DTC became brands’ favourite distribution channel, but it is investment heavy. Partner retail is lighter and more profitable. LEGO, VF and Levi’s show how to grow both.
If you are like most premium and mid-market brands, partner retail is not an own distribution channel, but a strategic stepchild. If you want to determine where you are on partner retail, allow me these 3 health questions:
- What is this year’s L4L store performance of your partners?
- What was your operating income from partner retail last year?
- How many annual top management meetings do you have, to discuss the strategic and organisational development of partner retail?
If your brand is like the ‘average’ lifestyle brand, will you need 2 days to get answers for the first 2 questions – for 20-40% of your brand’s sale? Not a single company from the top 20 global lifestyle brands reports financial details of their partner growth. Though what you will find is how important their partner distribution is.
This graph does not even take into consideration, that all 6 of these brands have recently reduced their partner retail network by taking over partners.
Partner Retail vs Own Retail
There are some good reasons to do own retail (Retail Love in Time of Store Closure Cholera), and even more good reasons to do partner retail. Besides the obvious ones and that local entrepreneurs are more familiar with local markets, partner distribution is for those that can ‘let go’; those that can allow others to build the consumer relationships, while the brand enjoys watching the partner and coaching its growth.
Don’t get me wrong, partner distribution doesn’t mean it works without your involvement. It needs specialised resources, processes, tools and more and it must be actively managed, like a good marriage. Quality growth only happens if you invest in the ingredients of excellent partner management, a topic outlined in an earlier post (10 Tips for Excellence in Partner Distribution).
For starters in monobrand retail, own stores is for the hasty ones, the ‘self and now’ ones, the ones who want sales growth quickly and want to fully control their distribution. Partner retail is the ‘capital light’ growth. You have a partner investing to build your brand presence, while you coach a quality appearance. You gain some years of learning, and when time is right, you take over your partner’s stores. So partner distribution allows you to grow three times: with the market entry, over the year in experience, and with the acquisition of your partner.
Partner retail is the smart preparation of future DTC growth (own retail and own eshop).
Is Your Brand Partner Retail Ready?
For years the prejudice existed, that only luxury brands could find interested partners to invest in their retail. Wrong! There is a long list of European and American companies, small, mid-market or value positioned, that were able to grow with partners very successfully.
Take just Bestseller (Only, Jack & Jones, Selected & Vero Moda), Marimekko or Jack Wolfskin as examples. They owe significant parts of their growth to partners. Partner Retail paid for them with high growth rates and global awareness.
In spring 1996, two Danish entrepreneurs approached Bestseller’s owner Anders Holch Povlsen, to build for him a partner retail network in the emerging China. The two youngsters were not necessarily the first natural choice and China was not necessarily a strategic priority then, but Povlsen gave it a try. Twenty years later the China partnership operates 8,000 stores in 500 cities. Uniqlo started the same year, with own stores and reports 529 stores.
Bestseller doesn’t report the details of their business in China, but it might indicate that their European retail network stands at 2,700 stores as of the end of 2016. Whether your brand is ready is not a question of global awareness or luxury position, but whether brand owners are ready to let go – like Povlsen did in 1996.
Three Reasons to Invest in Partner Retail in Times of DTC
In case you are still not sure whether you should invest in partner retail, or even if you are already invested, allow me to give you 3 more reasons why you should:
- Partner retailers are entrepreneurs. The annual growth of new partner stores is the better investors index, indicating that third party retailers are convinced your brand has an attractive financial payback.
- Far earlier than your stock indices, a smaller expansion of partner retail warns you about problems on the horizon.
- DTC is strategically right. Yes, you need better stores and cross channel experiences, but consumers don’t differentiate between own or partner store. So make sure you and your partner invest in partner retail, to have ‘Click & Return’ or ‘Click & Reserve’ and superior bricks-&-mortar experiences everywhere. Partner retail sales is your next decade’s sales growth, so it’s essential to ensure it stays healthy. Wouldn’t it be perfect to have the choice about whether you want to take it over, rather than being forced? If you invest in your partner retail management now, you know you will take over only healthy business, thus leading you from good to great.
Partner Retail Outlook
For those of you working in partner retail and feeling unhappy about the ‘DTC times’, don’t worry it will go away some day. The new millennium ‘Direct to Consumer (DTC)’ strategy simply sounds sexier, while selling via third parties sounds so 1990s.
Rest assured there will come the day where every brand organisation recognises that multichannel distribution includes strong and healthy partner retail. There will come the day when all brands realise that there are always markets or cities that are better operated by third parties. Today Russia, Brazil, or UAE – tomorrow Iran, Myanmar or Cuba. Despite all partner acquistions, it is smart continue to invest in partner retail management.
(This post was published first in May 2017, updated last in May 2022)
About the Author:
Guido is a fan of managing qualitative growth. He believes partner distribution is challenging, but a smart and rewarding brand growth strategy. If you want to exchange some thoughts with Guido, feel free to reach him by email or see more from him here.