Photos: Fantatics; Instagram/@trainingcore101
NRF 2021: Fanatics’ CEO showcases benefits of vertical commerce
During a keynote session at the NRF Big Show, Doug Mack, Fanatics’ CEO, discussed how the online fan gear leader’s vertical commerce model helped the company make fast adjustments during the pandemic to deliver record sales and profits in 2020.
Fanatics over the last decade shifted to emphasize vertical commerce in order to manage the uncertainties involved in selling fan gear. Demand is often created by “in the heat of the moment” events such as sports team wins and losses, as well as player trades, injuries and drafts. Mr. Mack said, “The traditional retail model is a bit challenged trying to serve the sports market.”
The vertical commerce model embraces three major elements.
The first is being a digital-first company that taps data capabilities to understand fan preferences and tailor messages. For instance, Fanatics sent email pitches to Crimson Tide fans to celebrate Alabama’s seventh national championship and not to fans of other teams, such as Ohio State. Mr. Mack said, “I think of our company as the ESPN of commerce, where there are many events that happen in a day that you need to stay updated on a daily basis.”
The second element of vertical commerce is “having vertical rights,” or being able to quickly produce merchandise internally through licensing arrangements with more than 300 leagues and teams without having to turn to third parties. About half of Fanatics’ mix is now manufactured internally. Mr. Mack said, “It just takes cycle time out.”
Finally, the third is having a “really agile supply chain,” both offshore and onshore, enabling product to be finished close to demand.
The agility was particularly beneficial during the pandemic in enabling Fanatics to quickly adjust plans for inventory, promotions and marketing, as well as to shift overnight to develop face masks.
The CEO noted that Fanatics didn’t come up with the three capabilities. He cited Amazon.com as an elite digital company, the expansive vertical production creation capabilities of Nike and the agile supply chains supporting fast-fashion players, such as Zara and H&M. He added, “We’re the first company that put all three pieces together against the market, where being agile is most important.”
Discussion Questions
DISCUSSION QUESTIONS: What lessons can traditional retailers glean from the success of Fanatics’ vertical commerce model? What’s the key to agility for traditional retailers?
Poll
BrainTrust
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
David Adelman
Founder, The Adelman Group
Having control of all aspects of manufacturing and distribution was the key to agility for Fanatics. Some retailers, those that also own manufacturing, can emulate this same approach and leverage their agility to stay ahead of the competition.
All the talk about agility and speed is meaningless if your executives and managers are not empowered to make informed decisions based on quality and timely data. A diverse and high-quality management team with a bias for action and adaptive learning is necessary to execute on the agility and speed that come from vertical commerce
If quality and timely data is key to action and agility further down the supply chain, for traditional brick & mortar retailers, I’d still say that omnichannel commerce is the first criteria to making informed decisions. So many retailers are still surprised to find that shoppers that buy in-store, online or everywhere are not always the same people.
“Agility” will definitely be a key ingredient for any company moving forward. Vertical integration is the force behind agility today. It allows total control of the supply chain, leading to fewer interruptions while taking advantage of opportunities in a more timely factor than competitors.
Having full control of your brand gives your company the flexibility required to adjust to current consumer demands. It also prevents customer churn by controlling supply, providing customers with just-in-time delivery to take advantage of current trends.
The Fanatics success model starts with digital first, but this in reality is data first. In this case, agility is based on the understanding of customer needs and being able to fulfill in real time. For most retailers, the digital first and supply chain are concepts that can be transferred, not all retailers need or have the pre-relationship requirements of Fanatics. Agility still comes back to the data and using the data to make decisions on demand — to purchase product, resources and delivery. The key is using the data to make rapid changes to orders and ripple these changes instantly throughout their supply chain.
Fanatics was a customer of mine when I worked for an anti-counterfeiting and licensed product authentication vendor and I’m not surprised at all. Their ambitions were clear — they always pushed us to provide their orders at higher quality with lower lead-times. In their industry, time-to-market is critical when taking into account the explosive nature that drafts, championships, and seemingly random events can have on the popularity of licensed merchandise. Vertical integration not only lowers their marginal cost, but it also increases their time-to-market, and makes a ton of sense here.
First lesson to learn here is continuous improvement. Retail changes by the hour and the winners are the ones who have mastered the current moment and are ready for the next. Having a forward-leaning approach to Communications, Merchandising and Supply Chain is always a winning combination. But, there is also an element here of capturing the right audience at the right time in the most relevant way. No doubt this requires constant vigilance but record sales and profits is a worthy pay off.