Brand executives and retail experts at a Retail Marketing Society networking breakfast Wednesday in Manhattan emphasized that brands must differentiate in a crowded marketplace and know their customers before mapping a distribution strategy.
The changing role of department stores
Brands that fail to understand their customer “will be toast,” Paul Charron, former CEO of Liz Claiborne and now retail consultant, said. But that’s not enough to stand out today, Charron added, noting that “a point of difference…enables you to win.”
As a former brand executive, Charron said brand owners want to build their brands so they live forever, and the idea of being a retailer’s “partner” isn’t what it’s cracked up to be because retailers have a different objective focused more on the short term.
“You will never control your own destiny. Department stores have way too many doors,” Charron said, advising wholesalers not to “lead with department stores” as “they don’t care.”
When Charron was the CEO of Claiborne, retailers wanted access to the buzzy Juicy Couture brand, but ignored Liz Claiborne. So he negotiated access to Juicy, provided that retailers also carved out floor space for the namesake brand as well.
Charron also cautioned brands about navigating channel conflicts.
“You generally can’t sell the same product in multiple channels,” he said, adding, “We never sold Juicy to Macy’s. We continued to sell in Bloomingdale’s. If [Burt] Tansky (chairman and CEO of Neiman Marcus) ever saw Juicy at Macy’s, that would have been the death knell for Juicy.”
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Brands must find a way to differentiate between their wholesale activities and online channels, Charron said. “You can have a premium line, and a silver line,” he added.
Who controls pricing?
“Brands are not dead–they are very much alive,” Steve Sadove, former chairman and CEO of Saks Inc. and now a retail consultant, said. But the retail shakeout rewarding premium labels and value-oriented brands, with little action in the middle, points to a very real shift underway.
“We need differentiated brands, and each one needs to look at what is the best distribution channel for the brand,” he added.
Sadove was quick to note that “wholesale distribution encompasses many channels, not just the department stores, which many think is the only wholesale option.” If a brand chooses a large consumer base, it might be better served heading to Target instead of the traditional department store channel.
Brands should factor in where they are in their life cycle and evaluate other considerations as well. Louis Vuitton does concessions, not wholesale, because retail comprises about 80 percent to 90 percent of its sales. On the other hand, a new direct-to-consumer space brand might want to target the marketplace model, he said.
Distribution at the department store channel raises the issue of price integrity. “One problem for brands is they don’t have control over pricing,” Sadove explained, noting that brands don’t want to get into “price footballing” at the retail level. While the practice is not necessarily the retailer’s fault, it’s a byproduct of their struggle for survival, he added.
While the relationship with department stores seems wrought with more negatives than positives, the channel could still have a starring role for some brands. “It’s not bad [for a brand] to be an exclusive at Nordstrom,” Sadove said.
New business models, from resale and rentals to the popularity of marketplaces, can serve a role for brands diversifying their distribution networks.
“The consumer is now king or queen,” Sadove said. “They want product any way they can get it…. The power used to be in the sales associate. You need to use a different lens on what’s your strategy and where you want to play.”
Is drop ship the new frontier?
Wholesale’s evolution has been “challenging” for Mark Talucci, CEO of handbag brand The Sak, which has a 30-year legacy in wholesale distribution. The extent of a company’s wholesale business depends on the strength of the brand and its capital structure, he added.
Drop shipping presents a big opportunity for brands. Macy’s, for one, opts for this approach for much of its online business.
And the big advantage for brands?
“Brands control pricing as the retailer doesn’t control the inventory, which means no markdowns,” Talucci said. Drop-ship brands control the product imagery and presentation, which means they can publish and change the price at their discretion.
Amazon might be retail’s bogeyman but Talucci said the e-commerce giant hasn’t been an important channel for The Sak. Amazon, he added, “is not building communities,” while The Sak has legions of loyalists in the brick-and-mortar channel and at the brand’s website.
Tarlucci foresees an upcoming backlash against the online marketplace as younger consumers, with a deepening interest in sustainability, rail against the sheer volume of Amazon brown boxes piling up on doorsteps and in apartment building package rooms when most orders could be consolidated into fewer packages. That’s a problem the Seattle firm is trying to solve with its Amazon Day service.
Destination: DTC
Combine the department store’s fading luster with turnkey advertising solutions on platforms like Facebook, and emerging brands have tantalizing new ways to break through in commerce.
“It used to be a new brand needed Barneys New York, but that’s no longer true,” Allie Egan, president and CEO of Cynthia Rowley, said. “If you’re a DTC brand, maybe you can use Facebook advertising.”
These days, Cynthia Rowley does less wholesale these days and more DTC. Traffic numbers at traditional retailers are not as good as they used to be, Egan, admitted, and some brands prefer the DTC model because they can better control storytelling and messaging.
And a department store account might hinder a brand’s ability to manage its cash flow, which could damage profitability, Egan said in reference to chargebacks.
Brands have to look at their upfront cash outlay coupled with inventory turns at the wholesale partner to decide if distribution at that retailer even makes sense, Egan said.
Consumers used to love shopping a variety of different brands in the department store setting but e-commerce has radically changed that affinity.
Selective selling, at retailers such as at Nordstrom, still allows for direct comparison with competitive brands while at the same time targeting the right consumer base, Egan added. Similarly, selling the Cynthia Rowley brand at neimans.com “gets us the most eye balls in a super high-end specialty [channel as shoppers] get to know the brand,” she said.