Wholesale curtailed. Is retail’s favorite model faltering?
Through a special arrangement, presented here for discussion is a summary of a current article from the Spieckerman Retail blog. The following article synopsizes key takeaways from Episode 21 of the Spieckerman Speaks Retail podcast.
The wholesale model has been driving retail for decades. Today, a mini-movement is underway, as brands like Nike and Under Armour announce pullbacks on wholesale relationships.
Late last year, Nike announced that it would withdraw from a handful of middle-market regional players like Belk and Dillard’s. The exit followed Nike’s move in November 2019 to end direct distribution to Amazon.com. In February of this year, Under Armour announced that it will be closing 2,000-3,000 wholesale accounts.
Why are they doing this? Because they can.
What’s really going on is a power shift. These days, the platform owner has the power. Sometimes the platform is a retailer, sometimes it’s a brand. And retailers that are just places that sell brands no longer have a compelling platform, particularly if everyone else carries the same brands.
Nike has built a physically- and digitally-connected brand empire that powers its direct-to-consumer (DTC) sales and brand loyalty. As its platform amps up, wholesale relationships have become a liability that compromises the Nike brand, price control and profitability.
With its platform at full strength, Nike is able to eliminate intermediaries, many of whom were just retailers that sold brands rather than being brands themselves.
Although it’s in the earlier stages of platform building, Under Armour’s decision has a similar rationale. For now, Under Armour has the brand power to back away from some wholesale relationships. But if its DTC aspirations pan out, Under Armour will have the platform power to break ties with many more.
Adding some intrigue to the story, Nordstrom is pulling off its own retreat from wholesale and selectively shifting to a concession model, although it has the customer experience platform and brand equity to pull it off.
The curtailing of wholesaling will accelerate as more brands exercise their options, build out their platforms and strive to take ownership of their destiny (and data). This movement will fuel brick and mortar expansion as brands trade intermediary-based relationships for DTC models.
Even so, very few brands will abandon wholesale completely. The retail scene will look more like a hybrid situation for the foreseeable future. Wholesale isn’t played out just yet.
DISCUSSION QUESTIONS: Is the wholesale model in soft goods retailing at odds with direct-to-consumer initiatives? What criteria should drive brands’ decisions to shift away from wholesale relationships?