The past few months have represented a reckoning in retail, where no brand is too large to fail. Even well-loved household names have been forced to reexamine their strategies, making sometimes painful, business-altering decisions.
The total shutdown of physical retail has also shifted companies’ online strategies into overdrive. But that’s not a bad thing, according to Ryan Gellis, founding partner at brand marketing firm RMG Media.
“More and more people are shopping online and that trend is just going to continue,” he said. “Coronavirus has fast-forwarded the trend by about five years.”
As the costs of maintaining physical retail rises, Gellis said brands will just become more bullish on their direct-to-consumer strategies. For some, that will become a necessity.
Zara owner Inditex recently announced its decision to shutter 1,200 physical stores over the course of the next two years, in the wake of its first ever reported quarterly loss earlier this month. The company reported a 409 million euro ($464 million) net income loss in the first quarter, compared to a to 734 million euro ($832 million) gain in the same quarter of 2019.
But even as most of the stores that built up Zara’s business are on the verge of being axed, Gellis said a new DTC strategy will likely pay off for the fast fashion giant.
“They’ll likely see a lot of traffic that came to stores move online, and see higher margins there,” he said. Even if all of the physical traffic doesn’t convert, Zara is likely to see profits when it doesn’t have to maintain a massive physical presence.
DTC brands can effectively “build communities, leverage the power of marketing tools to personalize experiences, and potentially sell more products directly to shoppers,” Gellis said. A massive conglomerate like Inditex has the ability to invest in the best data-driven tools available to help personalize consumer experiences, he argued.
Being forced to move online could help brands discover new insights about their shoppers, using the countless technologies designed to illuminate trends in purchasing behavior.
“Technology can get expensive, but it doesn’t equate to retail space and rent,” he said.
The model has already been proven, he added, by DTC startups that have built their businesses wholly on the web. The unicorns among them have risen to a level of success that has allowed them to breach the physical realm, opening perhaps one or two stores to anchor their omnichannel strategies.
While physical retail will remain important to consumers, the current state of affairs has seen the industry “move toward an equilibrium” where those that have over-penetrated the brick-and-mortar space are scaling back.
“As we move forward, I think you’ll see fewer brands manufacturing just for retail, especially with major players like J.C. Penney breathing their last breath,” Gellis said, noting that the COVID crisis has accelerated the decline of the industry’s weakest players.
Like department stores, heritage luxury brands have had a particularly rough go over the past few months. Legendary women’s wear brand Diane von Furstenberg will reportedly shutter all of its stores except its New York City flagship, and has had to let go of most of its 400 employees.
“Her company has the same issue that you’re seeing with more and more luxury companies,” Gellis said, pointing to the major shift in consumer spending from wants to needs.
“If you have nobody buying your products, the costs add up very quickly,” he said. “They were affected like the other luxury players with physical retail, where their costs just surmounted the money they were able to generate while the coronavirus has been going on.”
While DVF will attempt to paint its recent decisions as strategic, “the shift to online was probably more of a retreat because the business isn’t going well,” Gellis said. “Their move to DTC is probably less based on them seeing an opportunity, and more about them making the only decision they probably have left to keep the business going.”
Brands taking shape in the modern era have no excuse not to build their businesses using the tools at their disposal, he added, developing robust omnichannel strategies rooted in online connectedness. But for established brands, the late-in-life pivot can prove difficult.
“Larger businesses tend to have access to more expensive tools, and a lot of them do leverage those tools to great success,” he said, but many don’t utilize the data at their fingertips to its greatest advantage.