How independent retailers can thrive in a volatile market
As traditional retailers continue to struggle, columnist Evan Magliocca explains why it's a unique opportunity for smaller brands to prosper amid the wreckage.
Recent retail news headlines have been focusing on two major areas: the apparent death-knell of traditional retail stores and the market shift of customers to major brands such as Amazon and Walmart.
But these market conditions — including reduced brick-and-mortar overhead, low-cost technology integrations and shifting customer demand — provide an opportunity for independent brands to flourish even in such a volatile retail environment. They have the unintended consequence of removing many of the major barriers to entry for smaller independent brands that otherwise would not have been able to enter the market during retail’s peak a decade ago.
Shift in store environments
Malls and shopping areas are struggling to keep customers. In fact, US malls are overextended in physical space, with far more square-footage compared with other countries. The current downturn in mall stores is to some extent a correction in the market to make up for those massive store footprints.
Malls are consistently losing tenants over an extended period of time, which is depressing real estate and rent prices. That opens opportunities for smaller shops to find locations at extremely low cost, which is one of the largest issues for new companies because they often can’t keep up with the overhead early in their development.
Small yet growing brands such as Homage, Warby Parker and Casper have all taken advantage of depressed malls by adding stores in some of America’s largest tourist malls in the country, including Aventura mall in Florida and King of Prussia mall in Philadelphia. Those locations are considered some of the most sought-after footprints in the country, and with the downturn in mall traffic and store closures, smaller brands can reap the benefits. Even the stationary bike company Peloton has opened a cluster of showrooms in major locations to entice shoppers.
At such a reduced rate, great ideas can flourish and have the opportunity to compete in traditional spaces without the pressure of large overhead costs hanging over them. So, while traditional retailers are failing and struggling to keep locations open, younger, smaller companies have an opportunity to prosper from the wreckage.
E-commerce, omnichannel and digital services are advancing at a rapid rate. As they continue to climb, the basic and intermediate services become less expensive and require lower capital investment from the start. That’s more good fortune for smaller brands, since they can now compete on a similar level with industry giants across all channels.
Companies like Shopify offer low-cost commerce solutions, Square is radically changing the point-of-sale approach, and others are starting to provide low-cost omnichannel integrations. Each of these produces inventory management options and fluid cross-channel customer experiences.
That gives smaller companies an outsized influence compared to their actual size. Now they can compete on the merits of their ideas, products and services without the barrier of technologies standing in their way.
Shifting customer demand
Perhaps the largest market shift is actually the customer. The customer is the real source of volatility, bankruptcies and consolidation. While the focal point has remained on the behemoths, Amazon and Walmart, for the sheer amount of market share they’ve stolen from everyone (regardless of industry or vertical), midsize retailers are actually feeling pressure from both ends.
The issue is pretty clear. Customers are shopping based on two different desires: convenience or experience. When it comes to convenience, Amazon, Walmart, Target and other major brands are the obvious winners. The shopping experiences are breathtakingly simple, shipping is quick and free, and they have a major advantage over mid-level brands.
On the other end, mid-level companies are often one-size-fits-all for customer experiences. There’s a lot of parity when rolling out store concepts, product models and creative to 500-plus stores, and there simply isn’t much to leverage to differentiate from the competition and win customers.
Boutique companies have a clear advantage: They easily win on unique customer experiences and customer service. They don’t have the scalability issues of larger brands, and they have the added benefit of unique stores, products and services compared to the rest of their industry. That’s what many customers are searching for right now: unique products, burgeoning stores, outstanding customer service and in-depth product knowledge.
Boutique, experience-based brands have been some of the first brands to take advantage, including Bonobos, Indochino, Scotch & Soda and Everlane. Each company eschews the traditional store model in exchange for showrooms designed around experiences, customer service and tailoring.
Of equal importance is the wise approach of slowly increasing showrooms in targeted locations to enhance their business model and brand, which is clearly a key learning from the failures of major brands like Macy’s and Sears that overextended far too quickly.
Unique opportunity for smaller brands
Independent brands have always had to fight an uphill battle with huge barriers to entry in the market. Yet with the shift in customer demand, low-cost store options and parity on technology offerings, this is the time for independent brands to win on the potential of great ideas, innovative products and alignment with customer sentiment.