The retailer that becomes a manufacturer

What the retailer did

Three large stores, mid-market, in the province of Milan. The press release said, more or less: “We have decided to go beyond the concept of distributors by launching our own lines, which we produce and present through contract manufacturers. This approach allows us to focus on the quality of products made for customers we deal with from design through to after-sales service.” Translation: it is shrinking the shop-in-shops of the established brands it used to sell, dropping some of them, and selling kitchens under its own name in its stores.

It's the right move. And I say so against my own interests, because I am involved in certain distribution networks.

Why it's right

Put yourself in the retailer's shoes. It has the shop, the sales staff, the fitters, the customer walking in. It buys kitchens from a well-known brand and displays them. The customer sees them, takes the floor plan, walks another five hundred metres and finds the same brand in another shop, with a bigger discount. Or goes online and finds the brand selling direct. What is the point of carrying on buying from that brand? Better to have your own line made by a contract manufacturer, who today makes it well and for less, put your own name on it, and keep the customer from design to after-sales.

The retailer is caught between a rock and a hard place. Above are the brands that speak directly to the consumer. Below are the big chains. In between, the internet.

Ikea and the big chains have taken the low end. High-end brands have opened single-brand showrooms and speak directly to the end customer through advertising. The internet disintermediates everything else. Whoever only sits in the middle, without a product of their own, is left with the customer who goes round the shops with the floor plan to squeeze out a discount, and the one who, with a bit of cheek, finds out who the manufacturer is and goes straight to the factory.

What it means for manufacturers

If you are a manufacturer selling through retail, that retailer's press release is a warning: the shop you built your sales on can replace you tomorrow with a line under its own name, made by a contract manufacturer, possibly you. And the reverse is true too: if a major supplier on which the shop built its store decides to go direct to private customers, it's the shop that gets burned. In both cases whoever has the customer is in charge, and whoever has only the product or only the shop window has to live with the other's decisions.

What to do

The manufacturer has one road: build the brand and its own distribution, at least the first showroom, and keep customer data in-house. Going from manufacturer to brand, the multiple the market values it at goes from 4 to 12. The retailer has the road that press release describes: products under its own name, customers of its own. The two roads lead to the same place, which is why in my sector brands and shops are looking more and more alike. Distribution is the step in the method where earnings explode. It is also the one where, if you don't move, you lose them.

From my classroom courses and my book Direct from Milano. Figures and examples updated to September 2026.