Hundred fifty years of brand retail strategy, yet still many big brands trial & error to grow successful. We explain why experience is no guarantee for success.
A look back at around 150 years of brand retail strategy reveals a path paved with unsuccessful attempts to grow. Brand retail strategies were diverse, but annual reports tell a familiar story: none of the major midmarket brands have really made it. As Polo Ralph Lauren (retail launch 1971), Nike (1967), Levis (1983) or Esprit (1986) can attest, even experience is no guarantee for success in retail, nor does it offer exemption from crushing setbacks. And more recently Hugo Boss, Gerry Weber or Tom Tailor joined this list.
Though retail strategies vary, the stumbling points bear an uncanny similarity. In early evolution phases, it is an underestimation of risks, while later evolution shows conflicts of cultures; clashes between ‘typically’ emotional brand cultures and ‘typically’ straightforward retail cultures.
US relationship counsellor Dr. John Gray has possibly provided the key to understanding why retailers and brands have difficulty getting along under one roof. Gray’s entertaining bestseller from 1992 “Men are from Mars, Women are from Venus” offered interesting insights into gender differences. After working with US, European & Asian brands on their brand retail strategy for some years, it is our strong belief that the metaphor of Venus & Mars applies equally to the cultures of brands and retailers – and it explains why no major midmarket fashion brand has yet to successfully make the transition from wholesale to retail all the way.
Brand Falls in Love With Retail
A wholesaler’s entry into brand retail strategy is usually evolutionary. The department store manager asks for a shop within the store to highlight the brand on the sales floor. After a few seasons, the wholesaler’s desire to show the brand even more prominently grows. Regular visual merchandising services are introduced alongside never-out-of-shelf service (NOS) and flash programs, all with the aim of gaining a larger area of the department store’s sales floor. Over the years, roles and responsibilities between buyer and supplier change and the brand takes more & more control of the sales floor.
Contributing to this structural development, bricks-&-mortar multibrand retailers are losing market share: in fact €250m annually in Germany alone (see findings of TReEs German Multibrand Study 2012). In this environment, brands gain a growing desire for standalone owned and operated stores, as just another very logical small step forward.
After getting off to a good retail start, it is normal to charge ahead with adolescent dynamism, in multiple regions at the same time, with a free for all (retail) rationality. To understand why this is, one has to understand brand & wholesale cultures. Testing new lines, new categories, new assortments in several markets simultaneously by local sales managers is part of the wholesale DNA. So why not test a brand retail strategy in many countries at the same time? The organisation just copies what was successful in their wholesale distribution, it opens brand retail stores dynamically without a manual or centrally standardised processes. Retail implementation is left to the local agent in Japan or the country manager in France. Global brands never grow retail in a structured, organised manner, they grow organically, like a biotope, differently in different environments. The local markets ‘dictate’ the structure, not the central headquarters.
Venus Meets Mars
Wholesale country managers who take on retail ‘the Venus way’ don´t feel that anything is wrong, if they do it ‘their way’. Pure-bred ‘Martian’ retail managers however, may judge a brand’s retail move as pure chaos: 15 stores on three continents in 24 months, each one different. No piloting, fine-tuning and just ‘gold rush’ style retail expansion? Great fun for the brand creatives but a nightmare for productivity lovers.
Brand retail strategy ‘made by Venus’ is retail with few manuals, investment controls or standard processes in place. It is organised by 15 local store managers, all coming from different backgrounds. When they arrive at the new brand stores there are no retail standards, so they bring tools from their earlier positions (in the UK from M&S, in France from H&M for example). The brand culture of emotion, spontaneity and lightness supports creative freedom. Hired store staff, merchandise planners, visual merchandisers, all go through a chaotic, unhappy phase without standards and organise themselves as required.
Until the day ‘Venus’ realises that retail doesn’t become a successful business. It becomes apparent things have to change so more ‘Mars culture’ swings in. Central retail functions get introduced, and a few stores are closed, before expansion continues with the same vigour. Hard to believe right, considering the burned investments? Just look at ten years of annual reports of Abercrombie, Geox or Esprit – you’ll find years where 80 stores are closed in a single year, yet 50 new ones opened the same or the following year.
Where Martians scratch their heads, Venus doesn’t mind dieting, only to put on weight again in just a few months. People of Venus have learned in their wholesale lives that “if it doesn’t sell, rework it into something more attractive and next year it will sell.” This is the natural and successful model of wholesale growth.
‘Born’ Retailers are Different
‘Born’ retailers can’t imagine why anyone would decide that a retail format that fails to deliver a payback deserves another try for 50 stores, just because of a facelift. On the other hand, hardly any of the born retailers proved to grow globally. Pure-bred retailers ‘expand around the church’, from New York to New Jersey, but not from New York to New Orleans. They grow with a standard store DNA that has the same format and assortment mix at any location. This is why born retailers rarely create a truly international business. International brands on the other hand are very flexible, with the selection and store format – fancy and colourful, right from the start.
Planets Go Out of Orbit
“Captain’s log, Brand Retail Strategy Enterprise. Stardate: Year seven on our journey from wholesale to retail. Staff and rental costs have risen dynamically. CFO is feeling the pinch of insufficient retail productivity, with retail making up 20% of sales yet 50% of overall costs. And that’s not the worst of it: investments eat up cash flow and tie up working capital. ROI is dismal, KPI figures that were never relevant in wholesale are now putting finance out of balance. The brand retail strategy is going out of orbit.”
This is when CFOs raise questions: when space performance has decreased for years, 4-wall profits are well below 20% and investment paybacks are above three years, its time for (uncomfortable) questions such as ‘what is the goal of our retail mission, branding or profits’? Full price retail generates growth and contributes to branding, but EBIT lags behind wholesale profitability. Do we mainly seek branding, or do we want a retail profit centre? Shall we centralise and standardise retail, (Mars) or be emotionalised, regionalised and decentralised (Venus)? Shall the new Head of Retail have more responsibility – have stores from Tokyo to San Francisco report to him, instead of to the country managers? In our experience, these moves have seldom created a quantum leap. Brand retail success needs more than retail centralisation.
The Future Belongs to the Planets
Future brand retail strategies will show whether brands´ ambitious retail dreams will fly commercially. So far it seems only luxury brands have managed a successful transition. But luxury companies were small when they started, their culture of luxury always included a sense of detail, precision, quality and responsibility. And of course their price points give financial breadth when retail doesn’t work right away. Luxury brands simply have more Martian blood in their veins, and their store KPIs allow longer financial learning curves.
For midmarket brands, not only KPIs fall short of fulfilling retail dreams, but corporate cultures have yet to adopt a retail performance mindset. As many studies on organisational development argue, cultures are generally resistant to change – especially in successfully growing environments, so Venus remains a dominant force. After all, isn’t life on Venus easier, nicer, more multifaceted and full of opportunities to go your own way?
As much as wholesale cultures continue to prevail in midmarket brands and pose an obstacle to retail efforts, the galaxy is changing fast. A new planet is rising (young, bold, unorthodox, nerdy – it’s called Jupiter) and presents challenges for Venus and Mars. Mastering the omnichannel future will mean opening up to even more cultures. The future in brand distribution is written in the stars, but wholesalers are well advised to learn from its Mars-Venus culture clash and prepare for a multicultural, performance-centered future.
About the Author:
It was 1995 in Singapore, when Guido worked on his first direct to consumer strategy, for a US Jeanswear brand. 20 years and 30 brands later his excitement for delivering multichannel growth strategies has not diminished. He strongly believes brands will continue to struggle to find their best way forward for many more years. If you want to contact Guido you can reach him best by email.