily package your products for shipping? Is it legal to ship your products across borders? If your products have a low risk of damage or being turned away by customs, ecommerce puts you in touch with the entire world. Just keep in mind the logistics of returns—the further you ship, the more expensive returns will be. With a third of online sales averaging in returns, and with how important free returns are to customers, shipping logistics can start to add up. 

• Competitors: do your competitors have strong ecommerce presences? If yes, you should as well—going brick and mortar only is a bold move not many companies successfully off.

Pros of ecommerce as a retail distribution channel

• Potentially global reach
• Distribution channel that doesn’t close or require customers to be nearby
• Lower financial burden when compared to opening another physical location

Cons of ecommerce as a retail distribution channel

• Hard to stand out amidst the clutter in the ecommerce space
• Not all products can be sold online or across borders
• Higher average product returns compared to brick and mortar
• Security concerns with data handling

Wholesale

With wholesaling, you sell products you manufacture to retailers that then sell your products to customers. If you have another company wholesale your products for you, you’re using distributors.

You can take advantage of this distribution channel whether or not you operate your own stores (online or off). Take Nike as an example—they operate their own stores, where they sell to customers, and the Nike Authorized Marketplace program, where they wholesale to other retailers. The end result is more sales for Nike.

Wholesales are by and large indirect sales.

When deciding if you should start wholesaling your products, consider:

• Your current distribution channels: what shape is your brick and mortar retail in? Your ecommerce? Wholesaling could be a way to sell your products before you launch your own online or physical sales channels. 

• Where the competition is sold: think about the tea example we mentioned earlier. If your competition is wholesaling to other retailers, you should as well. Otherwise, you’re giving up valuable shelf space—and mind share—to them.

• Your organizational structure: do you have the manpower to take on wholesaling your own products? Are you ready to hire in-house experts? If it doesn’t make financial sense for your business, you may want to consider working with a distributor instead of overseeing wholesales yourself. 

Pros of wholesale as a retail distribution channel

• Expands your brand’s reach 
• Can sell in more areas without the accompanying lease, payroll and utilities costs
• Increased revenue from bulk sales
• Get ahead of competition by having products stocked in more stores than them

Cons of wholesale as a distribution channel

• Less control over the customer experience when buying your products
• Less data about product performance, unless you arrange otherwise
• Warehousing costs

Distributors

If a wholesaler sells products they manufacture themselves, a distributor (or stockist) sells products for the wholesaler. 

The end result is the same—your products in other retailers’ stores—but the process is slightly different.

Factors that may make distributors/stockist make sense for your business include:

• Opportunity vs labor power: want to wholesale your products, but don’t want to manage the sales aspect yourself? A distributor can take on the role of selling your products to retailers for you. Because the distributor’s whole job is selling products, they can be more effective, freeing you up to focus on your own distribution channels. 

• Local laws: some products, like alcohol in parts of the US, require a distributor to act as a middleman. 

Pros of using distributors as a retail distribution channel

• All of the benefits of wholesaling, like a wider reach and bulk sales
• Potentially more active sales of your merchandise than wholesaling

Cons of stockists as a distribution channel

• All of the cons of wholesaling, like less data and less control over the customer experience
• Contract costs for the distributor

Retail distribution channel strategy example: Melissa Joy Manning

Melissa Joy Manning is a jewelry designer that defines her brand by social responsibility and unique designs. 

Her jewelry is sold through multiple distribution channels:

• Ecommerce
• Brick and mortar
• Wholesale

Melissa Joy Manning started with an ecommerce distribution channel, then branched into wholesale and brick and mortar. Each step she’s made has expanded her jewelry’s reach around the world—wholesale in particular expands her brand’s market while still giving her time to focus on designing and manufacturing her high-quality pieces. 

Establishing strategic partnerships

No matter your place in the retail distribution chain, you’ll need well-functioning partnerships above and below you (as applicable). 

Building strong relationships with suppliers and distributors

If you’re not manufacturing products yourself, you need to make connections with suppliers and distributors to carry their products. Start the relationship off on the right foot by being sure your company asks the right questions:

• What merchandise do you sell?
• What is your price point?
• What should we know about your products?
• How can we share data with you?

If you are manufacturing your products but want to use a distributor, use these questions to craft the information you want to share with them so they know how to properly sell your products.

Check in with manufacturers and distributors regularly. A little communication goes a long way to keeping the relationship positive and productive.

Negotiating favorable terms and agreements

Come to the negotiating table knowing what you want—what your price point is, what data sharing you’re looking for, what quotas you need to have met for your revenue targets. 

Before you go to the negotiating table, run a check on the other party. What do reviews of their business say? Can you speak to other businesses working with that company?

Make sure whoever is on your negotiating team knows not to fall for suspiciously low prices. Prices and fees that are too low indicate low quality goods or services. If you argue a price lower than the other party is comfortable with, they may not prioritize you when it comes time to do business.

Supply chain management for retail distribution

The technology you use for supply chain management is key to an efficient retail distribution strategy. Move away from any pen-and-paper or spreadsheet tracking methods your organization is using in favor of commerce platforms connected to your inventory and sales. 

Implementing technology solutions for supply chain visibility and efficiency

Let’s look at how a commerce platform would help your supply chain management.

1. Step one: products are uploaded to a B2B ordering platform, like NuORDER. All the product information and photos needed to sell a product are included, standardizing the information retailers have to sell a product with.
2. Step two: retailers order from the B2B platform. If they’re using a point of sale integrated with the ordering platform, like Lightspeed is with NuORDER, the purchase orders are automatically synced. 
3. Step three: as the order ships, both manufacturer and retailer have visibility over tracking.
4. Step four: the retailer sells the product and their POS tracks sales data. They use that data to decide if they should continue ordering products from a manufacturer. 

Data-driven decision making

You’ll want to be sure you’re utilizing data analytics and market research to inform your distribution strategy. The more robust and up to date your data is, the quicker you can change course or optimize plans as needed.

Data analytics

With how complex supply chain management is, there’s no point to distributing products that don’t perform. 

For distribution channels you own entirely, use your POS data to plan your inventory. Track sales trends, sales across channels and outlets, how quickly you’re having to replenish inventory and what inventory isn’t moving at all. If a product is selling better through one channel (or outlet) than others, consider shifting the bulk of its stock there to meet demand.

For distribution channels that end in other retailers selling your products—like wholesaling—make sure the retailers are able to share data with you. If a particular product does well in your own channels, but less well with other retailers (or the reverse), you know you need to rethink your distribution strategy, marketing strategy or both.

With data in hand, you can better plan campaigns, new launches, channel-specific sales and more. 

Market research

Data from your own distribution channels is invaluable, but it doesn’t tell the whole story. Market research will fill in any gaps, such as the possible popularity of a new product, costs associated with new distribution channels, the potential of a new market and more—anything you don’t have historical or ongoing data for. 

There are three broad steps to performing market research:

1. Internal research: compile information from internal sources. What does your internal data say? What educated guesses could your data experts make?
2. Published research: what do firms like McKinsey or the National Retail Federation say? How does their research augment your own data? 
3. New primary research: conduct interviews and surveys, or hire a company to conduct them for you, based on specific information you need. 

Use the right technology in your strategy

When developing your retail distribution strategy, weigh the pros and cons of each potential channel and then make sure you have the right technology to implement your plan.

A commerce platform built to help you with greater visibility over the supply chain could make all the difference.

Why not watch a demo of Lightspeed to see what we mean?