Wholesale is somewhat the brand industries’ love-hate distribution channel. We hate it for the death toll it had in traditional multi-brand retailing, long before Covid 19. And we love it, for its continuing high financial attractiveness. All in all, still higher returns than other brand distribution channels.
You can say, wholesale distribution a damn healthy cash cow. And that exactly is risk, especially if your distribution is too dependent, and you don’t grow your direct to consumer channels too.
Be it quality online platforms or good department stores, both will have a long-term strategic role in the future of brand distribution. It just depends, how well you grow your wholesale distribution.
We share in this section brand success stories, outline trends and what drives wholesale performances, both strategically as commercially.
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:
Wholesale distribution managers knew it all along, traditional brand wholesale wouldn’t last forever. And 2020 saw an acceleration of change that began long before the pandemic: the termination of mediocre businesses.
But turmoil in wholesale distribution isn’t over yet; ahead lie at least one to two more years of trouble and possibly major strategy changes at online pure players.
Our research and industry dialogue ‘Future in Brand Distribution’ has been off to an enlightening start. Four weeks in, executive talks and our online survey have already returned much valuable inspiration on the future of the lifestyle industry.
The sentiment we encountered in the industry dialogues was generally positive and energising, even though many still find themselves in lockdowns. It seems as though the Covid-19 pandemic not only gave a boost to digital transformation but also liberated some of the brand industry’s best creative thinking.
How are these snapshots for a future in brand distribution?
“2025 retail rents will be like 2020 flight routes: back to the 1980s.” “The future is social commerce, digital market places are an interim hype, for brand industry’s e-com latecomers.” “In five years, an office workspace and business travel will be recruiting incentives.” “Grandpa tells me, his company used to pay him for sourcing travel to adventurous rural locations.”
Marketplace and wholesale business benefit from each other. Choose from four ways to overcome your budget limitations and become your own selling hero.
Online sales are still growing, not least due to the Covid-19 pandemic. Zalando have recently corrected their figures to show growth for 2020 once more, expecting a GMV growth of 10-20%. As an online shop, Zalando offers two main ways for brands to sell their products. You can either sell your products to Zalando via conventional wholesale business where Zalando acts as the retailer, or opt to sell your own products via Zalando’s partner programme.
What Zalando calls their partner programme (PP), is offered by many other online shops too. This is called the marketplace business. Amazon, About you, La Redoute, Bol, MyToys, Sportscheck or Douglas are a few examples of marketplaces in Europe. And with most of them, you have the option of marketplace and wholesale business.
There are so many different ways for brands to sell their products online. Here, I focus on selling via online wholesale in a B2B model and via online marketplaces in a B2C model.
The online wholesale business is the sales channel that most brands are familiar with. Meeting the buyer every season, getting a budget depending on the sell-through of the previous season, and showing them the new products of the coming season. You receive an order of pre-selected items, send the goods as soon as they are produced at the beginning of the following season, and perhaps provide product data and images.
After the products are shipped, you don’t need to worry about them any longer. Done. Pretty comfortable. Next season, you start over along the same lines. Are there additional possibilities to support your products in sales afterwards? Sure, but you are not required to do a thing.
This is what the wholesale model looks like. The brand gets a budget and sends over the complete order of products to the buyer. A selection of your brands top articles could look like the chart below. The buyer orders a few pieces of article 1, 2, 4 and 5. They are not interested in article 3 and therefore don’t order any. The buyer receives the goods and sells them in their online shop, at a price of their choosing.
The advantage of this model is that you have less stock risk. But while the online shop may conform with your recommended retail price, they don’t have to and that’s out of your control.
To summarise the online wholesale business for a brand:
The buyer selects your articles
Not all products will get placed
You have to work with a limited budget
The buyer determines the retail price of your products
Your end customer doesn’t have access to your entire assortment
You are dependent of your buyer
It’s a fairly comfortable business model
2. Adding Additional Stock on Pre-selected Articles
In recent years, many online shops have begun to offer brands the opportunity to sell their own products as marketplace sellers. This means that you can combine your wholesale business with marketplace business.
Adding marketplace business to your wholesale business gives you the opportunity to add stock to the articles your buyer has chosen. For instance, you may feel that the buyer didn’t order enough of your top articles. In our example, 800 pieces of article 1 were ordered wholesale. You have the option to add another 50 pieces via the marketplace model to fulfil customer demand.
In this case, you are the backup as soon as your buyer runs out of stock on this article. Sometimes that’s the case even for NOS products if the buyer can’t restock fast enough. As a seller, you become your own out-of-stock backup. As you are the owner of your marketplace stock, however, you also take the stock risk.
To summarise online wholesale with added marketplace stock for a brand:
Higher availability of your articles
Fewer sold out items for your end customer
Stock risk is on your side
3. Selling Additional Articles Via Marketplace
Did your buyer not order all articles you were hoping for? Would you like to show a much wider selection of your brand at this online shop? Or did you get a budget cut for some categories?
Other than adding stock on pre-selected articles, you can also add articles that weren’t selected in the wholesale order via the marketplace. This allows you to choose which articles to sell where, or to show your entire assortment if you like. And you own the selling price as you sell directly to your customers. But depending on the marketplace, there may be price competition on your articles in case other retailers sell the same items.
This means that you can now add additional stock to items that were ordered wholesale and you can add all other articles you want to sell online yourself. In this example, you might add 600 pieces of your top 3 article via the marketplace.
Even if a buyer only selected 20% of your complete assortment, the marketplace allows you to offer your entire assortment. The 20% as a back-up if the buyer runs out and the remaining 80% as additional selection for the end customer.
To summarise the combined online wholesale and marketplace business for a brand:
Brand owns selection
Brand owns selling price
No external limitations
Brand is its own selling hero
Stock risk is on your side
4. Only Selling via Marketplace Business
You didn’t get a budget for the coming season? You don’t want to sell your products via online wholesale? Or your brand is only offered the marketplace model? That’s your opportunity to decide independently what products you do want to sell via the marketplace model. You can choose to sell your complete assortment, just a few pieces, or a curated assortment for each marketplace and country. It’s entirely up to you and your possibilities.
Setting up your own marketplace business means extra work as well as the opportunity to become your own selling hero. You have to set up all of your processes for B2C shipping and control this sales channel on your own. You get to decide on the selling price of your products. And in my opinion it’s also a good and fast way to test new products.
In our example, you can now offer a selection from your assortment in your chosen width and depth. As you are fully responsible for your marketplace business, you have to order as well as ship to end customers yourself, and are responsible for all the steps in between.
To prevent entering price competition on articles a brand is already selling wholesale, the marketplace business offers the opportunity to re-invent yourself and adapt your products. You can optimise your assortment and build up completely new articles that are exclusively sold via marketplace to offer unique products.
At the same time, you can adapt and diversify existing products. For instance, you can create multipacks or matching sets, e.g. selling a multipack of leggings or a baby romper along with a matching jacket.
To summarise the marketplace model for a brand:
Brand owns selection
Brand has full responsibility of the entire B2C process
Brand owns selling price
Just own limitations in turnover
Fully flexible and responsible
No external limitations
Brand is its own selling hero
Four Ways: Choose Wisely
We’ve explored four different ways of selling your products via online shops:
Wholesale & Marketplace by adding stock for pre-selected articles
Wholesale & Marketplace by adding additional articles that weren’t selected
As a brand, you are free to choose whichever marketplace and wholesale business model suits you and your products best. Keep in mind that each comes with its own opportunities as well as challenges.
Consider your online sales goals before you begin. Wholesale is the more familiar and comfortable business model and comes with a little lower risk. Marketplaces offer many opportunities to grow business as a brand. You define your own selling price, are only restricted by your own limits, e.g. in turnover, and are solely responsible for your stock and processes.
Choose wisely! And if you need help in making this decision, please feel free to get in touch. I would love to support you with my expertise and learnings from my experience in the online marketplace and wholesale business.
About the Author:
Valerie Dichtl has been responsible for fashion buying (Amazon), selling via marketplaces, and online wholesale for nine years. Combining her experience from brand site, online retail and consulting in the fashion industry, she supports brands in defining and implementing their online sales strategy. She helps brands sell independently from wholesale on online fashion marketplaces and enables the needed knowledge. Read more of her work here or connect with her on LinkedIn.
Selling on marketplaces is no longer an ‘if’ question, but has become about ‘when and how’. A deep dive into the structure of online marketplaces for fashion.
“We don’t want to sell online because we want to protect our brick & mortar stores.”
That’s a sentence I’ve heard over and over since I started working in the online sales business nine years ago. By now, however, I rarely hear it anymore in the fashion industry. But switch industry, and we’re back where fashion was when it began to embrace change a few years ago.
I’d call this a brave mindset for brick & mortar retailers. Have you ever considered what’s best for your end customer? They are the ones buying your products, after all. Are they able to get them where they want and where they usually buy?
I want to share my knowledge in online sales, give you ‘real talk’ about it, and provide you with insights and know-how. This article is the beginning of a new series about online sales that aims at deepening your understanding of this business.
I’ve experienced both sides of it: Amazon from the inside, brand sites from the inside, and other online shops from the outside, giving me a 360° view. I can also see that online sales as such is no longer that big of a question. It’s now more about the marketplace business, because there is a significant knowledge gap. Why? Because it remains a relatively new and complex topic.
“For me, online sales are no longer an ‘if’, but more of a ‘when and how’ question. Especially when it comes to online marketplaces.”
So, it’s time for a short deep-dive into the world of online marketplaces for fashion!
Online Distribution Channels Using Online Shops
(Graphic: Valerie Dichtl)
Marketplaces for fashion are a sales channel for brands and retailers to sell their products online, via the big online shops like Amazon or Zalando. On the one hand, there is the wholesale business, which is still a B2B business model. You have a buyer who pre-orders your articles and sells them in the name of the online shop. At Amazon this is called Amazon Vendors, at Zalando it’s the conventional wholesale business.
In addition to the wholesale model, however, a brand can also sell directly via the online marketplace sales channel. As a brand, you use the online shop as a platform to sell your own products directly. You stock the product yourself, sell it via the online shop as a seller, and then ship it to your end customer. The advantage for a brand is that you can decide where you want to sell your products and at what retail price. In the wholesale model, the online shop will set the retail price, as they are the ones selling the product.
In Germany and Europe there are several marketplaces for fashion, also known as partner programmes, from online shops like Amazon, Zalando, About you, Otto, Klingel, Ebay, Sportscheck, mytoys, Limango, mirapodo, Galeria, La Redoute, Douglas, BOL, Allegro and many more. This small selection is primarily focused on fashion and lifestyle products.
Marketplaces for Fashion & Future Growth
Marketplaces have become the growth engines of the big online shops. In their 2019 annual report, Zalando announced an increase in the GMV share of their partner programme (marketplace) from 10% in 2018 to 40% in 2023-24, long-term even to 50%. They already increased the share from 10% to 15% in 2019. And according to estimates, Amazons marketplace sellers generated 60% of the overall turnover in 2019. These examples suggest that online sales via marketplaces for fashion will become even more significant in the near future.
“Marketplaces give you the opportunity to sell all the products you want, depending on your selection”
(Graphic: Valerie Dichtl)
Let me give you a case example based on the graphic shown above. You are a retail brand who already sells products on Zalando via wholesale (marked dark blue).
Your wholesale buyer orders 12 of your 20 bestseller styles (marked in dark blue)
You add your 20 bestsellers via the marketplace, selling them yourself
8 of 20 bestsellers that haven’t been ordered wholesale (yet) are now available to consumers at Zalando too (marked in green)
The 12 bestsellers that were ordered wholesale are sold directly by you as well, for example as soon as Zalando is out of stock, missing re-orders or late season (marked in light blue)
This hybrid wholesale and marketplace model gives you the opportunity to generate additional turnover with styles that weren’t ordered wholesale or have gone out of stock, further growing your online sales business in the process.
The past has shown that selling via partner programmes and the wholesale business are of mutual benefit. It supports you as a brand to sell new categories and styles the wholesale buyer didn’t choose or misjudged in terms of numbers. In my experience, you can add a minimum of +10% marketplace turnover, if you are already selling a wide selection of your assortment via wholesale.
I have also seen marketplace growth rates of +30% within three months of a new category being added to a marketplace. For the buyer this was a good test case, as they began to order the category in question wholesale too. Whether you want to continue selling your products wholesale if you are already selling via marketplaces is a different question. In my experience, however, wholesale and marketplace sales benefit from one another.
Marketplace Isn’t Marketplace: Open and Closed Marketplaces
(Graphic: Valerie Dichtl)
Open marketplaces are open to anything and anyone
Open marketplaces are open for any product without restrictions or pre-selection. This means that anyone can sell anything on this type of marketplace. Amazon is a pretty good example here. There is an abundance of offers from all over the world, especially from Asia. At the same time, a single product (with the same EAN code) can be offered by multiple sellers. This results in price competition on the same product.
But with no entry barriers in place, you can enter the market and start selling immediately on such open marketplaces for fashion. You don’t even need to be a known brand. In addition to Amazon, ebay, BOL (NL) or Real are good examples of open marketplaces. Otto, who only operated a closed marketplace until now, is also launching an open marketplace this year.
Closed marketplaces are more exclusive and have less competition
Closed marketplaces, on the other hand, have entry restrictions and are more exclusive as a result. You need a sales permission to sell your products on closed marketplaces. Once you have this one-time permission, you can sell all your brand’s products on the marketplace.
As not just anyone is selling there, you can provide a good brand experience. At the same time, there is also less competition, because each EAN is only offered by one seller at a time. This means your recommended retail price is also more stable compared to open marketplaces. The barrier to enter a closed marketplace for fashion is also slightly higher than selling via open marketplaces. Good examples for closed marketplaces are Zalando, Otto, About you, Klingel, Sportscheck, mytoys and mirapodo.
What’s better now for my brand?
This heavily depends on your brand, products, price points and your strategy. I’ve helped many brands with their marketplace business, among others a well-known underwear brand. This brand faced several challenges. We were already wholesale partner to all the big online shops, and they wanted us to go for the marketplace model. We wanted to expand our selection and to be our own back-up, for example when products ran out of stock on the platform.
Challenge number one was that our logistic headquarter in Hungary mainly focused on B2B orders.
Challenge number two was a lack of capacity in the ecommerce team.
We took a long time to get a general overview of the marketplace market. I was the only sales person responsible for the online business (excluding the own online shop). And we came to a number of decisions:
To start with marketplaces for fashion on Amazon, Zalando, About you, Klingel and Otto where we had permissions to sell our brand.
We didn’t want to (and couldn’t) do B2C shipping from Hungary and needed a partner with consignment stock to do this for us in Germany
We needed a full-service partner who is a marketplace expert and owns the main processes to save our team’s capacity
After we took these decisions and selected a full-service partner, we began four months later on all five marketplaces and ramped up online sales of our brand. We benefited from the mix between wholesale and marketplace business. It gave us the opportunity to widen our selection, to be our own stock back-up, and to boost sales.
I would highly recommend starting with marketplaces soon, as it is one important sales channel of the near future!
About the Author:
Valerie Dichtl has been responsible for fashion buying (Amazon), selling via marketplaces, and online wholesale for nine years. Combining her experience from brand site, online retail and consulting in the fashion industry, she supports brands in defining and implementing their online sales strategy. She helps brands sell independently from wholesale on online fashion marketplaces and enables the needed knowledge. Learn more about her here or connect with her on LinkedIn.
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Jan 2014, Berlin: Three years earlier, a French outerwear brand* signed an exclusive partner store distribution agreement for southern Germany. Visiting the newest German store, the French CSO realises locations continue to be rather ‘cheap’ and off the High Street. The distributor argues that the brand doesn’t pay High Street rents.
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Italy – birthplace of coffee culture and until now a ‘Starbucks-free nation’ – will host the first coffee shop of the Seattle coffee chain, right in downtown Milan! Swiss giant Nestlé first entered Italy in 1999 and opened a Nespresso flagship store (out of 6 worldwide) in Milan last year, now another big player is daring to do the impossible – the equivalent of selling ice to the Eskimos.
The opening of Primark’s first store recently was another big bang for the Italian retail market. The famous Irish fashion giant has chosen the brand new shopping centre ‘Il Centro’, in Arese near Milan, to host its first foray into the Italian market. This is the biggest of Italy’s regional malls, located on the former Alfa Romeo site and hosts more than 200 stores; among them several other prominent debutants to the Italian market such as LEGO and Under Armour.
Supply Creates Demand
So why is Italy so attractive these days for international powerhouses wanting to establish themselves in new markets? The most important reason is the improved availability of quality retail space – in the past, finding appropriate, large sized retail space in prime locations was quite challenging to near impossible.
The ‘old lady’ of Italian shopping centres, Galleria Vittorio Emanuele II, Milan (Photo: Alterboy, Wiki Commons)
Shopping centre-wise, Italy is still a so-called ‘opportunity market’, with a large population but a shopping centre density (GLA/1.000 population) below the Western European average. In 2015 it was around 229 sq.m compared to the number 1 shopping centre market – Norway – with 926 sq.m. However, Italy has caught up over the last 10 years – by nearly doubling its shopping centre space to approximately 13.8 million sq.m nationally. There is also more than 700.000 sq.m of new space expected in 2016/17.
Italy’s shopping centre market is marked by the arrival of large schemes and significant projects that create more supply for international players such as: Westfield Milan; Merlata Mall, Milan; Roncadelle, Brescia; and GrandApulia, Foggia. Also real estate company Cushman & Wakefield follows the Italian trend to be prepared by having bought Cogest Retail – an Italian retail asset services and leasing firm with a portfolio of 51 shopping malls and retail parks across Italy under management. The consolidated company will double the size of C&W’s current business and manage circa 3.5 million sq. m of floor space in Italy.
The International ‘Who’s Who’ in the Italian Market
So which international players are already succesfully active in the homeland of some of the world’s most famous fashion brands? There are well established global brands with a broad and long-term presence such as Timberland (∼160 stores), Nike (∼ 50 stores), Tommy Hilfiger (∼30 stores) or Ralph Lauren (∼8 stores). But also ‘new Italians’ such as Michael Kors (2008), Superdry (2010), Desigual (2011) and Victoria’s Secret (2012) have arrived in the last couple of years. Besides running stand alone stores, these international brands are also well distributed in department stores such as Coin and La Rinascente.
Coin department store (Photo: Gruppo Coin)
Is There a Perfect Way to Enter the Italian Market?
To decide the best entry mode, companies need to consider also Italy’s very local specialities and challenges. Italy as a network driven country has its own rules. Relationships are crucial factors – between brands and retail partners as well as between local stakeholders. Bureaucracy, corruption, high levels of taxation, long payment terms and political and legal reforms have been applied, but a real breakthrough is yet to have taken place.
Oberalp & Under Armour (Photo: Pressreader)
Weighing these circumstances plus considering the expertise of strong local and well established partners such as Percassi or Libenzi, many global players (Zara, Victoria’s Secret, Timberland, Lego and more) choose cooperations. Activewear company Under Armour just announced its plans to open 20 stores over the next 7 years with theItalian Oberalpgroup. Also Starbucks has picked Percassi as a partner for opening the Italian market – Percassi will own and operate the stores as the primary licensee.
Mango on the other hand entered Italy in 2001 without local alliance. The company decided to have a few of their own flagship stores in the top retail locations, while the rest are franchise stores. Furthermore, they currently run around 40 corners in Coin department stores.
To Partner or not to Partner?
If the question is to partner or not to partner, there is no ideal solution to suit all companies. The choice is dependant on various parameters that raise questions such as:
Is the focus on showcasing the brand by opening flagship stores?
Does the brand intend to take place first in department stores?
How many stores does the brand/retailer intend to open and run?
Will the stores be located in the top retail/tourist cities only?
Will the stores be placed all over Italy or only in the northern part?
Whether you plan to launch a brand in Italy or you are already there, the time is perfect to grow your brand into a meaningful business in Italy. As the saying goes, ‘all roads lead to Rome’ so what might be the right one for you?
About the Author:
Isabell Guidastri has worked most of her professional life with brands on their local & global brand distribution strategies, including with many well-known global powerhouses in branding & retail. Retail in Brazil, franchise in Turkey or traditional wholesale in Germany were just some of her virtual project travels in the last 24 months. But above all, the challenges of Italy are her great love, since marrying an Italian and now commuting between Germany and Modena, Italy – home of fast cars and slow food. Contact herby emailfor more information and further discussion on your favourite country and distribution strategy. Or see more from herhere.
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