Software Conferences

Software Store

Seeing your software on the shelves of a BestBuy or a Walmart store can be a tremendous ego boost, but the reality of "retail" and doing business in the brick-n-mortar world is far less charming. Making an online product fit into the retail marketing concept takes significant amounts of time and money. There are a number of downsides to retail that many ISV's or small software houses often do not realize...

Going retail is quite expensive. You must invest significantly in package design, packaging materials, marketing materials, an outside sales force, warehousing, etc, before you can pursue retail distribution. This is all money that must be spent long before you know whether the software will perform and sell well in the retail market.

Most large retail chains like BestBuy, Walmart, and Target will only purchase from distributors. Distributors often require that software companies guarantee a certain volume of sales in a specific time frame or the application or product line will be dropped from distribution. The software company may also be required to spend a certain amount of advertising dollars on distributor catalog marketing. And, software companies may be required to invest in product education for the distribution sales force. Unless the software brand is extremely well-established in the market, the software company will have to invest a significant amount of revenue with the distributor or they simply will not achieve the specified distribution volume.

Distribution shelves are usually stocked on consignment. Essentially, you are not paid until the software is sold by the retailer. New software versions can also pose a problem. Software companies are responsible for any unsold stock, and when a new version is released, software companies must take back any unsold stock of the previous version... which is a cost they will not recoup.

Software companies must also establish their brand in the retail market. This means paying for advertisements in circulars and publications. Software companies are often required to spend up to six-figure amounts in marketing development funds (MDF), or they simply won't have enough market presence to get shelf space at major retailers like Walmart. If a software company limits their marketing development fund spending, the software will simply sit unsold on the shelves. Be warned that just getting placement on the shelf of a retailer does not always result in automatic sales. Retail sales requires a significant investment upfront, and branding must be established in order to succeed. And all of this must be done on a razor-thin profit margin. Retailers will often take 25-30 points, and the distributor will typically take 12 points, leaving the software company margins small.

If a software company is building a brand, their online investments will have a much higher return on investment. Back in "the old days" nearly all software was sold in a box on a store shelf. But the immediacy of society, the download availability from the Internet, and the significant cost involved for a software company to "go retail" has changed that trend. Many successful software companies sell "online only", and they enjoy a very healthy income without the expense associated with retail.

Related Articles:
Going Retail
What are Resellers?
What are OEMs?
What are Software Publishers?
What are Affiliates?