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BoF and Shopify Host Retail Forum Exploring Wholesale’s New Power Dynamics

Industry leaders gathered to posit the future of wholesale and the growth opportunities found in adapting and innovating the existing system.
Liberty Department Store. Getty Images
Liberty Department Store. Getty Images
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Luca Solca, head of luxury goods research at Bernstein, told BoF in an interview earlier this year, that the pandemic had accelerated the trend away from wholesale models. “Even in the US, possibly the last bastion of wholesale contracts, big brands will only want to deal on a concession basis so that they control prices and they can make them consistent across channels.”

It was this shift in power dynamics and the potential changes and innovations they might bring which formed the theme of last week’s Executive Retail Forum — the second in a series of thought leadership events hosted by BoF and Shopify, connecting industry leaders and sharing insights into navigating unprecedented industry disruption with the wider industry.

Held in London’s Soho under the Chatham House Rule, the event was designed to enable retail leaders to have a forum to share insights with each other, as well as the opportunities and challenges they discern in the market, the evolving dynamics within the traditional wholesale model, the business goals it can effectively support today, its impact on emerging talent and the systemic innovation required to increase responsiveness and reduce waste.

Hosted by Shimona Mehta, MD, EMEA of Shopify and Nick Blunden, president of BoF, and moderated by BoF’s Robin Mellery-Pratt, the conversation was attended by a roster of C-suite executives from MatchesFashion, Browns and Machine A, brand accelerator Tomorrow, Paul Smith, Christopher Kane, Roksanda, Emilia Wickstead, among others.

Below, we share condensed insights from the closed discussion anonymously, to equip our global community with actionable insights enabling them to navigate these transitional times.

The End of One Size Fits All

“We used [the pandemic] to reset ourselves, to stop being dictated, to some extent, by the industry about who we need to sell to and when we need to show,” were some of the opening comments from a guest. “One learning was our collections are large and our product offering is broad. It makes sense for us to talk to lots of different wholesalers. However, it simply doesn’t work for everybody as a strategy.”

Dealing exclusively in wholesale or direct-to-consumer reminded one guest of past “physical or digital” discussions. Putting [wholesale] strategies in boxes is not a modern approach,” they said. “A flexible, blended model is much more agile. You have to consider [what] works for the brand, but also, as a retailer — how can you differentiate [the wholesale] offering? Its fundamental to have a point of difference.”

The conversation shifted to focusing in on emerging brands, and the need to balance output across channels. “Emerging brands need to create volume themselves while leveraging wholesale to experiment and enter new markets,” said a guest. “[Brands] need resources to build a customer base, content, marketing capabilities and [bolster] their performance, but you have to maintain control of the brand. You never want to give away that power.”

Indeed, emerging designers face a series of challenges. While they rely on accounts with major retailers to help bolster their brand, keeping up with demand for new product and regular delivery can put their business under immense, unsustainable pressure.

“[Retailers] need to set the right goals for the designer. What are their expectations for the next two, five, ten years?” said an attendee. “We insist on non-stop discussions with designers. We have a very open channel and exchange important information on both product and customer. We’re building relationships and, with that, unique [strategies]”.

However, other guests shared that wholesale accounts are still key for market penetration. Wholesale gets a bad reputation, but independent boutiques with loyal custom still provide us with an amazing network — acting as global hotspots to give us valuable market share,” said one participant. “Wholesale distribution is still profitable for us, even as we shift the needle towards more direct sales.”

Price Control and Competition

The coronavirus financial crisis remains an unprecedented global event, but the pressure it has placed on the wholesale fashion system is best understood as accelerating problems that have dogged retailers since the 2008 financial crisis – deep discounting as a customer acquisition strategy in order to compete with an increasingly saturated market.

In April 2020, Spring collections were already available for up to 30 percent off online at Saks Fifth Avenue and 40 percent at Bergdorf Goodman and Nordstrom — the sort of promotions not usually seen until the end of May. Most retailers cancelled orders, from spring to pre-fall and beyond.

“Brands are right to control distribution,” added a guest. “So many boutiques and businesses have started to compete on price. That’s not respecting the rules of luxury.”

“We cut most of our boutique business at the start of the pandemic. It undermines what we’re trying to do if you’ve got retailers who can’t control in-season discounting,” said another participant. “Boutique business can bring an amazing dynamic, but in terms of being able to control price and ensuring the integrity of your product is respected, reducing the number of accounts has been key.”

“As a retailer your problem is, if your customer can see it at a better price, then what are you going to do?” asked one attendee. “We’d all love to avoid in-season sales and discounting, but the customer is savvy. If you’ve got a few partners, there needs to be conversations and further transparency to better control this.”

E-Concessions and New Forms of Value Exchange

Pioneers are creating more nuanced wholesale offerings through deeper, more thoughtful partnerships between retailers and brands. While accelerator-style models provide young brands with shared services, from product development to supply chain management and communications, leading retailers are moving towards marketplace-style relationships, working on a concession basis.

“We were resistant around e-concession, but the world is changing and so we’re adopting this model” said one attendee. “[Brands] want to, understandably, control pricing, but they want to obtain customer data, so the relationship becomes collaborative.”

One attendee stressed how unilaterally major brands have acted in the past when starting and ending retail agreements, once their objectives have been met. “Big brands can pay for it, market it — they can do whatever they want when they no longer need a retailer, they will just leave,” they said. “Customer data may make them happy for two to three years, but then they will bring everything back to direct [channels].” However, another attendee was bullish on the opportunity e-concessions represent due to the opportunity for upselling and cross selling. “We use that relationship with major [brands] as a customer [acquisition strategy] and then we go on to sell them something else altogether,” they said.

This new form of value exchange is growing. A survey conducted by BoF and McKinsey for the State of Fashion 2021 Report found that 60 percent of retail executives plan to implement improved analytics for consumer insights. Retailers are able to create feedback loops with brands — leveraging valuable customer data for mutual growth opportunity.

“We’re showing brands what our platform solutions can do,” said one attendee. “Technologies in our stores allow us to track [customer sentiment], and also engage the customer and facilitate on-going communications. We feedback our learnings to brands.”

Building Mid-Size Brands to Balance Market Incumbents

“The world needs hundreds of Dries Van Notens,” said one attendee. “If [retailers] can help create one, two, or three champions which are 50, 60, 70 million dollars in revenue, growing organically at 10, 15, 20 percent per annum, they will avoid the obvious traps of markdowns and dilution.”

In building strong mid-sized brands, offering them support and visibility, “wholesale will certainly survive,” said one guest. “It’s interesting to have multi-brand curation. There will be a fantastic future for wholesale partners who can help brands cover the world and localise their strategies.”

While the industry’s biggest players have pulled back from traditional wholesale and moved towards vertically integrated retail models, attendees didn’t acknowledge these decisions as a precedent. “We’re [cautious] when looking to the biggest players because, in effect, they can do what they like,” concluded one guest. “The evolution of wholesale is simply not as radical as [these brands] suggest.”

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