Developing a Strategy for Distribution Channel Management

Essay by mtg373University, Master's December 2008

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Specialty stores once renowned for their selections and expertise of their domain, are being marginalized today by stores that can duplicate their efforts while offering so much more. Lets examine a mainstay specialty toy store (Toys “R” Us) and their biggest competitor, Wal-Mart in hopes of determining whether or not certain toy companies should sell exclusively to specialty toy stores. Toys “R” Us has lost so much of its profitability to competitors that it is considering shutting down the entire operation, which has alarmed the attention of some who feel that closing Toys “R” Us will start a movement other toy stores will follow. Will FAO Schwartz be next? The shift signals a new level of desperation by toymakers as the "big box" retail chains stomp all over traditional retailers. In the past dozen years, Wal-Mart Stores and Target have doubled their share of toy industry sales, to 32%, contributing to the decline of such retail mainstays as Toys 'R' Us, KB Toys, and FAO Schwarz.

If mega-toy stores are to become a thing of the past, will manufacturers be able to experiment with new product lines that compete with established brands on the limited shelf space that Wal-Mart affords them? Some might suggest that one way to save the industry’s flexibility would be to offer Toys “R” Us exclusive distribution of new toy lines that are unavailable to others. This would allow the company to test new products while giving Toys “R” Us a reason to still make profits, and hence exist. While this sounds like an interesting way to keep distribution channels open, it is a dangerous strategy for toy makers to take, and is untenable in the long run because of their dependence on Wal-Mart as the dominant distributor of their mainstays.

To outlay some of...