As executives in the retail and technology industries converged at the Los Angeles Convention Center this week for the National Retail Federation’s annual Shop.org conference, the common theme running from discussion to discussion was not so much centered on gee-whiz moments around new technology as much as it was affirmation today’s competitive advantage is held by brands that matter. Trying to compete operationally with behemoths such as Amazon, Alibaba or Wal-Mart doesn’t make sense, but competing on brand sure does.
Yes, Amazon beats most when it comes to offering value or speedy delivery. That’s no question, said Rebecca Kaden, a partner at venture capital firm Maveron.
“If you ask a customer about what does it say if you shop at Amazon, it says nothing,” Kaden said. “There’s this other place in the market for brands that say something about who we are and in every generation and every economic environment, customers have always flocked to community. These customers, when you say ‘I wear this,’ it says something about who they are and I think that we’re only going to see that rise.”
“Individuals want to be part of meaningful change,” said Beautycounter founder Gregg Renfrew. “We are increasingly focused on businesses that do well while doing good. People want to be part of a movement.”
In the case of design retailer Minted, which crowdsources the designs it sells in the form of stationery or home goods on its site, the community is the movement and also the merchant.
“Is it possible to start a retail brand that can stay fresh forever,” Minted founder and chief executive Mariam Naficy said of the question at the root of what her company is trying to do. “How do you do that? The founding idea is use the crowd. Use the power of the people to stay fresh forever. Use crowdsourcing.”
Building community is not something Amazon has figured out how to do yet, pointed out Max Levchin, founder and chief executive of financing firm Affirm.
“For us, we really focus on the customer and the brand and brand loyalty,” said Rachel Blumenthal, founder and chief executive of kids’ subscription box company Rockets of Awesome. “That is one of the areas I think Amazon either doesn’t value as much or spend as much time on.”
That’s a competitive advantage that can lead to swift sales growth, but there’s also an inherent challenge in building community because niche groups can’t be everything to everyone. That’s why the industry has seen many digital brands with meteoric rises stall once they near the $100 million annual revenue mark.
“There are graveyards full of promising e-commerce companies that plateaued somewhere around $100 million and then started feeling the downward pull of a lot of the realities of e-commerce,” said Tradesy founder Tracy DiNunzio. “We’ve been to the valley. We’ve passed through it and it was a very hard phase for us after we crossed. It was a little higher than $100 million but there was a phase for us.”
“It plays to the fact that a lot of ideas have a natural ceiling,” said Peloton cofounder and senior vice president of performance marketing Graham Stanton. “So if your idea is, we’re doing this very high-touch thing that only so many people are willing to pay this much… for sure there’s a need to pivot and reinvent at a certain point and a lot of companies flame out when they chase growth at all costs. For Peloton, we don’t disclose our revenue numbers, but you can probably back into the fact that we’re comfortably north of [$100 million] with no plateau in sight, but there will be one.”
Stanton said the business has certain factors built in, such as a subscription model, that makes the reality of an eventual plateau in sales slightly less scary.
While the focus at industry conferences often centers on much-talked-about, fast-growing digital brands, legacy players can still compete on the same basis of using brand to their advantage, but their challenges partially arise in existing corporate cultures and just how quickly they’re willing to make changes.
“It is our responsibility to figure out how do we compete, maneuvering in and out of that environment,” said DSW Inc. Roger Rawlins, who during his Shop.org talk compared Wal-Mart and Amazon to King Kong and Godzilla.
NRF president and chief executive Matthew Shay said it’s about having the right mindset and a culture that allows for transformation.
“Part of it is creating the right culture, making sure you have the right time, making sure you have the right employees, making sure they have the right skills and making sure they’re trained the right way,” Shay said.
James Rhee, executive chair and ceo of retailer Ashley Stewart and founder and president of FirePine Group, calls what he does venture distress.
“I go into legacy companies and I venturize them with money and I change the culture. I’m surprised that most venture funds are not going into existing companies; change the board [and] change the culture. Why isn’t that happening more?” Rhee asked his fellow panelists on a discussion around venture capital. “It’s not a turnaround; it’s a venture mindset.”
In the case of Maveron, the firm’s not built to do a lot of heavy lifting, Kaden said in response to Rhee’s question.
“It requires an overhaul, that kind of culture and to create that kind of change,” she said. “I think we’re seeing some of our companies do that. We have companies that are acquiring assets, lists, pieces of a legacy retail business and incorporating them into what they’re doing and they’re a start-up, fast-paced, innovative culture but leveraging the institutional knowledge and the customer awareness that these legacy brands have.”
“It’s hard to change culture,” said Hans Tung, a managing partner at GGV Capital. “When you have the right team, the right model and they get it, they move so fast. I can talk to any one of these founders at 1, 2 in the morning. They’re still working.”
The same can’t necessarily be said of many executives at legacy companies, Tung said. “That drive,” Tung said, “that passion of ‘I want to disrupt something, build something, change something,’ that’s very innate [at start-ups].”
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