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Why Wholesale Brands are Pivoting to Brick-and-Mortar

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As the U.S. retail climate continues to evolve and shift, one can find apparel wholesalers caught directly in the middle.

With many of their retail customers shrinking, consolidating or closing, it’s become increasingly harder for wholesalers to grow their businesses—or even maintain historical revenue levels. What’s more, the retailers that do endure are shifting the burden of holding inventory to the wholesaler, expecting them to stock goods and be ready to fulfill on short notice.

“When you combine these challenges with a macroeconomic situation that has raised the production costs for importers, it’s common for wholesalers to feel as if they don’t control their own destiny,” said Eric Fisch, head of retail and apparel, commercial banking at HSBC. “They are beholden to the strategic decisions of retailers, many of whom are unable to invest in expansion or improvement in order to reserve capital for self-preservation.”

To combat these challenges, more wholesalers are evolving into brick-and-mortar retail. Not only does this provide them with direct access to the consumer—thereby returning control of their revenue direction—it’s accompanied by the higher gross margin available when charging full retail price.

Of course, it’s not as straightforward as it might seem. Competition at retail is fierce, and selling strategies can require a bit more polish. Wholesalers must enter the channel with a firm grasp of the potential costs, as well as an experienced staff with a background in growing retail businesses. A robust product assortment is also vital as consumers have become accustomed to shopping across multiple categories; wholesalers that specialize in just one category run the risk of operating a barren retail store.

“The key is that the location needs to provide more than just the revenue available in its four walls,” Fisch said. “In today’s day and age, it needs to act as a brand showcase, a billboard, and a return and fitting center. The physical presence needs to amplify the e-commerce and wholesale portions of the business as well.”

To best position themselves for success, wholesalers should consider differentiating their products between their own stores and their wholesale accounts. By doing so, they reduce the threat of alienating their wholesale clients.

They also need to examine the complete pricing picture. “I think many wholesalers look at the retail prices for the product and do the math on how much more gross margin can be earned. This doesn’t account for the fixed costs, the bandwidth involved in hiring and maintaining stores, and the risks of a long-term lease,” Fisch said. “Just as with any opportunity, the potential reward comes with quite a few risks.”

Perhaps most critical: Onboarding a team that’s experienced in retail expansion and strategy.

“Too often we see companies open a location or two and then bring in retailers to manage it, which is too late,” warned Fisch, who noted that, unlike wholesale, retail relationships generally require long-term commitments. For wholesalers interested in exploring retail, he suggested testing a pop-up location to gauge reception before committing to store buildout and long-term leases.

As the retail landscape has changed over the past few decades, HSBC has become a seasoned player at helping businesses pivot into more successful channels. By engaging in collaborative discussions and a thorough understanding of the companies’ business plans and objectives, it’s helped many brands grow from wholesale into global retailers, supporting them with a host of banking products—from lending to treasury management and trade finance.

Learn how HSBC can support retail companies’ plans for growth.

This article is for informational purposes, and do not constitute any commitment to underwrite, subscribe for or to extend or arrange credit or to provide any other product or service. Certain terms and restrictions may apply to all products. Certain products, including, without limitation, loans, are subject to approval.

© HSBC Bank USA, N.A. 2019. All Rights Reserved, Member FDIC

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