Remodelling the brand / retailer deal

It’s not easy to spot retail history in the making.  WalMart’s acquisition of Asda in 1999 was perhaps less seismic than predicted at the time.  Almost no one mentioned shopping when Apple launched the iPhone in January 2007.

But 25th October 2017 may prove to be a seminal day for retail.  No, not Amazon’s take over of Whole Foods, although that has started shocks that will rumble through the industry for decades to come. This was the day that Nike announced a massive withdrawal of distribution from “undifferentiated” retailers.

Retailers who rely on third-party brands – such as department stores or category specialists – are hardly unaware of the threats they face.  Amazon’s dynamic pricing, the appearance of brands in discount or “off price” channels, and the costs of getting their multichannel offer working preoccupy them daily.

A common enemy

Nor is it as if brands wish to abandon wholesale distribution and rely on their solus stores or digital channels. They fear an Amazon-dominated future just as much as the retailers do. They recognise that physical retail is essential for customer acquisition, engagement and service.  Such is the degree of channel hopping that a recent OC&C study shows that in apparel across UK, France and Germany, 58% of customer journeys involve a digital touchpoint but 79% include a visit to a store.

But multi-brand retail is not delivering for brands.  Impoverished by deflection of investment to online channels, store environments are tired and dull.  Fixated on declining like-for-likes which appear to show no business case for anything but closure, retailers are caught in a doom loop of deteriorating and shrinking store estates.

Brand owners do not readily withdraw from volume — in Nike’s case slashing from 30,000 to just forty the number of retail partners it wants to showcase its brand.  The scale of the move highlights just how toxic the boring middle-market of retail has become for any labels who care about their brand equity.

“Sales assistants are not costs to be managed down, but cast members bringing the brands to life. But to justify continued investment, new performance metrics are needed”

Retailers and brands need a new partnership, one that admits a common enemy and which joins forces to reinforce what physical retail can uniquely do. The old models of “wholesale” or “concession” just represent different ways of slicing a diminishing pie.

Stores are not only machines for transactions, they are special media able to host entertainment and experience for a brand.  Sales assistants are not costs to be managed down, but cast members bringing the brands to life.

New performance metrics

But to justify continued investment, new performance metrics are needed.  Like-for-like sales at the catchment level, including online, is better than a store-only view: after all OC&C typically finds that a third of web sales are store-enabled (showroomed or clicked and collected).

But additional store metrics borrowed from the media industry should be captured too:  eyeballs (footfall), dwell time, engagement, repeat visit and retention.  If a multi-brand store owns access to high-value customers and entices them to physically experience a new brand, then it can justify its role and negotiate a share of customer value whether the sale takes place then or later, in the store or through the brands’ other channels.

Share and share alike

To do this requires retailers and brands to overcome their reluctance to sharing customer data, and to work together to earn customer loyalty and retention.  We still find department stores who, Canute-like, ban their brand partners from using iPads to show extended range, or from guiding the customer to available stock in another channel.

Multi-brand, multi-channel retailers who have a future will see themselves as merchants of theatre, not of product.  Their prime aim will be to work with brands to drive engagement and experience, which in turn drive customer loyalty and sales.  But these sales may be realised through any channel:  their own, but also their brand partners’.  The economic deal will include media fees and sharing of customer lifetime value, not just product margin.   Nike has signalled nothing less than a new model of retailing.

This article appeared in Retail Week 23rd February 2018

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