Retail innovation: Are emerging brands disrupting the traditional retailer model?
This year the pressure and struggle have escalated for ‘traditional’ retailers who rely on a physical storefront, a centralised distribution model, and a ‘one size fits all’ sales approach. According to USA Today, of the 125 restaurant or retail companies tracked by S&P Global Ratings, about 30% have at least a 1-in-2 chance of defaulting on their debts this year.
They are struggling not only because of forced physical shopfront closures, but also because this type of model no longer serves the consumer and their multiple touchpoint purchase journey or ‘legacy’ concepts of personalisation. Many consumers are now shopping online-only, and online sales grew nearly 50% at the peak of the pandemic.
Newer ‘emerging’ brands — however, those born online and operating across channels — are demonstrating they are far more agile and can adjust their retail models to suit the unique circumstances in which they find themselves. With 73% of consumers now omnichannel shoppers, this is vital.
It is these emerging and new brands that are now driving customer expectations and disrupting the traditional retail model, with strategies such as seamless online to offline (O2O) integration, experience-driven models, customer centricity, agile fulfilment and delivery, and a direct to consumer approach.
Experience-driven retail innovation and personalisation
Customer experience, whether in-store or online, is now digitally-driven. In-store purchases are significantly influenced by digital touchpoints and vice versa. Studies show 81% of shoppers research a product online before buying it in a physical store.
So the online and offline shopping experience needs to be cohesive, personalised, and experience-driven. More brands are using technology to link online and offline to offer the same feel, regardless of channel. Emerging brands are using technology to offer customers personalised online experiences, with ideas like virtual appointments using video to give fashion consultations, much like they might do in person, and using AR to facilitate online fittings or place a piece of furniture in a home.
Retailers are also evolving the purpose of brick and mortar stores. Culture Kings is a fantastic example of this. The physical store is there to offer a customer experience, without the expectation of sale at that point. Shoppers in stores can get a haircut, play some basketball, play video games and watch YouTube, while surrounded by the latest merchandise. Its stores are increasingly known as a place to ‘spend a few hours’ rather than as only somewhere to shop.
Flipping the traditional retail model
Since the industrial revolution, companies have been operating in the same way with relatively little evolution: They develop a product, mass-produce it, and market it so it sells. In today’s consumer saturated marketplace, this leads to unsold inventory and waste.
However, in recognition of this unsustainable model, the 2 Chainz fashion brand has flipped this traditional merchandising model on its head. Instead of creating gear and hoping it will sell, 2 Chainz instead uses real-time social media feedback to create and sell products.
As an emerging brand, 2 Chainz recognises the consumer is unwilling to purchase branded merchandise ‘for the sake of it’, which results in an overstock of inventory nobody wants. It recognised the old model of laboriously designing t-shirts, building inventory, and marketing the product simply no longer works.
The 2 Chainz merchandising machine leverages a formula that reverses the traditional merchandising process by first gauging which designs are most popular among an artist’s social media followers, iterates based on fan feedback, and manufactures only products that appear guaranteed to sell.
This lets it create popular t-shirts on demand. Winning designs are immediately uploaded to 2 Chainz’ Shopify Plus site which automatically scales to meet the spikes in traffic that often accompany uniquely engineered product drops.
Since debuting, the 2 Chainz store has been home to several ultra-successful reverse engineered product drops, including the ‘Ugly Christmas sweater collection’ depicting Santa Claus engaged in the popular 2 Chainz Dab dance, which generated $2.1 million in sales.
Delivery and fulfilment
Delivery and fulfilment have been long due to a shake-up. Few start-up brands can afford a centrally located warehouse filled with thousands of square feet of inventory, and few customers are now willing to wait weeks for the delivery of a product they have paid for.
New brands have been forced to get more creative and innovative, while serving the customer desire to have everything delivered – fast. Square footage in physical stores is now suffering from a lack of traffic, but instead is being repurposed by some brands as fulfilment centres for both delivery and click & collect.
As an example, Heatonist is a global hot sauce brand with thousands of devotees. Based in Brooklyn, New York, the company sells small-batch, all-natural hot sauces sourced from independent brands through Heatonist retail shops and its online storefront.
During its early growth phase, the company had little success finding a third-party logistics (3PL) provider to reliably handle its fulfilment. Over 2017 and 2018, Heatonist handed over much of its fulfilment operations to two separate 3PL companies, but in both cases, problems arose. Customers began to complain about receiving items they didn’t order, and bottles were being packaged in envelopes without any padding.
Heatonist knew a better, more scalable solution was needed for it to reach the ambitions its founder had for the brand. Instead of one fulfilment centre, it needed to have centres all across the country.
With Shopify Fulfillment Network (SFN), Heatonist set up shipping centres in Pennsylvania, Texas, and Nevada, which allowed Heatonist to guarantee three-day shipping for the first time. Having dependable, efficient fulfilment has allowed the company to increase its sales volume considerably, and quickly take advantage of any unexpected sales spikes.
Guaranteed three-day shipping with improved customer experience and personalisation, no longer having to warn shoppers on its website about potential fulfilment delays, and the freedom, finally, to focus on building its brand — not logistics — gave Heatonist the edge it needed to serve its customers in the way they demanded.
Digital disruption and the ‘direct to consumer’ model
Many brands were used to the old model of manufacture and delivery to retail stores and malls for mass sales. However, the pandemic has forced many retailers to innovate fast and move to more direct to consumer models.
As an example, stalwart brands like Lindt and Heinz had no model to sell to consumers when shopping centres were closed in 2020 and had to quickly set up direct to consumer (DTC) sites.
Even before the pandemic hit, many emerging brands understood the power and potential of the DTC model and how technology could enable this model to scale fast. As an example, Koala is an Aussie brand with an international presence that started purely as a DTC model.
Koala opted for a headless commerce approach—the decoupling of its front- and back-end systems to offer a more customised customer experience. This is in contrast to a traditional approach, where frequently changing content is gated behind software engineers who need to edit HTML, commit code, test, and perform website releases to ship copy changes.
To tailor the way shoppers interacted with what they saw on its website, the company uses a third-party CMS, in combination with Shopify Plus and its API.
It also offers an engaging experience through its progressive web app (PWA). The company’s PWA is the customer-facing portion of its web presence. It allows for new web pages, products, and content to be deployed much faster, providing Koala with the flexibility to offer the right experience, at the right time, to different customer segments across any device.
Now, Koala reports its back-end solutions are delivered 3X faster by its development team, its decoupled content and code means writers can write, and coders can code independently of one another, and the company boasts faster site response times are achieved by transferring application programming interface (API) calls to its server. All this adds up to a DTC brand that can personalise offerings to customers online.
Innovation will be key to future success
Emerging brands have had to get creative to compete in retail since the year dot, and creativity has led to success well beyond the traditional retail model. It is now these brands that are leading the way for traditional retailers to similarly enjoy success beyond the pandemic.