For years, the economics of the world were such that producing things was expensive and distributing them even more so. These factors created an environment where size, experience, relationships and the deep pockets needed kept most new entrants at bay.
Historically, retailers needed to build complex supply chains and rent vastly expensive stores to sell products. They needed to recruit and train staff. Set-up costs and ongoing expenses were significant. Inventory was always a large sunk cost, and the time to restock and replenish popular items was considerable. Nimble retail just wasn’t possible. The failure rate was high and it wasn’t something for people to undertake lightly.
If you thought retailing was hard, making products and brand building was even more expensive. Vast research and development costs to create new products paled into insignificance compared to the enormous cost of building brands through advertising. Even the cost of maintaining a brand was expensive, with most large retailers requiring listing fees, co-marketing budgets, and threatening to delist any product not supported with a large TV campaign or selling at a premium that only above-the-line marketing could support.
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A new economic era
Life is different now. The mechanics of retail in the ecommerce age are almost the reverse of the above. It seems that anyone with a few hours to browse suppliers on Alibaba, a credit card on file with Shopify and Facebook, and a friend with a Fulfilment by Amazon account who is good at packing can create a product and brand from nowhere. I’m not saying that it’s easy, but the reality is that the number of new online stores and products seems to have soared. Commerce and creativity are becoming more democratic. This is a huge threat to retailers and brands alike.
The change is real. In the past year, 90% of the top 100 FMCG brands have lost market share, with their lunch eaten by smaller, more nimble brands. From Warby Parker to Dollar Shave Club, Casper to Honest, Innocent to Made.com, we’re seeing the rapid growth of brands and retailers headed by CEOs with more experience in finance or marketing than in the products they offer. Heck, even Tesla shows that while a long way from being easy, car fabrication is more like assembling a smartphone with existing suppliers than building a car plant with over a century of experience required.
Commerce and creativity are becoming more democratic. This is a huge threat to retailers and brands alike.
Because of the costs and difficulty in production, deciding what to make and sell has long been a serious profession. The power of what was made was held by those with expertise and experience. From newspaper editors to buyers in retailers, you needed the credentials to make big decisions and to place big bets. For many years, the risks were so great that procurement and selection processes were about minimising downsides rather than maximising upsides.
People who were shown to follow trends, consume vast amounts of data and base decisions on the past were far less vulnerable in an age where nobody got fired for buying IBM. Similarly bold, gut-driven moves – even if shown to be successful – were often attributed to luck, rather than foresight or genius.
Yet now, the market is more democratic. The best bloggers’ work goes viral on Medium; anyone with a hairbrush can become a star on YouTube; people armed with a cheap 4K camera can make a feature film that pops on Vimeo; and anyone with a bold idea can attract funding through Kickstarter.
In theory, this means the market should be more open, more fair, more transparent than ever.
We should see more ideas, more innovation and more wild success stories, because we’ve never had more inputs. From selfie sticks in 2014 to the fidget spinners of about 10 minutes ago, we’re seeing products and brands become almost meme-like in nature. It’s now easy for anyone.
Ecommerce is easier than ever
Anyone with a credit card and a spare afternoon can build a commerce site with Squarespace for pocket money – and with no knowledge of coding. A quick tour around the Shenzhen ecosystem (or easier still, a few clicks on Alibaba) can secure unique, competitively-priced goods from a plethora of makers that can sell direct to anyone at costs close to what vast conglomerates can negotiate.
Brands can be forged from nothing. Get your logo from DesignCrowd for under £100 and your packaging designs from Fiverr. Even if you need money, it need not be an issue. KickStarter and IndieGogo provide direct access to raising funds, complimenting a lively VC environment.
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Also, selling things is now very simple. Plug in to Amazon and let them do everything, or tap into eBay as a storefront and process orders yourself. Everything that used to be hard is now easy. Even advertising is more simple. Enter a credit card and a local area or interest to micro-target, and through Google, Facebook or many other options, you can reach a precise audience with an apparent scale that would have once cost millions.
And so, the endless onslaught of new brands threatens the old. The early startups that we call ‘digitally native vertical brands’ are often little more than a marketing wedge in someone else’s supply chain. The ever-successful disruptors show what can be done if you buy products from other makers, write a brand story on a website, let others ship your products, and don’t worry about losses as you plan to sell on user growth, thus threatening the incumbents.
The next tranche of brands is on the way. Reimagined sheets from Brooklinen; wool shoes from Allbirds; Modsy sofas – it won’t be long before more make the move to try to steal market share.
The disease of abundance
When everyone can make anything and the gravity of needing a business model and bank loan is turned off, we deal in a land of abundance. This is exemplified in poorly written news articles, crap music, bad iPhone cases and so on. At no time in history have we had greater need of people to help us to navigate the choices. In theory, the best should simply bubble up to the top, but is that really the case?
Oddly, in a marketplace of perceived sameness and a more complex ecommerce environment, we are faced with an array of interesting issues for brands. What if the nature of brands was actually the best defence against the overabundance of product options? Maybe being top of mind is most important.
Nowadays, the best social media strategy is to simply create better products and services. Reputation trumps advertising. Reassurance comes from opinions. It’s this shift that best explains the undeniable allure of influencer marketing.
The retail sector is shifting more in a decade than it has in centuries. It’s your challenge to leverage the power of your knowledge, experience and product to soar in an age where success seems more fair and more democratic.
Tom Goodwin is executive vice-president and head of innovation at Zenith USA.
