Over the past four years, big retailers like Nordstrom and Target have been partnering with popular “digital-first” brands like BaubleBar, Ali & Jay, Julep and Cupcakes and Cashmere.
Why? Because they need to keep up in a competitive market and continuously attract the newest wave of young, digital-savvy customers — or Millennials, as you may know them.
Today’s hottest up-and-coming fashion and beauty brands have already captured the hearts (and wallets) of Millennial shoppers by mastering branding, mobile-first experiences, loyalty programs, customer service, influencer programs and the big three social media platforms: Snapchat, Facebook and Instagram.
For big-box retailers, the struggle to remain relevant and innovative is top of mind, especially as veteran retailers like Macy’s and J.C. Penney continue to shut down hundreds of stores every year. This environment is why Target and Nordstrom are turning to partnerships with emerging “digital-first” brands that have young and loyal customer bases.
Are Partnerships With Established Retailers Good for Emerging Consumer Brands?
They can be, if they are strategic and well-executed. Having a constant presence in a physical retail location or on a 24-hour online property like target.com — can create stronger brand awareness and drive demand.
Pop-up shop experiences are still resonating with young shoppers. These temporary boutiques give customers the opportunity to try on or touch a product previously only available online, before making the purchase.
But having the opportunity to add massive offline expansion to a digital brand’s retail mix can quickly fuel sales, so you must be prepared. Before you take on the world of real-world opportunities and its complications, here are four things to consider before partnering with a big retailer:
1. Is this retailer a brand DNA match?
Digital entrepreneurs work hard to build a brand. Will your retail partner’s brand mesh with yours, and make sense to your customers?
Nordstrom is renowned for outstanding customer service. Would your brand align with their customer-centric culture? How about at Target, where you can expect more and pay less?
Casper, the mattress-in-a-box start-up, recently partnered with home furnishings retailer West Elm to sell Casper mattresses in 77 stores. This is a great example of matching the Casper brand to the offline world. First, both are focused on Millennials. And not only does Casper reach more customers in real life, West Elm can enhance the shopper’s experience by providing everything that goes in a bedroom — from beds to blankets to lighting.
2. How are your margins?
Many digital-first brands have not built in margins for a third-party retailer. In fact, many share with their customers that they can provide lower prices because they have eliminated the middle man. Can you remain profitable offline or do you need to adjust your pricing?
Entrepreneurs must also consider costs of doing business in the channel. These can include fixture costs or promotion-related costs from expected markdowns at the end of the season, or marketing costs such as weekly circulars and seasonal catalogs.
3. Can you keep up with inventory and manufacturing needs?
When you expand your business model from online-only to partnering with Ulta Beauty for example, your inventory and manufacturing processes need to accommodate customers in hundreds of stores. Can you access the working capital needed to stock all participating locations with adequate inventory across the appropriate number of products? Before signing a national partnership, many founders consider opening a new line of credit with a bank or seek outside capital. Many also add new members to their executive team or board to help them navigate what’s ahead.
Online retailer ModCloth, for example, hired Matt Kaness as chief executive officer from Urban Outfitters. Kaness understands online and offline specialty retail, and is now working to expand ModCloth retail stores and international growth.
4. Can you dedicate staff to the partnership?
You need to have at least one person who is 100 percent focused on managing the retail partnership. You will also need to determine if you need to hire staff to help facilitate that bond with the customer in any physical retail locations. For example, if partnering with someone like Sephora, you may need to have a team that can train salespeople in the store.
More Partnerships Ahead
We see this retail trend continuing. We’re going to see more experimentation in the way large retailers communicate and deliver online and offline experiences to their customers. We’ll certainly see more partnerships with emerging brands.
We expect to see a bigger focus from retail giants on brand transparency, technology, mobile shopping and social media. The key won’t be in just partnering with these smaller, digital-first brands, rather it will be in learning from them.
The time is now for online fashion and beauty brands to map out their goals for 2017 and beyond. If you land a meeting with Nordstrom or Target, do you understand what a partnership could mean for your brand and to your business?
Carefully consider the four questions above to assess your growth capacity and make an action plan. If you’re willing to take big steps to succeed, together you and your new retail partner can reach new customers everywhere they are.
Sonya Brown is general partner of Norwest Venture Partners.