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: What lessons can traditional retailers glean from the success of Fanatics’ vertical commerce model? What’s the key to agility for traditional retailers?