Photo: Nordstrom
Why should DTC brands sell to Nordstrom?
At Nordstrom’s recent Investor Event, a panel of brands explored the benefits of selling to the retailer in an increasingly direct-to-consumer (DTC) world.
Emma Grede, Good American’s CEO, explained that the inclusive denim brand launched at Nordstrom. She said, “For us, it was actually fundamental to being able to build a brand at scale from the beginning because we knew we had this 50-door platform to go into from day one.”
Nordstrom’s experienced team has also helped Good American build out its DE&I (Diversity, Equity, and Inclusion) platform and advise on category extensions. Ms. Grede said, “Some of the best ideas have come from Nordstrom merchants that are just sharing what’s happening in the business at large.”
Richard Hayne, CEO at Urban Outfitters, said Free People started as a wholesale business and that Nordstrom was an early customer. Nordstrom continues to help Free People reach preferred customers.
He said, “The Free People customer is in her mid-to-late 20s through mid-40s, is relatively affluent and loves fashion. That’s a direct overlap with the Nordstrom customer, and there are many customers that we would find either difficult or impossible to reach with our own stores and our own digital business. And so partnering with Nordstrom is a wonderful way to expand that reach.”
Anish Melwani, North American president of LVMH, noted that the luxury house was able to reach customers shopping “closer to home” at Nordstrom’s stores during the pandemic as dwindling tourist traffic impacted major cities.
A bigger benefit is seen coming from insights. Mr. Melwani said of Nordstrom, “What we really value is customer intimacy. And your ability to understand the customers that are walking into your store and what they want, what they’re looking for. And therefore, help us understand that at that really local micro level.”
For Nordstrom, brand partnerships have become less transactional, more collaborative and more transparent. Peter Nordstrom, president and chief brand officer, said, “We used to feel like we had this proprietary secretive information that we couldn’t possibly share, but it feels like the more that we’ve been kind of open kimono on stuff as we collaborate, it really only comes back to benefit us.”
Discussion Questions
DISCUSSION QUESTIONS: What are the benefits for brands selling through wholesale channels, given today’s heightened emphasis on direct-to-consumer? How have brand partnerships changed for Nordstrom and other department stores?
Poll
BrainTrust
Direct-to-consumer (DTC) is much easier for established brands that have strong brand awareness than it is for new brands that need to create brand awareness. For new start-up apparel brands it is extremely valuable to partner with a well respected brand like Nordstrom as it offers instant brand exposure and enables customers to try on items in the stores.
A DTC business can still have brand-building exposure in a brick-and-mortar retailer. But it would be a short list of stores doing it and Nordstrom would probably be at the top of the list, along with a couple of specialty stores both in the mall and off mall. The benefits that physical retail bring to e-commerce are now well established. So when Nordstrom uses the word “collaborate” I take that as authentic and as a solid basis for a win/win relationship.
Retailer collaborations for DNVBs bring a very different value proposition than they do for large established brands like Nike, which has recently been aggressively pulling out of multi-brand retail. I suspect we will continue to see emerging and start-up brands collaborate with retailers that have aligned customers and values while more established brands will continue to retrench.
DTC continues to gain steam among brands looking to cut through the labyrinth of retail and wholesale. However there are benefits to approaching established partners such as Nordstrom if the brand’s value proposition aligns with the retail guests. Despite lower margins, the retailer’s reach, supply chain logistics, and benefit of broader brand awareness will continue to have its place.
Most insurgent DTC brands discover that they hit a wall on profitable growth without expanded physical distribution, largely owing to a.) the cost of online customer acquisition b.) the reality that many customers prefer shopping in brick-and-mortar locations and c.) particularly for apparel, the high cost of product returns. In addition to the “endorsement” of a well known upscale retailer, partnering with Nordstrom can address all these issues, helps e-commerce and may cover trade areas where their own store would not make economic sense. For department stores they get improved differentiation and reach new customers. Done right, it’s a remarkable strategy.
Why should they not do this? They get more exposure, a higher profile, an established value and incremental sales.
Especially for a start-up, do we really care where a sale comes from? As long as the value proposition in-store is the same as online, I see no reason not to try it. Why should how we reach our customer be restrained by silo thinking?
Brands who don’t have the resources to support the full range of operations that direct-to-consumer requires can either sell through a retailer like Nordstrom to leverage their e-commerce platform and fulfillment operations, or pay a third party like Shopify or Amazon for their e-commerce platform and fulfillment operations. The wholesale retailer route is often more advantageous because you have a better chance to control your brand messaging and customer experience and gain access to local brick-and-mortar. Unless you have funding to develop your own brick-and-mortar shops or pop-ups, direct-to-consumer brands risk having to compete on price against every other brand on the internet. Their customers will pay more for a Nordstrom experience. Even with a boatload of funding it would take years for a DTC brand to build that same customer base.
Not all brands can get in at Nordstrom from day one. So it makes sense to start off as a DTC with a low cost of entry. Once the brand builds some following, they should then expand through the retail channel to broaden their exposure. Case in point, Harry’s built a solid brand as a digitally native subscription service, now they sell at Costco and Target.
This is a win-win relationship for DTC brands and Nordstrom. Why? Successful DTC brands reach a growth plateau from pure e-commerce and soon realize they need stores to increase customer acquisition at a lower cost than digital-only. that gives them two options, 1.) open their own stores in and off-mall, and 2.) partner with a retailer that has stores in the right locations.
Option 1 requires a specific set of knowledge and skills that most DTCs lack. Option 2 is building the right relationships with the right retail partners. If your DTC brand is in apparel, Nordstrom is probably at the top of your list. They may not have the highest store count, but it’s likely as a DTC you are targeting an overlapping demographic with Nordstrom. Plus, this will deliver a great learning experience and data set that DTCs can use to better understand their customers and expand their growth plan to either include more retail partners or to take the plunge with owned stores. Also, with the owned stores option, DTCs have to work with mall operators and the unfortunate truth is that most of those operators still don’t understand DTCs and how to work with and entice them to enter their malls. Nordstrom is much more likely to understand how to be a partner with DTCs.
On the Nordstrom side, this provides yet another way for their stores to be differentiated against other department stores. Recently I’ve attended a few Gen Z panels via Clubhouse where every time they are asked, the panelists name Nordstrom as a favorite store. when asked about department stores in general, the majority usually respond with “why bother?” That tells you everything a DTC targeting younger consumers needs to know about working with Nordstrom!
There are clear advantages for DTC to sell outside of the traditional wholesale model. However there are also competitive advantages to leveraging the brand equity, infrastructure, supply chain, e-commerce platform, supply chain, and fulfillment options that a partnership with a traditional mall-based retailer such as Nordstrom offers.
Additionally, in this collaboration model, both Nordstrom and the DTC brands will have a greater understanding of their customers through the shared data and analytics structure. Ultimately this will enable the DTC startup brands the scale, size, and most importantly, access to a broader range of consumers via physical and digital shopping channels.
For a DTC to maintain an aggressive growth trajectory, they must consider select wholesale channels that align and enhance their value and brand propositions. Nordstrom is a unique opportunity to reach more affluent and discerning shoppers that value quality, exclusivity, and service. As long as the relationship benefits both parties and the customer, then this model makes sense.
There are benefits of selling wholesale versus DTC. The most compelling benefit is the fact that the store is capturing people who like to browse. It takes advantage of experienced buyers who know what sells and what doesn’t. The customer response of brick-and-mortar gives brands a more nuanced perspective than DTC. Thus the Nordstrom legacy is the authenticity that brands need in today’s Amazon economy.
A brand is not defined by the channel it sells on. However, the benefits to selling wholesale versus your own standalone retail or DTC is exposure to new customers — a department store like Nordstrom has a very loyal customer that will just walk the shop floor to explore or experience some of the best customer service I have ever seen.
This can also go very wrong if the brand is not aligned with the values, aesthetic, or customer profile. For example, when brands are not sitting with adjacencies that don’t align with the same type of shopper. This happens when the retailer doesn’t really understand what they’re buying and brands don’t understand that sitting beside another brand that is always on markdown will devalue their own brand.
As a former merchant that bought wholesale brands FOR a department store as well as the merchant of a brand that SOLD TO department stores, the opportunities for collaboration and partnership is directly related to profitability.
As a buyer, partnerships used to really just mean better margins and exclusivity. You call the shots. There is no real relationship.
Today partnerships mean so much more. Nordstrom and Target are great examples of how partnerships also drive collaboration and exposure, where they can leverage each other’s messaging, customer following, and exposure to drive more engagement.