The Middle Man - Death by a thousand tiny cuts

The Middle Man - Death by a thousand tiny cuts

My phone rings.

‘Hello?’, I answer. ‘Hi Mario, this is Dave’, a voice says on the other side of the call.

Dave is the managing director of the largest luxury goods business in the country. Turns out he called me to make me a fairly lucrative job offer. He wanted me to head up his ecommerce division for the 20+ international brands that his business represents in South Africa.

‘We’re placing a big focus on ecommerce going forward. Would you be interested?’ he asks. Those words echoed in my ears, ‘…big focus on ecommerce going forward…’, and I realised in that instant that Dave’s long-standing 3rd generation family business was doomed.

You see, Dave’s business was founded 40 years ago by his grandfather. Back then it was incredibly difficult for big international brands to open to a new market on the same continent, let alone the other side of the world. There were just too many complexities. Things like language, culture, distribution channels, and other factors were all just too much for big brands to handle. Besides, as the brand their job was to build their brand – make it desirable. They didn’t have time for their actual end-user customers.

40 years ago the easier solution for the big box brands was to sign agency agreements with local businesses which could represent them in new markets. Those agents would subsequently supply retailers, handle returns and do all the leg work for the brand, in return for a chunk of the sales in that territory. The agents would produce the sales numbers, and the brand could continue producing their goods for sale to the agents. The agents were the brand’s customers. Not you and me.

For decades this arrangement worked out fairly well for the brands, incredibly well for the middle men, but really poorly for the consumer with goods often retailing for 20 times the manufacturing cost or more.

Enter the internet. Enter instant messaging. Enter huge amounts of easily accessible information and finally, enter online shopping. For the first time in human history you could communicate with (and buy from) someone on the other end of the world at light speed, 

You could find out more about that brand or business than any agent ever knew, and you could purchase their products and have them shipped directly to your door or desk within days. 

One direct email, google search and order at a time, the agency’s became increasingly obsolete. The big box brands started realising that they could deliver goods directly to the end user, capture that customer’s personal information, and keep all the profit. From the brand's perspective, this made complete sense.

The decline of the big department stores like Macy’s, Bloomingdales, Edgars, and Stuttafords is a clear indicator of this in action, and it’s starting to exponentially affect more and more middle men around the world, who don’t really see it coming. Think of Tesla selling cars directly to its customers, Cotton on, Mr Price, Warby Parker, and the millions of other small businesses around the globe communicating directly to their customers, keeping them happy and delivering to their door. Something Dave never did. 

In Dave’s case he thinks that placing a ‘big focus’ on ecommerce will somehow save his middle man business for the next generation. He’s wrong.

I declined his job offer for a number of reasons, but primarily because Dave doesn’t have a clue what he’s talking about. He can’t see further than his nose, and I can.

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