The Augsburg-based company sold a lot of backpacks in the past fiscal year - to be precise, 1.6 million units, distributed in 45 countries. Deuter's sales were up by 21 percent and reached the impressive level of €46 million. The increase was partially due to currency factors, but still the growth was substantial.
The success of Deuter is partially attributed to a careful distribution policy that is not extremely selective, but focuses on retailers who follow a reasonable price-for-value strategy and have salespeople who are capable of dealing with technical products. In fact, it took the brand at least a decade to get out of the corner of a me-too brand in department store retailing and to be recognized as a technical outdoor brand.
The control over its own distribution policy is what keeps Deuter busy these days, but the company just lost a case before a Munich court (Landgericht München I, Az. 11HK O 3139/09) against one of the German retail customers that it did not want to supply any longer. Deuter is appealing the decision, which may have a major impact on the future of the distribution of outdoor products and other sporting goods at a time when the European Commission is reviewing the conditions under which bicycle brands can refuse to sell to the likes of Aldi or Lidl.
In the case involving Deuter, a German sporting goods retailer, Hegenloh, took the leading German backpack specialist for the second time over its refused to deliver. Besides its own 500-square-meter store in Wangen, near Stuttgart, Hegenloh operates a couple of online shops and trades over eBay.
Deuter’s managing director, Bernd Kullmann, told The Compass that the discounts that the retailer may have granted in his local and online stores were not the issue of the quarrel, but rather the type of retail operation. He said Deuter is appealing the decision because it is worried about the image of its brand if it is forced by law to sell to just anybody.
Substantially, the case is not big because Deuter sold Hegenloh merchandise worth only €8,000 to €10,000 in 2008. The dynamite in this case is not the turnover itself, but the judge’s decision that Deuter should be considered a market-leading brand that a retailer badly depends on to have a good offer on his shelves. Therefore, the court concluded, Deuter must deliver, no matter whether it wants to or not.
One argument is that Deuter has a supposed market share of 30 percent, which the brand denies. Before the court, Deuter argued that its market share should be estimated at more like 15 percent. This is probably an understatement of the brand's strength in the German market, and the difference probably depends on the definition of the backpacks market.
Anyhow, the judge finally followed the plaintiff’s reasoning by stating that the retailer is in fact a specialty sporting goods retailer and that it depends on Deuter’s merchandise because the brand is a clear market leader in this product segment. The court rejected Deuter’s idea that the retailer did not depend on Deuter’s range because it can offer comparable products offered by its competitors to satisfy the demands of the final customers. The judge said that a market leader is not necessarily defined by the volume it sells, but first of all by the quality of a brand that best meets the customers' demand. The court referred to a 1976 verdict where Rossignol was similarly forced to comply with regulations against selective distribution in the sporting goods sector.
Deuter will file for appeal for two reasons. First, it wants to check in a new trial to what extent a market leader is forced to sell to any retailer. Second, it doesn’t see in the verdict a proper definition of the kind of specialty sporting goods retailer to which a brand is supposed to sell. Basically, Deuter sees at stake the issue of whether it has the right to choose its retail customers.
Anyhow, the figure obtained by us show that the backpack company is shining bright within the group of brands controlled by Schwanhäußer Industrie Holding, well-known for office products marketed under the flag of the Schwan-Stabilo brand. In the fiscal year 2008-09 that ended June 30, Deuter's sales grew by 14 percent in the German home market alone.
An even stronger sales increase of 27 percent was recorded outside Germany. Deuter did especially well in the U.K. and in Japan. In terms of volume, the share of exports was some 65 percent, in value around 50 percent. The difference is explained by the distribution costs that come from the importers’ margins.
Also the business in the U.S. was good, enough to make a profit there for the first time since 2001, when Deuter moved into the American market by setting up its own subsidiary. According to Kullmann, this success was partly due to good acceptance of the product by the buyers of REI.
Another source of extra income has been Deuter's business with sleeping bags. This was launched in 1999 and has never developed to become a real core business of the company. In fact, this division grew in an overproportional way, but still does not contribute more than 5 or 6 percent to Deuter’s sales worldwide.
Schwanhäußer's overall revenues dipped slightly by 0.5 percent to €370 million. The family-owned company lost some 3.3 percent of turnover in its core business, stationery material, and reached sales of €146 million. Cosmetics, in which Schwanhäußer is an OEM manufacturer, was marked by a decrease in sales of 2.7 percent to €178 million. The cosmetic products division has been under price pressure over the past few years and this explained why the holding company’s managing director, Sebastian Schwanhäußer, decided to diversify his family’s business opportunities by acquiring Deuter.