2021 Year of Agility: Finally Kicking the Wholesale Habit
Wholesale is so 2019.
Enter 2021, a year of continued post-ish pandemic e-commerce growth, countless brands pulling back on wholesale partnerships to go direct to consumer (D-to-C), and the ultimate wholesale-marketing bridge: marketplaces.
Retailers spent 2020 duct-taping together broken supply chains, reeling from wholesale partners slashing orders as stores shuttered across the country, and scrambling to protect their brands and margin as their product was devalued by wholesale partners offering deep discounts. However, as retailers tend to do, they came out — for the most part — stronger, with clearer perspectives on how to reach customers, drive revenue, as well as newfound flexibility to test into new sales channels.
Brands Accelerate Shift From Wholesale to D-to-C
Over the past few years, the conventional wholesale model has broken down due in part to complex inventory planning, declining customer loyalty towards wholesale partners, and a discount-driven culture, making it harder for both retailers and brands to profit from partnerships. Traditionally, manufacturers have been of the mindset that no more than 30 percent of revenue should come from wholesale channels, and many brands have catalyzed plans to decrease their reliance on wholesale as they sought to protect margins, foster deeper customer connections, and control their customer data. However, that plan became an absolute imperative as brands saw purchase orders cut or products sold at deep discounts in 2020.
In March 2021, it was reported that Nike informed six chains — Big 5 Sporting Goods, DSW, Dunham’s Sports, Olympia Sports Shoe Show, and Urban Outfitters — that it would no longer be wholesale partners. Nine others, including Belk, Dillard’s, EbLens, and Zappos, were similarly informed the previous year.
Under Armour has leaned in on a “proactive wholesale door reduction effort in North America,” its CEO Patrik Frisk said on the company’s fourth-quarter earnings call this past February, with plans to eliminate 2,000 to 3,000 wholesale doors by the end of this year. Levi’s CEO Chip Bergh’s perspective on the pandemic’s impact on wholesale shifts is being echoed in boardrooms across the country, in that the pandemic “accelerated what we probably would have taken another five [years] or 10 years to play out and compress it all into the last year or so.”
Weaning Off Wholesale With Drop-Shipping
Within the past three years, retailers such as Macy’s, Nordstrom, and Walmart have started carrying more products on a drop-ship basis, meaning the vendor, not the retailer, ships out the product. Many brands are utilizing drop-shipping partnerships to shift away from more traditional wholesale relationships. That frees them with less commitment to inventory, direct control of customer relationships, and capturing better data. While direct relationships through the brand’s website or physical stores may be the ultimate goal, drop-ship partnerships offer exposure to a new audience and further distribution opportunities, but with the added benefit of controlling the consumer journey and experience directly regarding shipping, receiving and returning goods.
Marketplaces as the New Department Store
As an alternative to wholesale, D-to-C can certainly increase margins for brands, but customer acquisition remains expensive. Marketplaces — which don't hold inventory and instead take a 20 percent to 30 percent cut of any sale made via their platform — represent a middle ground. They offer exposure and another channel of distribution without the all-too-familiar pains of wholesale.
Forrester estimates that marketplaces drove 10 percent of total retail sales and 57 percent of e-commerce sales in the U.S. throughout 2020. The trends indicate that marketplaces will account for more than two-thirds of e-commerce by 2023.
Brands spent 2020 truly focused on protecting their loyal customer bases and, in turn, the first-party data set that comes along with it. So, they're now able to tap into their unique customer insights to inform who their customers truly are, how they shop, and equally as important, where they shop.
This deep understanding of customers, paired with clear business goals and an understanding of brand purpose is being used to refine which marketplace partnerships to explore. Are you a luxury brand looking to push into Europe, perhaps MyTheresa or Farfetch is a marketplace partner for you? Are you a clean beauty brand owned by a Black founder? Then Thirteen Lune could be the partner to aid more customers in discovering your products and brand.
The most crucial aspect is to continue to drive brand affinity and connection with consumers. Yes, marketplaces can help reach a new consumer, but you relinquish control over customer experience. If a brand is rooted in data, it can re-evaluate partnerships and nimbly shift strategies to best meet holistically informed business goals.
As in so many areas of the business throughout 2020 and into 2021, retailers and brands learned that increased flexibility and agility of revenue streams are crucial to survive and thrive. In reality, each channel comes with its own challenges, from a lack of control of customer experience and data with wholesale and marketplaces to margins that are continuing to dwindle through direct e-commerce sales. However, if the industry has proven anything, it's that it's ultimately resilient. When brands are informed with consumer-rich data across the business, they can take a customer-first approach to create a flexible and seamless channel mix that puts their brand and products directly in front of consumers in the mindset to purchase.
Sarah Engel serves as the chief marketing officer and chief people officer for the digital leadership company January Digital, a company reimagining how brands and retailers rapidly grow and adapt to evolving consumer shifts and changing market conditions.
Sarah Engel serves as the chief marketing officer and chief people officer for the digital leadership company, January Digital, a company reimagining how brands and retailers rapidly grow and adapt to evolving consumer shifts and changing market conditions. The strategic consultancy and full funnel digital agency identifies and solves the most difficult marketing challenges with connected data, technology, digital strategy and award-winning media execution. With more than 20 years of marketing, communications and human resource management experience, Engel came to January Digital from fashion brand Lilly Pulitzer, where she served as the vice president of marketing and creative communications. She has held executive roles at consumer brands, media agency and retail technology companies, and serves on the advisory board of Shoptalk and advisory committee for NRF Next.