In-Depth: Will retailers' third-party brand experiments work?
How can mono-brand websites appeal to the fickle consumer addicted to newness? For some, the answer appears to be adding a raft of third-party brands, such as Mango and Marks & Spencer have recently done.
While high-street names are trialling outside, branded product, the luxury players such as Nordstrom and Net-a-Porter are also looking to turn their websites into "marketplaces" but with the drop ship model, whereby an order is shipped directly from the supplier to the customer with the retailer taking a commission or fee.
Clearly looking to successful competitors who have done the same thing, will it work for these retailers? Will it dilute their brands or add to it? How important is the brand choice and mix or have they missed the boat entirely on these trends?
The Spanish brand, Mango, said last month, it had decided to open up its online selling channel to third-party brands in order to extend its commercial offer in complementary product categories. The initial phase, following "the technology development it has carried out to evolve its platforms", has been the signing of an agreement with the Italian brand Intimissimi, owned by Grupo Calzedonia, to market a broad selection of garments from the collections of the lingerie brand via Mango’s online channel.
Mango’s Online and Customer Director, Elena Carasso, said: “Our aim is not to become a huge multi-brand marketplace, but to extend our commercial offer alongside brands that are compatible with our positioning.”
Initially, the agreement with Intimissimi will have a duration of 3 years and it is planned to launch in 6 countries - Spain, the Netherlands, Germany, the United Kingdom, Portugal and France. Carasso continued: “We will continue to analyse new opportunities that offer our customers added value, while taking great care to ensure their compatibility with the Mango brand, which is one of our biggest assets.”
At the close of 2019, Mango’s online channel achieved a turnover of €564 million, representing 24% of total company sales. In October 2020, the brand celebrated the 20th anniversary of its website launch and set itself the target of achieving a turnover of €1 billion in 2021.
Guillermo Corominas, Mango’s Head of Institutional Relations, says: “We’ve made this decision with our customers in mind. We have had requests to do this in the past, so wanted to make it happen and at the right time. We want to stock third party brands that complement the Mango product that sits on our website.”
The brand says it will be strictly online only relationship and they do not see this as a trial and is something for the longer term. There is an intention to expand it into other international (web) markets in the future.
At the same time British-based retailer Marks & Spencer announced it would begin to sell ranges from Joules, Phase Eight, Hobbs, Seasalt, Ghost, Jaeger (now owned by M&S), and the first to debut, Finery London.
Touker Suleyman, owner of Finery London told The Mail on Sunday: “They (M&S) were dipping their toe in the water [selling third party fashion brands] last year and now they’ve got a platform ready, a database to work from and a list of brands to launch.” The labels will also be available in stores when lockdown ends.
So, what can these brands hope to achieve from throwing their websites open? Retail expert, Catherine Erdly, Founder The Resilient Retail Club says: “Adding a third party brand allows businesses to trial the introduction of new types of products and new focuses for products without having to go through the product development process themselves, so it can be a quick way to get a read on what their customers think.
“It also allows them to extend out their offering and get in front of another brand’s audience as well.” she says.
“Managing their stock and keeping a tight control on it will be at the forefront of all retailers concerns right now. They will be really trying to cut costs and look at ways that they can maximise their sales whilst increasing their stock turn and not having to over commit.” says Erdly. “It also allows them a certain amount more flexibility in their supply chain if they can purchase in products from another business.
“It doesn't necessarily add so much to the brand, but it will definitely add to the customer experience and give the customer a better choice if it is done well.
“In terms of how they choose the brands, they will no doubt be looking for brands that will fit the overall customer profile but may be looking at brands that have a younger or a slightly different appeal to their main brands,” she says.
This strategy would be one way to fill those big empty units if this approach is rolled out into physical stores, creating highly curated mini-fashion department stores.
Erdly agrees: “This strategy can work particularly well in a flagship store where there is a lot of floor space and they can create destination brands, which is essentially the concession model.”
The move to marketplaces
It is worth remembering, in September 2019, Swedish fashion giant, H&M, announced it was going to sell third party brands. “The H&M brand will now develop our offer of external brands. The purpose is to complement our offer with external brands to add excitement and energy and we see great opportunities for growth and to find new customers,” the company said.
It came to nothing at the time but CEO Helena Helmersson has since put the idea back on the table. However the approach this time is to place the H&M brands into third-party spaces such as marketplaces like China’s Alibaba Tmall. “We’re really following customer’s behaviour when it comes to this [third-party marketplaces], to see where customers want to meet us, and looking at our own assets”, Helmersson said during a trading update in January.
“As we said before, our physical stores will be really important for going forward. It’s really the role of a physical store and the different formats and how we can develop that moving forward. And then it’s the digital growth and the integration. In some countries we obviously see there is a big percentage of our customer base wanting to go to a marketplace, and so we will continue to look at collaborations,” she added.
Successful examples of major retailers adopting a third-party model include Next’s Label business and Farfetch’s original drop shipping model, which takes a commission on sales.
The shift to drop-shipping
Net-A-Porter.com and Prada recently surprised the fashion industry with a drop shipping agreement. While details on commissions weren’t disclosed, Prada will own and handle its inventory, including its Miu Miu label. Many luxury brands have been reducing their reliance on wholesale, preferring the DTC route, and this feels like some sort of compromise. Net-A-Porter won’t be sitting on unsold inventory at the end of the season and could also increase the sales of popular items with greater depth in stock availability.
The American sports retailer Foot Locker recently said it had launched a pilot drop ship programme with Nike to activate additional inventory that is not held in its stores or warehouses.
“While it’s early on, the program aims to provide more of the right product at the right time, to better satisfy customer demand and shorten lead times,” said Dick Johnson, Foot Locker chairman and CEO. Johnson said the program will evolve once the companies determine “what appeals to the customer and what doesn’t”.
American department store chain Nordstrom recently announced it was going to increase it volume of drop shipping. In late 2015, Nordstrom began using vendor Dsco (DropShip Commerce) to fulfil some online orders. In July 2016, it bought a minority stake in the business. Dsco’s platform helps retailers manage their supply chains, inventory visibility and data. Nordstrom’s website explains: “Drop shipping helps you connect with more customers while telling your brand's story through expanded selection.”
Nordstrom announced, last month, that it plans to reduce traditional wholesale from 85% to 50% of overall sales. Its new drop ship and concession model will increase product assortment available online to 20-fold more than in-store.
Both these models allow retailers to grow their online product offering quickly and with less risk and outlay.
The intense focus and investment in companies’ website over the past year has obviously helped with these technology upgrades. The success of this will balance on the brands chosen and the edit. It needs to excite their existing customer and give a positive halo to the hosting brand while offering the consumer great choice. Not more of the same thing.
Mango is making the right decision to bring in a brand that has expertise in a particular area, such as Intimissimi has in lingerie, and which complements the rest of the brand. Marks & Spencer needs more excitement and most of these brands it has chosen to offer are very safe. It doesn’t need any more mid-range women’s fashion and seems to have missed an opportunity so far to inject some excitement into its offer.
The drop ship model allows more choice and depth in inventory and a faster response compared to having to commit to a buy months in advance. It also doesn’t tie up all your money in stock, which is very important right now, with many retailers not knowing how sales in high fashion will go this year and remembering how much unsold stock they were lumbered with last year. While the profits will be smaller, the risks are lower and the fashion brands get much more control over discounted stock, which is something Prada has said it wanted for a long time.
Adding brands online is much cheaper and faster than the traditional concession type model in store, no shop fit or distinct area is needed.
With a strong focus on their websites and seeing massive growth, it was inevitable that brands would want to expand and capitalise in this area. Adding well-known brands is the low hanging fruit of retail, now it’s all about seeing whether consumers want to bite.