There’s a new in-crowd of brands hitting the retail scene, disrupting and causing an industry shift toward the idea that “small is the new big”. New digitally-native and niche brands are the future of retail. I predict these retail industry newcomers will continue to thrive in 2019 and many of these brands will see explosive growth this year.
Online engagement is the primary focus for many of these up-and-coming brands. According to The New York Times, retailers that succeed are more likely to embrace online and enhanced customer experiences. Data shows that 54 percent of all retail small businesses are either exclusively online or have an online presence. When looking just at new businesses, that percentage climbs to 63 percent.
The growth of these new brands is beginning to outshine and take business away from traditional retailers. A study by Retail Dive found that digitally-native brands plan to open over 850 stores in the next 5 years. In comparison, Sourcing Journal reported that barely two months into the year, retailers are already planning 1,800 store closures in 2019 in the apparel sector alone. Store closing announcements totaled nearly 7,000 in 2017, with over 5,000 doors actually closed. The rest of those doors were closed in 2018.
Companies will need to rethink their ways of working and transform themselves to adapt to this shift. Whatever the channel, a focus on what shoppers want is key. Many legacy department stores are finding themselves on unstable ground, with the pressure from not only direct competition but also from small brands and retailers that are taking advantage of their strengths to gain ground.
How can a small, digitally native brand challenge a multi-billion dollar traditional retailer? These newcomers are growing share because they’re engaging with the customer in a way that’s very authentic. By concentrating on a specific product category, a small company can become an expert in that category. This makes it easier to listen to what the customer wants and cater to their needs in creating those products. Since digitally-native brands typically start without a physical store footprint, the barriers to entry are lower and they can spend the majority of their time focused on product, brand and service.
Brick-and-mortar retail isn’t dead, but it is evolving. As these small, niche brands are gaining success, they are beginning to take next steps using the clicks-to-bricks method. The path of this strategy is to launch with a direct-to-consumer model, build a strong brand presence, and accelerate growth through social media connections and a strong social interactive community. Once successful online, the brand’s authenticity and popularity are recognized and they invest in brick and mortar stores to create a physical presence to stand out from the crowd. With so many stores closing, there are plenty of pop-up or short-term lease locations to choose from. Warby Parker followed this method, beginning as direct-to-consumer and now operating 88 retail locations across the United States.
There’s a rise in brands like Greats, a successful Brooklyn-based luxury shoe company that built a niche brand fueled by the rise of sneaker street style popularity. They created a vertical men’s and women’s footwear brand offering high quality product and sold it directly to the consumer at a value price with the idea of building a better sneaker for less. Greats swiftly became an instant “classic”, selling out most styles within 90 days of their launch.
As niche brands are rising in popularity, many are beginning to offer a sustainable or philanthropic edge to set themselves apart from the competition. Frank & Oak’s brand is built on using methods that minimize impact on the planet. The company prioritizes recycled fabrics and responsible practices through their supply chain to make quality clothing that lasts. Naadam is on a mission to democratize Mongolian cashmere by translating transparency into real sustainability, offering better quality at better prices. Allbirds created an entirely new category of shoes inspired by natural materials, with wool fabric made specifically for footwear. Warby Parker’s philosophy is that the whole story begins with you, alleviating the problem of impaired vision. For every pair of glasses sold, a pair is provided to someone in need, and over 4 million pairs of glasses have been distributed to date through this initiative.
These nimble, niche brands are the future of the retail industry, and the smart traditional retailers are finding new strategies to partner and participate in this growth to keep skin in the game and not be left behind. Walmart’s acquisition of Bonobos is one example. Other examples include Nordstrom’s launch of Nordstrom Local and Macy’s launch of Market @ Macy’s.
Walmart learned to evolve, acknowledging the value of owning, instead of competing with, small startup brands that resonate with a younger customer. They turned attention to acquiring and developing brands to fuel the big-box retailer’s quest for more upscale, digitally savvy shoppers. One year under the Walmart umbrella, Bonobos has become an example for how a digital brand can keep its “cool factor” despite being owned by one of the biggest and arguably least cool retailers.
Nordstrom rolled out Nordstrom Local, a convenient drop-in hub for service and style, offering perks and more personalization to keep their competitive edge and their reputation for top-notch customer service. Nordstrom Local delivers the Nordstrom experience, but offers it a little closer to home. Their convenient hub for online order pickup, onsite alterations, fast and easy returns, free personal stylists and more is now open in a few of their California locations.
The Market @ Macy’s is a one-of-a-kind pop up marketplace featuring a mix of up-and-coming and established brands located in select Macy’s locations. It aims to offer customers fresh, new finds aside from the regular brands offered at their store. Each brand is featured for a limited time only, creating an exclusive edge and a sense of urgency for shoppers to get it while it lasts. It brings emerging brands that might typically live online into a curated, in-store pop-up to drive store traffic with the freshness these new brands have to offer.
With retail sales hitting a record of $6 trillion in 2018, according to the U.S. Census Department, 2019 is going to be the year for digitally-native and niche brands. These small, niche companies garner a lot of attention and are gaining millions of brand followers. Their success is based on appeal to a small, specialized section of the population. They’re listening to the customer and providing products that are exactly what customers are looking for. Now the question is: what are you doing to compete and stay relevant in the always-evolving retail industry? Traditional retailers that don’t find ways to understand and meet the needs of their customers will die a death by a thousand cuts as these nimble, niche players continue to chip away at their market share, one product and one customer at a time.
