With retailers canceling orders from their wholesale partners given ongoing pandemic-related store closures, brands are rushing to embrace or accelerating their shift to a direct-to-consumer sales model.
That’s because brands that rely primarily on a wholesale business model—in which third-party merchants sell their products—are now stuck with excess inventory and need alternative channels to get their products into consumers’ hands, explained Zahra Bahari, CEO of brand management firm The Powell Cos. Real.
It’s an evolution that is expected to continue beyond Covid-19 as brands seek to reduce the risk of being overexposed through traditional sales channels such as department stores.
While wholesalers have explored or experimented with alternative channels, for the most part such ideas had been placed on the “back burner,” Bahari said. However, the pandemic has provided both the time and the impetus to make such initiatives a priority.
“There is a natural resistance to channel diversification,” said Greg Portell, a lead partner in the global consumer practice of consulting firm Kearney. “This crisis has made having more touch points with consumers important.”
These touch points are likely to include virtual appointments and made-to-order products.
“The creativity in solving constraints is going to be relatively high,” Portell said. “Brands and retailers are going to experiment. Even when new ideas fail, they show consumers they are trying, But such efforts can’t be channel specific—they’ve got to be an enhancement of the overall consumer experience.”
Here are some of the ways that brands are salvaging sales during the Covid-19 pandemic.
Virtual appointments provide safety and service
One of the ways brands can improve the customer experience is through guided shopping, such as digitally answering questions or demonstrating products, according to Melissa Gonzalez, CEO and founder of retail consulting firm The Lionesque Group.
Gonzalez recently booked one-on-one appointments with luxury brand Chanel’s beauty atelier in New York’s SoHo district for a makeup tutorial, and with home furnishing retailer West Elm for decorating a living room.
If these free experiences go well, they could lead to higher sales conversions. Appointment-based shopping that is safe and efficient, but a high-touch service, will give consumers more confidence in making purchases, Gonzalez explained.
Apparel brand Paige, for example, introduced a new way for customers to shop called Paige Virtual Styling, which co-founder and creative director Paige Adams-Geller describes as “a curated, one-on-one shopping experience with one of our retail experts via video conference to receive a sneak peek of our latest collection, and shop our seasonal must-haves.” Shoppers even have a choice of video conference tools: Facetime, Zoom, Google Hangouts or WhatsApp.
“Immediately, we understood that our marketing, social and email channels would be leading the charge, since these are directly linked to our ecommerce business,” she explained.
The virtual styling service allows Paige’s staff to continue to utilize some of the brand’s stores while staying connected to customers, Adams-Geller said. “The interconnectivity between our retail staff and community was essential to launching this program.”
The company also embraced new tools for engaging with consumers. “On Instagram, we began livestreaming tutorials on mindfulness, wellness and grooming, favorite books, music [and] television shows. Connecting with our community was a top priority for our team, and we wanted to let them know that we were all in this together,” Adams-Geller said.
Big businesses eye peer-to-peer rental trend
Steve Cody and Bruce Linton, former co-CEOs of cannabis company Canopy Growth, founded peer-to-peer rental marketplace Ruckify in 2018. While the initial idea was to make the service available to individuals hoping to make some extra cash, the company is also offering its services to retailers and brands that need to monetize their inventory, Cody said.
Ruckify has already seen a number of metrics, such as sales, either double or triple since the beginning of the pandemic, Cody said, despite the fact the company slashed what it spends on customer acquisition.
“We’re already having conversations with retailers,” he said, as brands seek ready-made platforms such as Ruckify to rent out their goods.
It’s a way for companies to implement a solution that can be easily outsourced versus developing it in-house. The athletic retailer Play It Again Sports now has its own URL on Ruckify’s website, Cody noted.
A number of brands are embracing rental. Urban Outfitters launched its own clothing rental service Nuuly last year. But creating an in-house rental capability costs a lot of money and time, as the clothing brand built its service from the warehouse up. So outsourcing allows brands to offer rental as an option more quickly.
From gyms renting out their dormant exercise machines to bridal companies loaning out wedding dresses and sporting goods companies lending their equipment, the trend has taken off across industries, and Ruckify is well positioned for the pandemic economy.
“We get to help Joe down the road make $200 to $300 a month, or help brands salvage sales off of their inventory,” Cody explained.
“We don’t make money until you make money,” he added, noting that Ruckify receives 10% of the proceeds, although for now it is offering the service for free.
Consignment stores let customers shop the internet
Neighborhood Goods is to retail what food halls are to restaurants, a new kind of department store for the 21st century, said founder and CEO Matt Alexander.
The initial instinct was to create a nonprofit, unbranded and free event space for entrepreneurs to showcase their wares, he said. Each location of Neighborhood Goods, which is born out of that starting point, is just one room and a single point of sale, but features numerous brands that shoppers would not typically find in a store. Now, the company has embraced some larger brands such as Dollar Shave Club, Modern Citizen, Aesop and Fossil.
The spirit of the physical space is embraced by the company’s digital platform, which remains up and running even though its stores were shuttered as of March 14 (its two stores in Texas, however, will be reopened this week).
Part of Neighborhood Goods’ secret sauce is that it does not purchase goods, but rather sells them on consignment.
As the pandemic progressed, the company increasingly heard from big-name brands that rely on wholesale but were stuck with inventory from canceled orders, wondering if they could place products on the digital platform, Alexander said.
“Brands will need to diversify distribution,” he said. “We’re thinking through how we can further lower the barrier to entry, whether it’s local or national brands.”
In that vein, the company introduced a free platform called The Commons by Neighborhood Goods for brands, restaurateurs, musicians and artists to engage with customers and reinvigorate their businesses. This platform will also be supported by an ecommerce component.
“We have brands who just want to launch online with us, brands [that were] apprehensive about being online now want to be there,” Alexander said.
Made-to-order goes mainstream
Performance denim brand Duer is pursuing a more progressive route, determining that after losing 75% of its revenue in less than a week due to the Covid-19 pandemic, it needed a new approach to retail, co-founder and president Gary Lenett said in an interview with Adweek.
The company is unveiling what it has coined Next by Duer, which allows shoppers to order the product before it is made. Once the selling period is over, the orders are sent to the factory, produced and then shipped to customers. It saves the company money because it is only ordering product that has been paid for, with the cost savings passed on to the consumer. The made-to-order method can cut the cost of the item by more than 20%.
This presale method closely aligns supply with demand, leading to tight inventory management. And it’s also better for the environment, because it reduces waste, Lenett noted. Duer is able to achieve this in part because the factory it partners with produces Duer products exclusively and owns a 50% stake in the company, he said.
In its early days, Duer had success raising money via the kickstarter model to fund the creation of specific products, which Next by Duer shares similarities with.
“The old world way of creating speculative inventory and then running costly marketing campaigns to sell it is inefficient and wasteful,” Lenett said in a separate statement.
Versatility in messaging is key
For athleisure apparel brand Vuori, wholesale constituted more than a third of the business prior to Covid-19.
With retailers telling Vuori to hold all orders for March, April and May at the onset of the pandemic, the company was left with more inventory than planned and had to shift to an entirely DTC model. To adapt, the brand pivoted its messaging from outdoor lifestyle and travel to comfort and versatility, said founder Joe Kudla.
With more people working from home, versatility was a key factor for customers, who desired clothing that was appropriate for a Zoom meeting but also could be worn for jogging, he explained. Comfort, of course, was at the core of that messaging.
The company also realized it had to engage more with its customers digitally. Now, at 8 a.m. every day, Kudla goes live on Instagram with a fitness trainer for a morning exercise class, for example.
More importantly, though, Vuori moved to modify fall orders so that 80% of the items offered could carry over into spring. If the brand were stuck with additional inventory going forward, it wouldn’t have to offer steep discounts and could sit on unsold items for another season instead.
“A lot of the collection carries over season to season,” Kudla said. “If we get stuck with inventory, we’re OK with that.”
Men’s apparel brand Cuts Clothing was founded in 2018 by Steven Borrelli, who now serves as CEO.
Borrelli was inspired to start the business after being unable to find a T-shirt that fit well. With that simple concept, the company racked up a few million dollars in sales in its first year and then grew to eight figures in its second year. In the process, Cuts attracted high profile customers such as Kansas City Chiefs quarterback Patrick Mahomes.
Part of the challenge for a brand such as Cuts is getting the customer into the right size. Sizing is often determined via customer-to-customer reviews, Borrelli said.
To make shoppers more comfortable buying online, in case the product doesn’t fit correctly, customers are encouraged to order more than one size. To deal with potential returns, the apparel company contracted with Happy Returns, which has 700 locations across the U.S., making it easier for customers to return products by simply having a physical place to drop them off and avoid the hassle of repackaging the items themselves.
Customers have come to love the third-party service, Borrelli said, helping the company overcome one of the biggest challenges when it comes to digital retail: returns. In addition, Cuts provides a 30-day window for free exchanges.
The partnership with Happy Returns allows that company to focus on logistics, while it frees up Cuts to put all of its energy into “being a great T-shirt brand,” Borrelli said.
The end of wholesale as we know it
Wholesale businesses are willing to work with their retail partners, The Powell Cos. Real’s Bahari said, as brands still recognize the opportunities wholesale provides.
For example, the marketing that brands generate when customers walk into stores and see their products remains incredibly valuable, she said.
But a system that “works for everyone,” rather than wholesalers taking on most of the risk, needs to be negotiated, Bahari said, noting that contractual agreements have been largely ignored.
Nevertheless, brands need to be prepared for a future in which wholesale makes up a smaller percentage of overall sales. “We are going to shift to DTC, because the risks and the headaches [of wholesale] are too great,” Bahari said.
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