Author: Ben Glassman


Combining Digital and Physical Retail: RevCascade’s Main Takeaways from Code Commerce 2017

By Ben Glassman,

On one of the last panels of Code Commerce, Recode’s two-day extravaganza bringing together more than 400 executives from the retail, e-commerce, and digital media worlds, Sweetgreen CEO Jonathan Neman succinctly put into words the main thesis that nearly every speaker hit on during their time on stage: “When it comes to procurement, there are going to be so many more efficient ways [to satisfy customers] … Stores are going to be community centers of story-telling.”

In other words: brick-and-mortar stores are being repurposed from points of sale to experiential, brand marketing epicenters.

jonathan-neman-sweetgreen

“When it comes to procurement, there are going to be so many more efficient ways [to satisfy customers] … Stores are going to be community centers of story-telling.” –Jonathan Neman, co-CEO of Sweetgreen

Though the panels at Code Commerce covered a wide range of topics—for example, celebrity chef Mario Batali waxed poetic on the art of Twitter trolling, NBA Commissioner Adam Silver touched on the future of video gamer fashion, and BuzzFeed exec Ben Kaufman explained the appeal of fidget spinners—this notion of balancing digital with physical was constant.

That shouldn’t come as a surprise, though, especially for anyone who has read the “Retail Prophet” Doug Stephens’ most recent work on the subject, Reengineering Retail. While news stories that claim “retail is dying” often grab the headlines, what’s more fascinating—and what’s importantly explored in Reengineering Retail—is how brands and retailers are adaptingin these undeniably fast-changing times. For every entity remotely involved in commerce, adapting means assessing where the company stands from a digital and physical perspective, identifying weaknesses, and innovating to create the most effective ways to reach customers and build brand loyalty.

The Amazon versus Walmart battle is a perfect microcosm of this. On the one hand, you have Walmart, who, despite being the world’s largest company by revenue and operating almost 12,000 physical stores worldwide, has refocused its efforts over the past five years or so to grow its online presence and invest in ecommerce initiatives. On the other hand, there’s Amazon, the world’s largest internet company and the world’s most valuable retailer by market cap, who has recently doubled down on physical growth with its acquisition of Whole Foods and the opening of new Amazon brick-and-mortar stores. Certainly both companies are paving the way for how retailers think about engaging their customers—both Walmart and Amazon know that achieving the perfect mix of digital and physical is crucial to their success.

All-BirdsBonobos, and Glossier, all of which were represented by their respective founders at Code Commerce, are good examples of this in their own right. Though these brands are digitally native and naturally ecommerce-focused, each has recently made strides to expand physically by opening up brick-and-mortar showrooms, stores, and “guideshops.”

And as Glossier founder and CEO Emily Weiss explains, the goal of those efforts is not necessarily to drive sales—it’s to grow the brand.

“A Glossier customer can buy these products and really understand what works for her online. So the reason she’s actually coming to the store is less to do with trying on product and more to do with experiencing brand,” explained Weiss.

“For us we think less about ‘how do we optimize sales-per-square-foot,’ and more about ‘why would she even leave her house? Why would she even go into a store when she can buy a product and get it delivered?’… We encourage her to spend more time in our experiences, as opposed to getting her in and out and buying something right away.”

weiss-and-neman

“A Glossier customer can buy these products and really understand what works for her online. So the reason she’s actually coming to the store is less to do with trying on product and more to do with experiencing brand,” – Emily Weiss, CEO of Glossier

Glossier is the perfect model of a company that understands the massive opportunity that ecommerce affords from a sales perspective, while also respecting and embracing the larger customer loyalty and brand-building opportunities provided by physical retail.

Williams-Sonoma is another great example of this, though it approaches the subject from the other side of the fence—as a more traditional, brick-and-mortar associated retailer who has embraced online sales channels and digital innovation. The vast majority of the popular home goods retailer’s 60-year existence was during a time when ecommerce didn’t exist at all, yet CEO Laura Alber has adapted her company to the new retail landscape and instilled in her team the notion that excellence in-store must be matched with efficiency and success online.

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Williams-Sonoma CEO Laura Alber at Recode/Shoptalk‘s joint event, Code Commerce (Courtesy Keith MacDonald)

“In the same logic of ‘you need to improve the shopping experience in stores,’ you need to improve the shopping experience digitally,” said Alber. “It’s a big change because, before, retailers like us—specialty retailers—you expected everyone to come to you [physically]. And I actually think that you have to stamp out that thinking and say to yourself, ‘I’m going to go wherever my customers are and I’m going to be agnostic.’ Otherwise you’re not going to make progress.”

If a retailer or brand doesn’t adapt and fails to grasp and capitalize on the benefits of both physical and digital retail, it will not be able to compete. Retail’s most innovative minds, the same ones who spoke at Code Commerce, will continue to push the envelope and ensure that their companies find the most effective ways to reach consumers online and in person. It’s up to the rest of the retail world to keep up.

Who is Dropshipping for?

By Ben Glassman,

Run a quick Google search right now for “retail 2017,” and you’ll undoubtedly be hit with a flood of articles about the drastic, often grimly portrayed shifts we’ve seen in the industry’s sales figures, technology, and competitive landscape over the past 12 or 18 months.

You will also find quite a few articles on topics like “how to survive against Amazon” or “how to adapt your business for 2017 and beyond.” We ourselves have written multiple such pieces on the RevCascade Blog in an effort to educate folks on how dropshipping works and what opportunities it affords in today’s unpredictable retail landscape. However, it’s important to bear in mind that there’s no such thing as a one-size-fits-all solution. Dropshipping, just like all the other solutions you may be reading about online, is naturally a better option for some retailers than it is for others.

So, who stands to benefit the most from launching a dropship program? Let’s take a look at some of the most common types of dropshipping retailers and why they may choose to pursue this ecommerce strategy.

1. The Traditional, Brick-and-Mortar Retailer

Believe it or not, traditional retailers, those whose businesses are heavily based on brick-and-mortar, are some of the most common adopters of dropshipping. Companies like Crate & Barrel, which runs its dropship program with RevCascade’s platform, have wisely taken note of recent trends in the retail industry and invested their resources where the most growth is being seen: online. That’s certainly not to say that they’re totally abandoning their physical shops, but at the very least they’ve embraced the idea that online growth is an imperative factor in overall success.

For most of these traditional retailers, dropship programs are the most logical method to boost their online sales. Often referred to as “extended aisles,” dropship programs are an effective way for retailers to increase their volume with existing brands, sell new products and expand product assortment with new vendors, or foray into entirely new verticals. Because dropshipping doesn’t require retailers to take on any inventory, their merchandising options are virtually unlimited and their overhead is nearly nonexistent, especially when compared to a traditional wholesale or ship-from-store model. For discerning retailers, this means they can experiment with new product lines and curate the perfect product mix.

Doug Diemoz, CEO of Crate & Barrel, explained the benefits his team saw in starting a dropship program. “By expanding our assortment, we will significantly increase the choices available to our consumers and offer them an extended aisle of beautiful, curated products from the best designers and manufacturers from around the world,” he said. “All of the new products complement our existing product lines and uphold our commitment to quality, style, and customer service.”

2. The Ecommerce Specialist Retailer

While some ecommerce retailers do use a wholesale model in which they hold and ship items themselves, most of the high-performing online shopping sites like Farfetch, Wayfair, and Amazon are built around dropshipping. Just like the traditional retailers mentioned earlier, these ecommerce-focused retailers enjoy dropshipping’s low-overhead nature and remarkable ease of product expansion. Thanks to dropshipping, many successful ecommerce companies can easily operate right out of a small office without spending any capital on upfront costs like warehouses or store space.

Maisonette, another RevCascade client, is a perfect example of how dropshipping can afford ecommerce retailers remarkable flexibility with respect to expansion. Run out of a single office in DUMBO, Brooklyn, the high-end ecommerce marketplace for kids’ clothing is not even a year old, but already it boasts hundreds of brands and thousands of SKUs, and has been praised in publications like The Wall Street Journal and Vogue for its ingenuity and impressive product assortment.

As we discussed in a recent blog post, the success of the dropship model is closely associated with Amazon, which sees over 60 percent of its total retail sales come from its 3rd-party marketplace, where it carries zero inventory from 2 million-plus vendors. Other ecommerce retailers—Maisonette included—are mimicking that strategy, enjoying the minimal overhead costs and risks while rapidly scaling their online sales.

3. The General Merchadise Retailer

For big box retailers like Walmart, Target, and Kohl’s, dropshipping is an essential part of their online business. The sheer size and quantity of their stores and warehouses have helped big box retailers remain competitive for decades now, so ship-from-store, ship-from-warehouse, and BOPIS (buy-online-pickup-in-store) are certainly feasible fulfillment options for ecommerce purchases. However, to keep pace with the meteoric rise of Amazon– “the everything store” –they’ve recognized a need to offer an even more diverse array of products through their own online marketplaces, which, like Amazon’s marketplace, are operated via dropshipping.

It may seem unfathomable that a retailer like Walmart would need to launch a dropship marketplace to compete with Amazon. After all, when taking into account Walmart Supercenters, Discount Stores, Neighborhood Markets, Sam’s Clubs, and other Walmart storefronts, the company has a jaw-dropping 1,159,169,900 square feet of physical space to its name; that’s almost double the land area of Manhattan. But the scalability and SKU capacity afforded by dropship marketplaces simply cannot be overstated. The marketplace on Walmart.com has gone from 0 to 67 MILLION items in just seven years—more volume at a far faster growth rate than anyone’s brick-and-mortar presence, even Walmart’s, could possibly handle. While 67 million is still far short of Amazon’s 370 million SKUs, Walmart is at least remaining competitive as a big box retailer thanks in large part to dropshipping.

Retail today is an undeniably competitive industry. For almost any retailer, however, whether they specialize in a specific vertical like apparel, furniture, or jewelry, or are a general merchandise giant like Walmart, dropshipping is an effective way to gain a competitive edge and build revenue. As President & CEO of Walmart U.S. Greg Foran put it, “It’s the objective of every retailer to grow their inventory slower than sales.” Dropshipping is the perfect formula to accomplish exactly that.

How Luxury Retail is Taking Ecommerce and Online Marketplaces By Storm

By Ben Glassman,

Luxury retail is often thought of as the sector that is most immune to digitization. Intuitively, there seems to be some truth to that.

If a consumer is paying $5,000 for a dress, she will be more likely to want to go into a store and actually see, feel, and try on the item than she would if she were buying a $60 piece. Not only can she better determine she is buying the perfect product, something that’s all the more important when the price tag is higher, but there’s also something special about the experience of luxury retail shopping that seemingly cannot be replicated. As a recent Crain’s article put it, “luxury goods shoppers will always want to feel the cashmere, heft the Rolex and bask in the blandishments of fawning sales clerks.” In addition, shopping online could diminish the exclusivity that luxury shoppers might otherwise enjoy offline. The internet is the great democratizer of all information, including commerce—knowing that a million other people are looking at the same site might make the merchandise seem less special and “luxurious.”

Having said all that, the narrative no longer seems to be true (if it ever was in the first place.) Today, many luxury brands and retailers are building their online presences more than ever, and the numbers are reflecting that. Online sales of luxury goods increased 13 percent in 2016, and, according to the consulting firm McKinsey & Company, those sales figures will likely triple in the next 10 years. By 2025, the firm says, the online share of total luxury sales will reach 18 percent. Boston Consulting Group and Bain & Co. have conducted similar studies with similar results.

The evidence for this luxury ecommerce phenomenon is everywhere though, not just in consultants’ reports on ecommerce figures. Consumers around the world are increasingly “trading up” to more expensive options (both online and offline), and while ecommerce sales numbers keep improving and taking more of those luxury sales, brick-and-mortar is going the other way. Storefront closures have risen over 200 percent YOY in 2017, and of the companies that have actually opened stores this year, the vast majority are lower-end retailers like Dollar General and Dollar Tree. Traditional brick-and-mortar hot spots for luxury retail, such as SoHo and other trendy neighborhoods in Manhattan, are seeing increasing vacancies where high-end stores once stood. In other words, people are buying higher-priced goods, and they’re doing it online far more often than ever before.

So, with digital growing and physical stores losing popularity, where specifically is all this online luxury shopping taking place?

For one, most brands today, whether they offer discount or high-end goods, have at least some ecommerce capabilities on their site where visitors can buy and ship items directly to their homes or perhaps to a nearby brick-and-mortar for pick-up. In addition to that, however, the last few years have seen tremendous growth in luxury retail online marketplaces. Retailers like Farfetch, Yoox Net-A-Porter, Moda Operandi, LVMH’s 24 Sevres, MyTheresa.net, and Maisonette are leading this trend, moving thousands of SKUs and receiving millions of website visitors every day. Yoox Net-A-Porter Group, which operates websites Net-A-Porter, Mr. Porter, Yoox, and The Outnet, has been especially successful with its online luxury marketplace model recently, having reported an increase in net revenue of 18 percent YOY in 2016 (to about €1.9 billion) and an expected increase of 17 to 20 percent in 2017.

There are a couple reasons why ecommerce channels, including the online marketplace model, have taken off for the luxury sector, but to put it simply: there’s a will and there’s a way.

With respect to the “will,” luxury shoppers today have a massive appetite for internet usage in general and online shopping in particular. That’s largely due to demographics—millennials, who are well versed in technology and used to shopping online compared to the older generations, are now reaching an age where they’ve amassed enough wealth to spend big on retail. In addition to millennials getting older though, the average age of luxury shoppers has actually dropped from 48 to 34, according to Maria del Carmen Fernández González, CEO of the Spanish ecommerce and marketing agency Infinitum Ecommerce. “These people with high purchasing power love technology, they’re all connected thanks to their iPhones and tablets. They love finding information and purchasing products online,” says Fernández.

There are also increasingly better “ways” for luxury brands to reach these consumers. One of the most effective ways is through marketplaces. Brands and designers like Hermes, Chanel, Oscar de la Renta, and Jimmy Choo do have their own online stores, but the major benefit that they see in multi-brand online marketplaces like Farfetch is that they can get their products in front of millions of people around the world easily, inexpensively, and efficiently. Online marketplaces allow brands to reach uber-rich international consumers in places as far away as China, Korea, Dubai, and Russia who enjoy being able to browse hundreds of products from dozens of brands on one site. They also let brands reach busy 30-to-40-year-olds who have amassed expendable wealth but are in the midst of growing careers and raising families and might not have the time to bop around from store to store.

Farfetch is a shining example of how effective a simple online marketplace connecting high-end brands with deep-pocketed shoppers can be. The company’s platform gets around 10 million views per month in 190 countries and sees an average order value of about $700. In 2016, that added up to $800 million in gross sales for Farfetch (a 60 percent increase from 2015), and it’s now rumored that the company will soon seek an IPO that could value it at up to $5 billion.

As more millennials build their wealth and online shopping becomes even more democratized, the luxury ecommerce trend will undoubtedly grow. That tired narrative that claims luxury retail will never go digital is being proven false thanks to more brands investing in their online presence and online marketplaces like Farfetch and Net-A-Porter continuing their rise as top retail players. The internet is where the customers are—that’s true whether they’re in the market for a $60 dress or a $5,000 dress.

3 Ways to Expand and Keep Up in Today’s Hyper-Competitive Retail Environment

By Ben Glassman,

Despite the retail industry’s current tumultuous atmosphere—or perhaps because of it—many retailers are focused today on expanding their operations and scaling their businesses. As we touched on in a recent post on the RevCascade Blog, the changing tides of the retail industry mean that companies need to be aggressive and proactive in 2017, not defensive and stagnant.

Having said that, not all growth efforts are created equal. In today’s uncertain retail environment, there is no one-size-fits-all formula for retailers, and the costs to test and fail are higher than ever. Out of the most common ways for retailers to expand, then, which is the least risky and most likely to have the best ROI? Let’s consider the options.

Expanding brick-and-mortar (opening new stores):

Opening a new brick-and-mortar location can be a worthwhile endeavor, depending on your particular business and the purpose of your new store. There are obviously dozens and dozens of variables, but if we consider the start-up costs alone, it’s apparent that opening a new storefront requires significant overhead and is inherently risky from an ROI perspective.

Here is just a sample of those start-up costs, with input from personal finance website The Balance:

  • Labor costs, including store employee wages, insurance, benefits, and training
  • Building/real estate costs, including rent, deposit, renovations, insurance, fees and permits through the city, state, and federal governments
  • Storefront/equipment costs, including utilities, office supplies, POS software, accounting software, store fixtures, furniture, computers, cash registers, security cameras, etc.
  • Inventory costs, including initial inventory to sell in the store on opening day, as well as regular replenishment of stock and warehousing costs
  • Logistics costs, including warehousing and delivery personnel and equipment if delivery is offered

Clearly, getting a brick-and-mortar store up and running and profitable is a multi-faceted process with significant upfront costs. There are multiple one-time fees, like the storefront/equipment purchases, but there are also substantial long-term, recurring costs to consider, like paying your employees and holding and distributing inventory.

While opening new storefronts has always been somewhat risky, the state of retail today makes it even more so. 8,600 storefronts are projected to close this year, and closures have already risen 200% YOY in 2017. The necessary long-term investments in brick-and-mortar are riskier than ever today.

“Simply put, it all comes down to productivity,” said CoStar Portfolio Strategy’s Director of Research Suzanne Mulvee in a recent report by the firm. “Retailers on average are generating fewer sales per square foot than they did during the decade leading up to the recession.”

This is especially true for department stores, as we can see in the table below. According to the research firm Fung Global Retail & Technology, five out of the seven major department store chains they analyzed for a recent report experienced declines in sales per square foot over the past 10 years. Sears’ stores saw the biggest drop in productivity: -124% over the period.

dept-stores-store-closures

While in some cases the risks of taking on brick-and-mortar square footage may pay off, in general, opening physical locations for selling purposes is quickly becoming an antiquated way to grow retail businesses. Most stores are seeing plummeting store productivity, and as the graphs below show, brick-and-mortar as a whole is rapidly losing its influence over retail. While in-store sales still account for about 90% of U.S. retail sales, that number is shrinking every year. Ecommerce sales, meanwhile, are seeing exponential growth.

in-store-sales-as-a-percentage-of-retail-sales

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As an alternative to opening stores and holding/selling inventory, many of today’s most innovative companies are experimenting with lower-cost physical presences solely for customer experience and marketing purposes (if they’re opening physical spaces at all). That’s due to the crucial understanding that physical stores are not necessary for the sale and distribution of goods. Amazon, Alibaba, and eBay have been shining examples of that fact for years now—Alibaba of course became the world’s largest retailer (ecommerce or brick-and-mortar) last year.

So for those considering expansion through brick-and-mortar: yes, there is still absolutely a place for physical retail, but the overhead and upfront cost of opening new stores is risky in today’s economy and, in most cases, is simply not necessary if your goal is to sell more merchandise.

Expanding ecommerce store:

As is the case with opening physical stores, there are many ways to expand your online wholesale operations and many variables to consider when trying to do so. Your upfront costs are obviously going to differ depending on what stage your business is in and what ecommerce infrastructure you already have in place.

Regardless of those considerations though, the biggest overhead cost when expanding online wholesale operations is almost always inventory. Whether you’re an already-successful retailer with $100 million in annual revenue or a young startup, if your ecommerce site runs on a wholesale model (buying in bulk from suppliers and then reselling to the end consumer), inventory will carry inherent risk.

There’s a lot to like about the wholesale model. For one thing, it’s familiar—most multi-vendor retailers have wholesale experience of some sort. For another, it lets retailers feel like they’re in better control of their merchandise because they have physical products on hand. However, holding inventory is risky and is also extremely limiting from a product assortment standpoint.

There are many ways in which retailers can be harmed by holding inventory. The crux of the problem, however, is that retailers essentially spend millions of dollars up front to build their inventory, only to then face the very real danger that they might not be able to sell that merchandise or have to sell it at a loss. One other consideration is that physical stock can be damaged, lost, or stolen, resulting in major hits to their bottom lines. In 2016, in fact, the total U.S. retail economy lost an astounding $48.9 billion worth of products due to inventory shrink alone.

But that $48.9 billion figure doesn’t even take into account all the money that retailers lose when their inventory simply lacks consumer demand and is unsellable. It’s a totally unavoidable problem for retailers who operate via wholesale—when they buy from their suppliers up front, it’s impossible for retailers to be one hundred percent certain which items will appeal to consumers and how much of each SKU to buy. Inevitably, some items fail to sell, and they then become “dead inventory.”

“Dead inventory” is the omnipresent, silent killer of all wholesale retailers, as a recent article in The Business of Fashion explained. Due simply to the nature of the model, retailers who sell via wholesale, whether they’re brick-and-mortar, online, or both, face the inherent risk of unsold stock and devastating financial losses. As an industry standard, only about 60 percent of a retailer’s initial inventory will be sold at full price, according to BoF. Of the remaining 40 percent, the retailer will hopefully be able to liquidate some portion, but the remaining unsold items are lost to “dead inventory,” a category that costs the U.S. retail industry an additional $50 billion per year.

While wholesale is risky for retailers, the greatest benefit of the model is that retailers’ margins are generally better than they are in the alternative model, dropshipping. Due to the fact that they’re incurring the inventory risk and bringing the supplier huge revenue in one fell swoop, retailers are usually permitted to buy product at very low wholesale prices compared to the price they’re actually going to sell it for on their shelves and websites. Though it varies significantly by industry, by company, and even by product, it’s not uncommon for wholesale retailers to realize margins of 30-40 percent.

Expanding via online wholesale requires less overhead than opening a new brick-and-mortar store, is on the right side of the ecommerce boom, and offers favorable margins for retailers. However, those benefits might be outweighed by how risky the model is due to its inventory commitments, and by how limiting it is from a merchandising perspective, something that we’ll go into further below.

Expanding dropship operations:

By its very nature, dropshipping, the fulfillment method wherein a consumer places an order with the retailer but the manufacturer/brand is the one to ship the order directly to the consumer, is the least risky method of expanding sales for retailers. For one thing, running an online dropship program (also known as a “marketplace”) can be done with zero upfront physical costs. Rather than opening a store and facing all the costs mentioned above, retailers who choose to dropship can sell thousands of items online without expending any physical capital.

Of course, that freedom from labor costs, real estate costs, storefront costs, etc. is also a huge benefit of running an online wholesale shop. So why is dropshipping less risky than wholesale? It comes back to inventory. As was noted above, selling wholesale requires taking on inventory, which inevitably threatens your profit margins. Dropshipping, on the other hand, requires no such inventory risk. A dropshipping retailer does not keep any physical products in its store – it simply transmits order information from its website to the brand, which ships it on to the customer. This of course means that the retailer faces almost zero overhead, but it also means that the retailer is not limited at all with respect to the diversity of products it can sell.

In addition to inventory shrink, devaluation of supply, and dead inventory, wholesale is a severely limiting option when it comes to product assortment and profit maximization. A wholesale retailer can only sell the products and the inventory that it has in stock. That means that if the retailer only has 1,000 square feet of storage space, the only items that can be sold are the physical pieces in that space.

Retailers who dropship, meanwhile, have an unlimited supply and mix of products to offer their customers, making merchandising a breeze and fully optimizing their profit-generating potential. They can form partnerships with countless brands who dropship, curating the perfect mix of products for their customers.

RevCascade client Maisonette is an excellent example of this. The new online marketplace for luxury kids’ merchandise has no brick-and-mortar presence whatsoever, houses its entire team in one small Brooklyn, New York apartment, and runs a 100% dropship business that takes on zero inventory. That means that its website can offer a dress from a boutique in Paris right alongside a rug from a designer in Los Angeles, all without taking on any physical inventory and its associated risk. Maisonette just closed a $15 million Series A funding round in May.

What’s crucial to remember about dropshipping, though, is that you do not necessarily have to be a dropship-exclusive marketplace company like Maisonette to successfully engage in the practice. In fact, those “traditional” retailers who wish to expand their online sales to compete in today’s tough retail environment are the perfect candidates for launching a dropship program. Dozens of such “traditional” companies, RevCascade client Crate & Barrel included, have launched their own dropship programs in recent years as a way to add a new, lucrative, low-risk revenue stream to their existing business models. Their efforts have helped them stay competitive while others have fallen victim to decreasing market share at the hands of ecommerce giants like Amazon, eBay, Wayfair, and Overstock.

Dropshipping is not entirely risk-free though. If brick-and-mortar expansion’s primary risk is the upfront costs of physical capital, and online wholesale expansion’s primary risk is inventory, dropshipping’s primary risk is logistics and technology. There are countless moving parts behind every successful dropship program, and communication between a retailer and its dozens of suppliers can be a data nightmare. Retailers need to make use of the best marketplace technologies, otherwise they’ll risk lost orders, misrepresented inventory, and unhappy customers.

Thankfully, however, there are effective dropship solutions out there that can streamline entire dropship programs/marketplaces and allow retailers to sell thousands of products through their extended aisles. As was mentioned earlier, dropshipping does generally have margins that are more favorable for brands/suppliers than for retailers, given that the supplier still carries the burden of inventory risk. However, the risk for retailers is almost non-existent, and they can immediately expand and see positive ROI, something that’s of the utmost importance in today’s retail environment.

Conclusion:

In today’s economy, every retailer is looking for high-impact, scalable growth initiatives with as little risk as possible. When evaluating each of the three methods of expansion above, it is clear that each method has its pros and cons. But overall, though online wholesale selling may have better margins on a SKU-by-SKU level, launching a dropship program or marketplace—or scaling the operations of an existing one—is the most ideal, turnkey, flexible, and risk-free way for retailers to grow their businesses.

Retail’s Demand Driven World

By Ben Glassman,

In a classic 2008 Fred Wilson post called Trading Analog Dollars For Digital Pennies, the legendary venture investor quotes then NBC Universal CEO Jeff Zucker, who famously warned the media industry “that we do not end up trading analog dollars for digital pennies.”

Fast forward to today and you have the Wall Street Journal detailing the struggles facing the traditional retail industry in J.Crew’s Mickey Drexler Confesses: I Underestimated How Tech Would Upend Retail. Entrepreneur and thought leader Richie Siegel brilliantly breaks down how retailers have miscalculated changing consumer behavior in Mickey Drexler and the death of a supply-driven world, a must read for every retailer. Siegel writes that retailers “are caught in the middle of one of the most profound but little talked about shifts in the retail and apparel space: the shift from a supply driven world to a demand driven world, and the cultural change needed to thrive today.”

This shift parallels the struggles faced in the early 2000s by newspaper publishers and media companies who also miscalculated the impact the internet would have on their industry. For their entire existence, newspapers enjoyed a local monopoly. If consumers in that local market wanted news, in an analog world the local newspaper had a lock on their attention—and a lock on advertising dollars in that local market. Then along came digital, globalizing access to news and sending the newspaper industry into freefall:

newspaper-ad-rev

Fred Wilson captured this perfectly in his 2008 analog to digital post: “Analog and digital, it turns out, are polar opposites. Analog has physical costs which lead to scarcity driven business models. Digital has zero marginal cost (or near zero) which leads to ubiquity driven business models.”

We are now living in a time where the traditional retail industry is experiencing its own freefall in the face of the analog-to-digital shift—a transition that has not been kind:

josh-demandworld2

Just like the media industry struggles, these traditional retailers are struggling because they are failing to adapt and embrace the opportunities that this new demand driven era has presented. For starters, their analog business has significant physical costs. By far, the biggest cost on every retailer’s balance sheet is inventory. Retail buyers talk about “open to buy”—their budget to buy more inventory—which is a constraint. Physical shelf space is another constraint. With inventory costs and limited shelf space, retailers’ sales are limited by how much inventory they can buy and how quickly they can sell it.

When the internet came along, nearly every retailer treated their ecommerce site just like another store. They applied their analog business model to a digital world, limiting their upside.

Contrast that with today’s biggest internet retailers in the world. The combination of Alibaba, Amazon’s Marketplace, and Ebay alone generates over 40% of global ecommerce sales. These retailers are winning by applying a new strategy in the demand driven world.

While Amazon justifiably dominates the business headlines, it’s worth noting that last year Alibaba became the biggest retailer in the world. Not ecommerce retailer. Retailer. Bigger than Amazon. Bigger than Walmart. Alibaba will generate more than $500 billion in retail sales this year. Alibaba became the biggest retailer in the world by deploying the ultimate demand driven world strategy.

More recently, vertical online retailers are experiencing comparable success thanks to adopting similar strategies. Think Wayfair, Zalando, 1st Dibs, and Etsy, or rising ecommerce players like children’s clothing, accessories, and homegoods retailer Maisonette or jewelry retailer Ice.

Wayfair, for example, generates over $4 billion in retail sales by selling 8 million products from 10,000 manufacturers. In a demand driven world Wayfair dwarfs the online sales of every traditional homegoods retailer.

More specifically, though, Wayfair’s massive product assortment is what truly differentiates it. Most traditional homegoods retailers, constrained by their analog business model, sell less than 1% of the products available to sell on Wayfair. In fact, many are less than 0.1%. In a demand driven world, Wayfair is winning because they offer 8 million products while traditional homegoods retailers offer 8,000.

Similarly, Amazon dwarfs department stores and specialty stores with their product assortment. ScrapHero estimates that Amazon offers nearly 400 million products.

The biggest ecommerce retailers all share one common thread: They carry no inventory.

josh-demandworld3

In this shift from analog to digital, from a supply driven world to a demand driven world, what should traditional retailers big and small do in order to thrive in the future? The answer is quite simple: In a demand driven world, retailers must think differently about their supply.

What to Make of Amazon’s Monumental Grocery Play

By Ben Glassman,

Today’s announced $13.7 billion acquisition of supermarket chain Whole Foods has established Amazon as a major player in the grocery business. More importantly, however, the deal has established ecommerce as a major player in the grocery business and has further blurred the line between digital retail and physical retail.

Amazon has been trying to make its mark on supermarkets for some time now, most notably through its grocery delivery service AmazonFresh, which debuted all the way back in 2007. With this purchase of Whole Foods, Jeff Bezos’ company has finally made significant headway in that endeavor.

The deal makes sense for Amazon for a number of reasons.

First and foremost, it moves Amazon fully into the grocery industry, a sector whose annual U.S. sales are in the ballpark of $700 to $800 billion. With Whole Foods, Amazon picks up one of the largest grocery chains in the world, with over 460 stores in the U.S., Canada, and Britain and about $16 billion in annual sales.

Secondly, it gives Amazon access to dozens of brands who may not be selling on Amazon.com today. In addition to the more obvious assets that Amazon will gain control over, there is tremendous value in being able to immediately establish relationships with new brands who are selling in Whole Foods stores. Obviously, Amazon has hundreds of millions of products on its site. In the grocery category, however, it is noticeably lacking in its number of SKUs and number of brands. This acquisition should help fix that. A representation of Amazon’s current dearth of grocery merchandise can be seen in the graph below, courtesy of the website ScrapeHero.

Credit: Manu Chandra Prasad, Co-Founder, ScrapeHero

A third reason why Bezos has to be thrilled about this deal is that Whole Foods has a significant consumer footprint with high-income households. While Whole Foods’ investors were growing impatient with the company’s lack of growth, it remains extraordinarily popular, which, coupled with its high-priced merchandise, is a welcome revenue boost for Amazon in its ongoing competition with the increasingly ecommerce-focused Walmart.

Finally, and perhaps most importantly, this deal is so monumental for Amazon because of the 460+ brick-and-mortar Whole Foods locations that have just come under its control. Amazon has been taking steps in recent years to establish physical sites that would help expand its influence over the entire retail industry and improve its already legendary supply chain and fulfillment capabilities. This acquisition is a giant leap in accomplishing that goal. Now that it’s associated with hundreds of Whole Foods stores, Amazon can increase same day delivery options for Amazon.com customers and offer physical items to foot-traffic shoppers.

Convenience and product assortment are perhaps the two most important qualities for consumers when they shop; Amazon is now primed to stand head and shoulders above the competition in that respect.

What does that mean for the rest of the retail world then? If you are a grocery retailer—or any retailer for that matter—it means that optimizing your product assortment and supply chain has become that much more important. A dropship program or marketplace is the best way to do that, especially when considering both scalability and overhead cost. Not everyone has the resources to go out and buy a multi-billion-dollar grocery chain and ramp up their SKU mix and logistics capabilities that way. Through dropshipping though, you can drastically (and easily) improve both of those parts of your business, selling thousands more SKUs and facilitating their shipment direct to the consumer.

A dropship marketplace helps insure your consumers can access every product that would be attractive to them, increases operational efficiency, and provides you with the ability to thrive in the future. Amazon and Whole Foods are an undeniable force to be reckoned with, but retailers can remain more than competitive.

Summer 2017’s Top Furniture and Home Goods Trade Shows

By Ben Glassman,

Summer’s finally here, which means that furniture and home goods buyers and designers will be criss-crossing the country and braving the heat while they attend some of the year’s most anticipated trade shows. With the holiday season quickly creeping up on those of us in the retail industry, it’s important to get out there during Q2 and Q3 and make some connections that will help give your business a boost for the rest of 2017.

Whether your company is strictly focused on brick-and-mortar or you’re involved in ecommerce and dropshipping, the trade shows on this list all offer patrons and exhibitors some excellent opportunities to forge new, profitable business relationships.

June 8 – June 11, 2017, Tupelo, MS.

Tupelo is back! After an ultra-successful Winter Market back in January, the Tupelo Furniture Market will once again play host to 500+ exhibitors and 30,000+ furniture buyers from all over the world. One of the premier furniture trade shows since 1987, Tupelo Furniture Market is always a “who’s who” of the industry, featuring top furniture brands, as well as the biggest brick-and-mortar stores and hottest ecommerce retailers.

June 12 – June 14, 2017, Chicago, IL

A staple in the interior design trade show circuit since 1969, NeoCon bills itself as the largest commercial interiors show in North America. Needless to say, if you’re in the commercial interior design space, this is absolutely not to be missed. There are probably better options if your business is more focused on home décor, residential furniture, and kitchenware, though.

June 21 – June 27, 2017, Dallas, TX

In typical Texan fashion, the Dallas Total Home & Gift Market is an utterly enormous event with thousands of retailers and manufacturers in the home décor, gifts, gourmet, housewares, accessories, and lighting industries. Dallas Market Center has multiple permanent showrooms and markets held all year round, but the June Dallas Total Home & Gift Market will have temporary exhibitors as well, plus unique resources across all product categories.

July 11 – July 18, 2017, Atlanta, GA

Like Tupelo Furniture Market and Dallas Market Center, AmericasMart in Atlanta holds a few events every year. Their July market is one of the largest in the industry, featuring more than 8,000 brands across all categories of gifts, home décor, and furnishings. The July market will feature the International Gift & Home Furnishings Market from July 11 – July 18, as well as the International Area Rug Market from July 12 – July 16.

July 30 – August 2, 2017, Las Vegas, NV

The sheer size of the Las Vegas Market is enough to warrant a visit. World Market Center Campus, which hosts the Las Vegas Market in downtown Vegas, is a 5 million square-foot venue with 40 floors filled to the brim with furniture, bedding/mattresses, lighting, housewares, textiles, home décor items, and general gift products. It’s hard to overstate just how massive the event is and just how many business opportunities can come from simply attending it.

August 19 – August 23, 2017, New York, NY

This summer, NY NOW will arguably be retail’s most anticipated event on the United States’ East Coast. For five days, the Javits Center in Manhattan will host an anticipated 24,000+ retailers and 2,300 exhibitors, all of whom fall into at least one of the event’s three “Collections”: Lifestyle (Baby +Child, Gift, Personal Care + Wellness, Personal Accessories), Home (Home Furnishings + Textiles, Tabletop + Gourmet Housewares, Accent on Design®), or Handmade (Designer Maker, Global Design, Artisan Resource®). If you’re in any of those businesses, we expect to see you at NY NOW!

Make sure to shoot us an email to let us know which trade shows you’ll be attending, and subscribe to our blog below for more insights on everything from furniture to ecommerce to dropshipping. See you on the trade show floor!

Embracing Retail’s Changing Landscape Through Innovation

By Ben Glassman,

“When you have a difficult time like this, it’s when people come up with the best ideas.”

That was a quote from former J.C. Penney, Federated Department Stores, Barney’s, and Neiman Marcus CEO Allen Questrom, who, in a recent CNBC article, was referring to the perceived crisis we’re seeing in the retail industry recently.

Describing today’s retail climate as “a difficult time” might be a bit of an understatement. In 2016, 18 retailers filed for bankruptcy. So far in 2017, between January and May, an additional 14 retailers have filed for bankruptcy. According to a S&P Global Market Intelligence report, there could be another 10 publicly traded retail companies at risk of filing for bankruptcy this year too. See the chart below for some of the most high-profile retailer bankruptcy filings in the past 14 months.

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However, Mr. Questrom is exactly right in his assertion that times like these are when great ideas are born. Yes, the industry is changing. Yes, it can be unsettling to watch the likes of Payless, The Limited, and American Apparel fold; but changes in shopping habits, tastes, and technology have actually opened the door for innovation. In general, those companies that have struggled the most in recent years are the same companies that fail to innovate and evolve to meet the consumers’ new demands. The companies that have thrived, on the other hand, have embraced those new demands and technologies. Perhaps most importantly, they’ve embraced the rapid growth of ecommerce.

Today’s successful companies have avoided the “retail apocalypse” by investing heavily in ecommerce. Knowing that an online presence is necessary to reach today’s consumer, companies like Toys ‘R UsLVMH, and, perhaps most notably, Walmart, are launching ecommerce-specific strategies and moving their businesses forward rather than remaining stagnant and becoming irrelevant.

In a recent Harvard Business Review interview, Walmart CEO Doug McMillon heavily espoused this notion of progressing with an emphasis on ecommerce rather than simply meandering along with the status quo. “We can’t have some [Walmart employees] live in yesterday while others live in tomorrow… we need people to lean into the future,” said McMillon. “The reality is that customers want everything. They want to go online to see hundreds of millions of items and to find anything they’re looking for.”

Walmart, the undisputed champion of big-box brick-and-mortar retail, has for years been the world’s largest retailer by almost every possible measure. Success has been synonymous with the company for decades. Yet McMillion says unequivocally that his focus is not to simply maintain the company’s success, but to pioneer the modernization of the business and guarantee its survival in the increasingly digitized retail landscape.

When asked about his priorities since being brought on as CEO in 2014, McMillion stated, “Walmart is more than 50 years old, and it was built with a purpose. But the world is changing quickly. When I moved into this role, it seemed clear that the board wanted me to have the mindset that I might be in the job for a while. They said: ‘The company needs to go through quite a bit of change. So don’t just run it. Don’t just maintain it. Get it prepared for the future.’ That’s what we’ve been trying to do.”

The board has to be happy with what McMillion and his team have been able to accomplish so far, as their new strategies and ecommerce-focused acquisitions have paid off tremendously. Earlier this month, Walmart released its Q1 earnings report and blew Wall Street away with its success—specifically in terms of ecommerce. It’s ecommerce sales rose 63 percent in Q1, a significant increase over the 29 percent growth shown the previous quarter. Furthermore, the company’s online gross merchandise volume rose 69 percent in Q1.

One of the most widely-embraced methods that retailers like Walmart are using to move their ecommerce forward is through launching dropship programs and marketplaces. There’s a reason why Amazon and Wayfair, two of the most successful retailers in today’s economy, base their businesses around the dropship model. As a retailer, marketplaces or dropship programs are, by their very nature, a low-risk way to dramatically grow their ecommerce footprint. Without taking on any additional inventory or associated overhead costs, retailers can rapidly increase the number of SKUs on their site, expand product assortment, and scale ecommerce revenue.

For traditional brick-and-mortar stores hoping to avoid being retail’s latest casualty, launching a dropship program is a great way to either add an entirely new revenue stream or provide a huge boost to existing online sales revenue.

As Allen Questrom says, “we go through these cycles, and obviously this has been a challenging period. It’s the Internet. It’s understanding the millennial customer.” To be sure, change can be scary, and heeding Questrom’s suggestion to embrace the internet and “understand the millennial customer” is easier said than done. But sticking your head in the sand and refusing to innovate will undoubtedly lead to failure. We’ve already seen it 14 times this year. To succeed in 2017 and beyond then, retailers need to be proactive and progressive, whether that’s through launching a dropship program or some other ecommerce-related initiative.

Why Dropshipping Could be Your Key to Consumers’ Hearts

By Ben Glassman,

As a retailer, launching a dropship program can help your company in numerous ways. You can increase your number of SKUs, infinitely add to your inventory, and expand product assortment. What’s more, dropshipping drastically mitigates the inventory risk and overhead costs associated with traditional wholesale ecommerce models. All that is a direct benefit to your bottom line and by itself could be reason enough to implement a dropship model. However, another valuable aspect of dropshipping, one that’s less immediately obvious, is how beneficial it is for your customers.

While immediate profit is certainly important, customer satisfaction and loyalty is what ultimately determines a company’s long-term success. A dropship program helps guarantee that satisfaction and loyalty.

Dropship programs benefit customers in that they allow retailers to offer them the best possible assortment of products from the best possible brands. Retailers, especially specialized, mid-to-high-end retailers rather than big-box stores, have a voice and a totally unique point of view that consumers embrace and base their purchases off of. A customer might go to Opening Ceremony because she expects to find a certain curation with brands that speak to the Opening Ceremony voice. Alternatively, she might go to Nordstrom for an entirely different, unique point of view. An extended aisle dropship program enables the retailer to extend that point of view, offering consumers a broader selection of brands and products they could not otherwise carry in their stores. The consumer is treated to a much richer shopping experience in this case, one that is not limited from a product assortment or inventory standpoint and is fully representative of the retailer’s voice.

Take, for example, RevCascade client Maisonette, a retailer whose recently-launched online marketplace features the top boutiques and brands in kids’ clothing and furniture. Co-founders and fashion industry veterans Sylvana Durrett and Luisana Mendoza Roccia went with a dropship model for their company because they knew it was the best way to get their customersaccess to thousands of products from around the globe. Sylvana and Luisana, who are moms themselves, launched Maisonette because they wanted to help parents shop the most fashionable kids’ boutiques from cities around the world—Paris, London, Los Angeles, New York, etc. With a dropship program, they could do exactly that, giving their consumers a far more expansive product mix to choose from than would ever be possible under a traditional wholesale model.

This is why dropshipping is the ultimate win-win-win when it comes to retail. It’s a win for both retailers and brands in that they can increase product mix and sales with no additional inventory or overhead, and it’s a win for customers, who get access to more unique products from the retailers they love. If it’s executed properly, and with the right technology, dropshipping can be a game-changing strategy that radically boosts retailers’ revenue and strengthens their identity and standing in customers’ minds.