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BrainTrust Query: Wholesale-to-Retail Heading Hyper-local

August 15, 2011

Through a special arrangement, presented here for discussion is a summary of a current article from the newmarketbuilders blog.

In a recent blog article for the Licensing Industry Merchandisers' Association (LIMA), I introduced the concept of "proto-ships" - stores, such as Duane Reade's recently-opened mega-store in Manhattan, that are one part prototype and one part flagship. I predicted that more retailers would begin to leverage retail locations as live labs, as well as increase the number of experiments that are being conducted in each location at any given time.

For a growing number of wholesalers, owned retail has become the ultimate learning lab, a chance to wrest control of distribution and display destinies away from retailers and gain insight that can be fed back into both the retail and wholesale side of the business. In a recent example, HMX Group, a New York-based apparel manufacturer led by lifestyle designer Joseph Abboud, has announced that it will debut a new retail concept, Streets, which will showcase all of its men's brands in one location. HMX's growing portfolio of brands includes Hickey Freeman, Hart Schaffner Marx, Coppley, and others, many of which will be included in Streets' assortments. According to Mr. Abboud, ninety percent of each store's merchandise will come from HMX's brands, allowing the company to leverage its own factories and achieve 30-day turnarounds on key trends - a rate that puts them right up there with vertical fast fashion retailers like Zara and H&M, but with higher-quality, branded goods. The relatively staid menswear market hasn't traditionally relied on pulling trend triggers; Streets has the potential to speed up the long, slow cycle of male style and introduce a new generation of male shoppers to trend-right merchandise.

According to Women's Wear Daily, HMX CEO Doug Williams has described the concept as "a retail laboratory that will allow us to bring everything under one roof…It will help us figure out what works and what doesn't." He gave a nod to HMX's retail partners, stating that they do an amazing job of selecting among the brand group's offerings, but noted that the company's traditional wholesale model doesn't give it the opportunity to "exploit some of the things we really believe in."

The Streets model is exciting on a number of levels, as it foreshadows the evolution of the wholesale-to-retail model and represents the next turn of the screw in hyper-localization. Each of Streets' locations carries its own place-branded moniker and the first two, Streets of Georgetown and Streets of Beverly Hills, are slated to open in September (the company is currently scouting sites in other urban U.S. markets, including New York, Boston, and Chicago). Mr. Williams said that the inspiration for Streets sprang from a desire to have stores that create "intimate relationships with the communities in which they reside." By attaching its brand to well-known streets and neighborhoods, Streets is also leveraging a form of co-branding that doesn't involve royalties or permissions.

Starbucks' attempt at neighborhood-branded retail quietly came to a close when it shuttered its 15th Avenue Coffee & Tea location in Seattle early this year, stating that no additional "learning environment" cafes have been planned. I was closely watching the concept since it seemed to promise many of the breakthroughs that Streets will now likely bring to fruition. Unlike HMX, Starbucks' core model is retail. However, like HMX, Starbucks crossed over into complementary models (wholesale and licensing), making its products available in wide retail distribution. Had Starbucks stayed with the idea, it would have been able to leverage the resulting hyper-localized insights, not only in its own stores, but also with retail partners.

Discussion Questions:

Discussion Questions: Will other wholesalers follow in HMX's retail footsteps and, if so, will they share what they learn with their retail partners? Which retailers will have the most to lose if Streets and other individually-branded concepts gain traction?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How would you grade HMX's Streets concept?

Comments:

The hyper-localization idea is a logical, but important, extension of the sort of continuous retail experimentation smart retailers have pursued for a long time. Notable example: Walmart.

As for the laconic male fashion cycle -- I wish HMX would just leave it alone. But then, no one has ever referred to me as a "metro-anything"....

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Ben Ball, Senior Vice President, Dechert-Hampe

I just have to chuckle when I read about wholesalers attempting to go retail. You know, you secure a good location, put your stuff in it and voila! You're a retailer. Sounds like a good idea, right? Think of what you'll learn. But the reason most manufacturers don't go retail is because when they actually sit down and try to figure out how they're going run the stores, it gets very complex and very expensive, very quickly.

When I say "run" a store, it's not just operations. It's I.T., it's logistics, it's buyers, it's staff, it's H.R., it's security, it's maintenance, it's plan-o-grams, it's markdowns (believe it or not, everything doesn't always sell), it's support ... in short, it's an entire organization behind that storefront.

Why doesn't Pepsi have 1,000 stores? If anyone could do it, they could. And if any retailer would be threatened by manufacturers going retailer, it'd be grocery stores. But they live together symbiotically. There's a reason for that.

One of my favorite moments came during an interview with the CEO of a larger refinery who just bought a C-store operation. When I asked him why they purchased them, he replied, "it's retail, how hard can it be?"

Two years later they sold if off. Enough said.

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Lee Peterson, EVP Creative Services, WD Partners

Let's not confuse wholesalers with manufacturers, nor their respective propensity for success as retailers. Typical wholesalers have names that are for the most part, unknown to consumers. Manufacturers have brand recognition which can definitely help establishing a retail presence. Most of these successes are in the non-food segments, however. Wholesalers need to be wary of establishing new brands, since competition has never been tougher.

With so many failed retailers recently, all aspects of retail operations must be taken into account, way beyond "location," "assortment" and "price."

Past failures of those coming into retail from outside the industry only prove that ignorance kills.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

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