The retail and wholesale businesses have been experiencing an evolution toward ecommerce, electronic manufacturers, and DTC sales. However, Covid-19 shifted retail abruptly, forcing brands and retailers to create important changes in their business models years before when they might otherwise have proposed.
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In 2016, Coach, the luxury handbag manufacturer, parted ways with a few retailers. In 2018, Dior announced it was pulling from selling wholesale. Carhartt, a workwear brand, and Columbia, a sportswear company, have opened retail outlets to compete against their retail clients. And in 2020, Gucci stated it would decrease the share of its earnings in the wholesale channel.
A Columbia direct-to-consumer retail shop in the Village in Meridian, a few miles west of Boise, Idaho. A Carhartt retail shop is two doors down. A Nike store is less than half a mile off. Author image.
This tendency was market-driven.
“Many brands are extremely focused on DTC as a result of ongoing struggles of the wholesale accounts — merchants. They should control the relationship with the client and drive their business without being beholden to an increasingly contested model of wholesale-retail,” stated Brian Walker, chief strategy officer in Bloomreach, an ecommerce experience platform.
“Amazon and other marketplaces also amplify the urgency because they commoditize the market with private label and pseudo-brands that increasingly compete with name brands on such marketplaces. The advantages for the [private label] brands are apparent in increased margin in the low teens to 50-70 percent. Thus even if unit sales are reduced, having the customer connection and information gives them control over their future,” Walker said.
This last point, with the customer relationship information, is particularly important given the way an increased focus on privacy could impact performance advertising in the next few years.
When retailers closed their doors this spring, producers may have realized just how vulnerable their supply chains were.
“There are many trends that we are seeing in the industry. The notion of going to a department store — Macy’s, Nordstrom — I think that is very much dying off,” said Peter Sheldon, senior manager of trade strategy at Adobe, who I interviewed in the context of how the pandemic could impact retail in the long run.
“If we look at today’s millennial customers, they’re quite engaged in what we would call digital-native brands, the Warby Parkers of the world, or even Glossier. These are companies that have generated an electronic brand, andyes, they have some retail shops. But they are not retail shops in the conventional sense, [with] a enormous distribution channel. They are direct-to-consumer firms. They do not sell through wholesale or, [if they do], it may be a minor portion of their company. They’re selling directly to the customer. Their main station is online, electronic, and when they have shops, they’re encounter centers — experiential, premium showrooms — where they are not always interested in selling you something. They’re after the Tesla model.
“There are some fantastic examples. Look at Canada Goose, making big, expensive coats. They have been investing in their own direct, corporate retail channel, but it is all about those experiential centers where customers can walk into this without 30-degree freezer and try on a coat. [The trend is toward] this sort of stuff,” Sheldon explained.
These kinds of manufacturers”are driving lots of the earnings to happen digitally. You may be in an experience centre, but you can’t actually buy anything. You can not walk out with the item. They will say,’Hey, you enjoy the item, great. Buy this, and it is going to be on your doorstep in just two hours’ So there’s a large shift toward this,” Sheldon explained.
Brands which have traditionally sold through the wholesale channel, relying on brick-and-mortar or even omnichannel retailers, may look at”digital native” businesses with envy in 2020.
“We see across the board…[brands] are pulling back on wholesale… this idea that 80% of our business is wholesale. That is dying very, very quickly,” Sheldon explained.
“It is almost a double whammy for all those department stores — merchants that traditionally purchase wholesale. The production manufacturers are [saying],’We do not even know if we would like to maintain the wholesale match . We only need to go direct to customer.'”
No Retail Apocalypse
Sheldon added that the DTC fad isn’t”the retail apocalypse,” meaning that we shouldn’t expect traditional retail to evaporate tomorrow. However, both manufacturing brands (conventional wholesalers) and retailers should be mindful. The direct-to-consumer model will probably impact their long-term plans.
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