Multichannel growth is the brand growth strategy of the century. We are creating a scenario where wholesale will experience a revival in 2020.
Multichannel growth has been the daily business of brands since the 1990s. In fact, multichannel competence was the key success factor for many best-practice growing lifestyle brands. But the term ‘multichannel’ became common when internet distribution entered the scene. Though 10 years before, many brands distributed via multichannel already; in wholesale, shop-in-shop, franchise stores, catalogues (all wholesale distribution), concession, own full-price stores or factory outlets (retail distribution).
Brands are eshop latecomers
When eshops became a viable commercial distribution channel for retailers, it was the 10. distribution channel for brands. Therefore many brands needed time realising the true importance of their own eshop. In 2010, 40% of Europe’s top brands didn’t have an own eshop, but instead grew other distribution channels. By 2015, all leading brands had launched their eshops, but not in all of the European top markets. More critically, many of the brand eshops still provide a mediocre online shopping experience and it may stay that way for some time.
Despite all the online hype, consumers’ frequency of online visits to brands sites is still far lower than the annual window traffic of an average European High Street. In Germany in 2015, fewer than 15 fashion brands have five million online visitors. Yet there are 50 German High Streets with annual traffic upwards of five million people. Not to mention another 20+ shopping centres. Yes, High Street traffic is falling, but still it’s hard to foresee a European brand’s eshop achieving the footfall of the average High Street.
Consumer expectations moved next level
Many studies underline brands’ eshop challenges and reinforce the strength of Internet pure players such as Zalando or Yoox. All of them have been growing sales via great consumer experience, while brands struggle to provide basic consumer services.
Here are just three examples:
- Less than 50% of European fashion brands offer a store locator that provides a full view of the brand’s point of sale in wholesale, retail, franchise and own retail.
- At only 1 of Europe’s top 30 brands, consumers can see online whether their home town bricks-&-mortar shop has the online item available in store, including size and colour options.
- More than 90% of Europe’s brands don’t accept returns of online purchases at their own bricks-&-mortar POS (not to mention partner stores).
Don’t get us wrong – from working growth strategies with some of Europe’s best practice companies – we know about the costs and complexities behind a seamless cross-channel approach. But can you explain to the consumer why an app like TheLabelFinder provides more transparency on a brand POS than the store’s own locator? Or why is it that customers are instructed to return online purchases to DHL locations, rather than serving them face to face in-store?
The answer is simple: brands don’t invest enough in providing consumers with a superior online AND offline experience. Where they have, it is very basic.
‘Showrooming’ a Favourite Distribution Mode
The commercial future of brand eshops remains to be seen, but the strategies look familiar. “Let’s try to become professional online retailers with minimal financial commitment”. In a way you can predict that retail distribution history will repeat with eshops. It was in the early ’90s that major brands started downtown retail. Yet to this day, less than half of the brand industry has managed to find a way to operate its full-price division with really good profitability. Many hide that factory outlets are actually securing retail growth and profitability. To this day, the average downtown full-price store stays below 10% EBIT and many don’t pay off as investments. Full price retail is not a successful distribution channel, as ‘showrooming’ is the favourite operation mode. It doesn’t take much to foresee that ‘showrooming’ is also the future of many eshops, if brands don’t catch up through better investment in consumer services.
Multichannel Growth 2020
It’s reasonable to assume that we’ll see smart operating brands focusing on wholesale in ecommerce (by selling to online retailers such as Amazon, Zalando & Co.). With ecommerce growth via third parties, wholesale will regain its strategic importance.
In 2020, the majority of industry executives will have learned that own retail and eshops are a great way to grow sales, but often bring little profit. In some cases these ‘decathlon’ investment strategies will have exhausted brands and helped to review distribution strategies. Growth flexibility and opportunism in all channels is no longer a key success factor. ‘Capital-light growth strategies’ or ‘efficient multichannel experiences’ will be the new best practices in brand growth strategies.
In 2020 many brands will understand that their most important communication channel is online. They will have accepted that Asos, Net-a-Porter and the likes are wholesale accounts with economies of scale and high service standards. ‘Smart’ growing brands will benefit from growing via Internet pure players rather than investing millions for their own eshop traffic.
It doesn’t take much to see that the mother of all distribution channels – wholesale – will have its revival. We predict that a growing wholesale sales share may become ‘brand KPI of the year’ and may indicate a brand’s new healthy growth track. But, creating a high profitability in eshops and own retail will remain the biggest management task. We are looking forward to continue to work on this.
This is a variation of an earlier post published in retail-intrapreneur.
About the Author:
It was 1995 in Singapore, when Guido worked on his first direct to consumer strategy, for a US jeanswear brand. More than twenty years and 30+ brands later, his excitement for delivering multichannel growth strategies in Asia, Europe & the Middle East 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 challenge Guido on this thesis, get a personal opinion on your strategy or share some thoughts, you can reach him best by email or see more about him here.