I have been spending a lot of time of late reading about the response by lifestyle brands in the face of a pandemic world. Every brand seems to have a point of view and how to respond to the virus called COVID-19, given the impact it is having on business. Driven by stay at home orders and the general chaos that seems to exist everywhere, most brands have focused on digital commerce to drive revenue and hopefully keep the doors open, employee safety and cashflow being the top priorities. This along with the fact that many brick and mortar retailers have been unable to open their doors has dramatically swung the pendulum. Focussing on E-commerce during this time is the right approach for brands as it drives immediate cashflow and provides a contactless way for consumers to purchase goods. Most consumers have little choice but to shop on-line for their daily needs or for purchases that might make them feel better during these crazy times.
But whatever happened to seamless commerce? Consumers will shop when and wherever they want to shop, right? This ranges from brand e-commerce sites, brand brick and mortar, pure play on-line retailers, independent retailers, 3rd party market places, discount retailers both brick and click and the list goes on. Everything I am reading these days, and driven by the pandemic, retail is dying right in front of our eyes. I want to argue ‘not so fast’ as independent retailers are way too important for any brand in the US and abroad.
We recently witnessed the pent-up consumer demand for social contact and retail interaction during the short period of time when stores were allowed to open. While retail is definitely down right now, (impact of COVID-19 dramatically reducing foot traffic), my sense is that it will still be a material part of any brands distribution strategy, albeit emerging very different to what we have seen to this point.
The foundation for any brand beyond the ‘Why’ is distribution. How and where a brand shows up not only allows access for consumers to purchase a brand, but also makes a statement about the brand itself. While brands and consumers alike will continue to make purchases on-line, one could argue that long term, distribution will remain an important aspect of brand perception and the independent retailer must be considered as part of every brands’ go forward plan.
A couple of years ago I read a very compelling article from Alix Partners on the declining profitability of digital commerce. The article explained that due to competition, brands have been compelled to offer free shipping and returns. This along with the increasing cost of performance marketing (again due to competition) and the ever increasing cost of shipping, has put continued pressures on contribution margins for many brands. Interestingly, in my own experience, contribution margins from independent wholesale can be materially beyond that of a high initial margin e-com business. Don’t get me wrong, I am not arguing that brands should move away from e-commerce, but rather highlighting one argument why independent retail will remain an important part of a brands distribution mix. There are other arguments as well.
Independent retail distribution is fairly low maintenance for brands. Wholesale discounts tend to be directly tied to sales volume, inventory risk is born by the retailer and some pre-booking still exists. Little if any margin assistance is provided by brands and returns are at a minimum. All of this translates to a solid contribution margin from this channel of distribution. While we will see a serious rationalization of retailers over the coming months, the best independent retailers will remain a profitable avenue for brands to distribute products in the market.
Additionally, something I believe we are all experiencing during this pandemic is the inner need for human interaction and social connectivity. Each day can feel a bit like a ground hog day. We seek ways to be social (hopefully in a responsible way) and feel better after seeing friends 10 feet apart on the front porch. When stores, restaurants, bars and beaches began to open back up, we all flocked to them to once again interact and fill the void created by stay at home orders.
Many of us enjoy shopping with friends and family. We not only get to interact with our favorite retailers, we enjoy the time we have with each other and receive instant affirmation/gratification from the brands and products we purchase. Independent retailers offer this opportunity to gather, interact, spend a little money on ourselves (let’s be honest here) and feel good about the day. While the dependence on this channel will be different by brand, the fact that we like to shop and be social means that independent retail is an important avenue to connect with consumers. This is probably a major reason why on-line retailers such as Amazon are opening stores in local communities. This connection in the local market is a main advantage that independent retailers have and something that must be brought out even more. Waiting to address this until after the pandemic will be disastrous.
I read an interesting article this week posted by Fashion Network out of the UK. They referenced a study by Ernst & Young stating that 46% of European consumers plan to shop more locally in the long term. This makes a lot of sense to me as these local retailers are seen by many as a trusted part of the community offering a safer shopping experience. I would not be surprised to see a similar statistic here in the US.
These retailers have earned this distinction by serving their local communities. For me, Tops for Shoes in Asheville, NC is a great example. In my opinion, this is one of the best ‘sit and fit’ local retailers in the country. Customer service in this store is second to none. They know their product and represent brands as well as anyone. This type of retailer still exists in the US and will continue to do so in the future. They represent an important way for brands to be present in communities offering service levels that big box and on-line retailers cannot.
Another good example is Surfside Sports in Costa Mesa, CA. This store is so tied to the community that the community rewards them back with loyalty. Brands are well represented in this store. The store staff is authentic to action sports and management actively supports local schools and community events. Again, this is something that big box and on-line retailers cannot duplicate.
The list of great retailers across the country is numerous. What I believe is common to all of them is a strong tie to their community, well run retail operations/customer service and a great understanding of brand (what they mean to the consumers they service and the statement being made by their store). These are the partners that brought many a brand to the dance. This partnership will continue to be important in a pandemic world.
The question is what can brands and independent retailers do together as we fight through this pandemic and how do we jointly prosper in the new normal? After speaking with some good friends both inside and outside of the industry I have listed some thought starters below. Creativity and innovation will no doubt be key as we seek ways to redefine the retail experience. Consumer confidence and safety will be paramount. Perhaps once and for all, seamless retail, omni-channel commerce, endless isle or whatever other overused term is applied will finally happen.
The purpose of this paper is to highlight the importance of independent retailers to brands and to start a conversation to come up with a robust list of ideas in support of this important channel. I would ask that you share 1-2 ideas of your own and post them in response to the paper. We are certainly all in this together and if you believe half of what is written above it is worth everyone’s time and energy.
Thought Starters
Share consumer information with your local retail partner. Purchase history and intent can help close the sale.
Help your retail partner set up a consumer database if they do not already have one.
Create more in-store experiences for consumers. Interactive kiosks and and access to remote associate experts via live chat sessions creating a three way conversation between brand, associate and consumer.
Work with retailers to create ‘safe zones’ in store separating shopping from try-on and purchase.
Share best practices. Encourage retailers to adopt purchase processing that reduces direct contact. Encourage retailers to take the lead on mandatory masks in store. Consumers must feel safe entering this environment. Educate retailers on social media best practices driving social shopping
