Beyond marketplaces and recommendation engines, there is an emerging cast of online retail companies that are producing private label direct-to-consumer brands from scratch for things you know you want, but don’t know where to (easily) find. In the process, they are circumventing existing retailers, creating new supply chains, and introducing new approaches to building a brand.
Online, even more than offline, gaining exposure and recognition for a new retailer is a critical early challenge. Because you can easily follow a link to make a purchase without taking too much note of the site you’re purchasing from (this exacerbated by blogs and Pinterest), a new site needs a clear and easy value proposition. I see this happening around three cases:
- Categories – It is fairly easy to know where to look for an item that falls in a specific category; categories have been the basis for traditional department store taxonomy which has been replicated online on most commerce sites from Bloomingdales to Bluefly. However, in certain categories, existing brand loyalty is low, making room for new online brands. For example, every major apparel designer has licensed its brand to bed linens, but the difference between a Donna Karan and Kate Spade fitted sheet means very little. Once you’re in the linens category, how do you choose which brand to buy?
Online-only brands that are breaking into the market include Warby Parker (eyeglasses), Flint and Tinder (men’s underwear), and Everlane (t-shirts). To take advantage of low loyalty for incumbents to become the consumer’s brand of choice, however, these brands need a hook. Flint and Tinder briefs are made in America. Warby Parker eyeglasses and Everlane tees are lower-cost; in the case of Warby Parker, the company also gives a pair away for every one you buy.
- Occasions – Retailers have tended to think more about what they’re selling than the occasion for which their customer is shopping, making browsing by occasion difficult. Some new online retail sites have taken an occasion-first orientation; instead of showcasing dresses or suits, they provide an expert answer to the question, “What should I wear to [insert occasion here]?” Essential to their ability to build expertise is the pairing of content with commerce to drive users to the brand and further influence purchasing. Content can provide consumers with answers to questions like, “What looks good right now?” and “How should I wear it?” If the retailer uses content credibly, it can earn a privileged position in advising consumers on shopping for that occasion.
Examples of occasion disruptors include Quincy (women’s work wear) and Rent the Runway (designer formalwear). (While Rent the Runway’s inventory currently consists of other designer brands, it wouldn’t be too big a stretch for the company to move into making its own line as well.) Not surprisingly, both have excellent blogs and use social media to further support their expert credibility.
- Lifestyle – Lifestyle is not a new approach. Urban Outfitters is a lifestyle apparel retailer. So is Brooklyn Industries. The advantage for online-only lifestyle brands is a customer acquisition one; where there are already engaged communities online, word can spread even more quickly. The spoils will go to the brands that can do it as a part of those existing communities, and with authenticity. Holstee is one example. The company started with t-shirts and wallets and expanded from there. Still, the Holstee Manifesto and its appeal to consumers is at least as important to the company image as its merchandise. (I’m not sure exactly who their target community is, but they likely ride bicycles.)
In all cases, supply chain disruption by selling directly to consumers can make the market price cheaper, but it doesn’t always have to. In some cases, consumers don’t have an intuitive benchmark for value, either because there isn’t a frequent enough purchasing cadence (I know roughly how much a quart of milk should cost, but I’ve only bought curtains once), or because there hasn’t been a clear explanation for value (the price range for a set of 300-thread count sheets on Amazon is between $24 and $165).
I think we will see many more of these companies– online-only brands that streamline supply chains and set up shop as retailers themselves, selling directly to consumers to address narrow gaps in the marketplace. I also think that, for some, these their early points of entry will be just the thin edge of the wedge, a way to kick-start growth on the way to becoming much bigger retailers that sell both private label and other brands. As they acquire (repeat) customers and grow, including by scaling new retail innovations (e.g., sending multiple sizes or styles for consumers to test at home), these new retail companies may be able to compete against the biggest of them.