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Change the channel: the growth of digital concessions

Concessions

As high street store sales decline, brands are turning to online concessions to get their product in front of consumers

Bricks-and-mortar concessions have long been an important channel for fashion retailers. They offer brands an opportunity to reach wider audiences, and can draw in shoppers who may not otherwise visit the host retailer. But, as department store chains struggle and online growth continues apace, brands are increasingly looking for new partnerships in the digital space – and retailers are expanding their third-party platforms to meet the demand. 

Businesses are quickly waking up to the appeal of digital concessions, which allow brands more control over their stock, prices and ranges than a wholesale arrangement, while the host retailer earns a commission and broadens its offer. Done well, this model can boost sales for both parties. 

High street stalwart Next offers more than 400 third-party brands online under its Next Label banner. When it published its half-year report in July 2018, just over half of its brand partners used a concession model – up 30% on the year before. 

Next says the benefits are clear: “Although we make lower net margins on the commission model, we encourage our brand partners to adopt it because we believe it will generate higher sales growth.”

Zalando partner program

Zalando has 270 brand partners

The rising appetite for online concession space is also evidenced by the success of German etailer Zalando’s Partner Programme, launched in December 2017. It sells almost 2,000 labels. Of these, 900 are offered by its 270 brand partners, which include Nike, Superdry and The North Face. 

Premium brand Hugo Boss is exploring the advantages of this model. In October, it ramped up its partnership with Zalando – which was already its biggest online wholesale stockist – and unveiled a new concession for the Boss brand. Hugo Boss now manages the presentation and distribution of Boss through the Zalando site.

It says this was “an important step forward in taking more control over the distribution of our brand in the online space, from pricing to presentation to fulfilment. Digital concessions are a win-win for both sides: we offer a unique product range and a product expertise, [while] etailers offer the digital infrastructure and expertise.

“We see strong growth potential in multi-brand portals – these platforms generate traffic that we cannot generate by ourselves. And we want our customers to be able to buy our brands wherever they look for them.”

Either you become a platform, or you become part of one 

Belen Sienknecht, Zalando

Belen Sienknecht, head of sales and key account management for Zalando’s Partner Programme, says: “Via the programme, brands are able to integrate their stock directly into the Zalando fashion store. The resulting broader assortment and higher product availability extends Zalando’s customer base, while brands retain control over the assortment, prices and brand representation.

“We see brand partnerships as a great opportunity, as it allows us to serve different audiences with different products and services, as part of our larger platform strategy. We believe online is going in this direction – either you become a platform, or you become part of one.” 

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Lifestyle brand Joules, meanwhile, reported an 11.7% increase in revenue over Christmas, driven by a rise in online sales that it partly attributed to successful partnerships. As well as a concession with Next, last autumn Joules moved from a wholesale to a concession model at John Lewis & Partners, both online and in stores. It also has “fulfilled by” and marketplace partnerships with Amazon and Zalando respectively.

Joules chief executive Colin Porter says digital concessions appeal because they are flexible. Explaining the switch from a wholesale model at John Lewis, he says: “For us, it was a way to take more control of our brand, from everything to the product proposition and really feeling we were able to able to put our best foot forward, to improving stock availability. We’ve enjoyed some good growth.

“With a wholesale model, you depend on whether there is money [in the partner’s budget] to be able to buy and, if there isn’t, then it doesn’t matter how strong the product is. A concession model allows us to manage the total retail proposition and fulfil from our distribution centre, topping up what is selling well and recalling product if necessary. It is about flexibility.”

Beware of risks

Sofie Willmott, retail analyst at research company GlobalData, says brands are increasingly “piggybacking” on the growth of online pureplays, but warns that there are some risks: “A brand needs to ensure that its own service is as robust as that of its chosen third-party partner, otherwise its own weaknesses [such as slower or more costly delivery] could be exposed.”

The issue is that you’re not in charge of the relationship with the customer

High street footwear retailer

She adds: “Brands have less autonomy on a third-party website and it is harder to get key brand image across. It is a bit risky for brands – they need to make sure they keep something back to drive own-website sales.”

The head of one high street footwear retailer agrees that brands should not enter into digital partnerships too quickly: “The issue is that you’re not in charge of the relationship with the customer. Who executes what, and when?

“If you’re a brand that’s really hot, then you don’t want to do anything that corrodes your margin or your brand identity. It’s very easy to diminish a market position for a brand, but hard to take a brand to a higher position.”

This is echoed by the chief executive of one high street womenswear retailer: “Like department store partnerships, it is all about carefully selecting the right partner to enhance customer experience and access to the brand. It’s great exposure if you get it right, and should ideally enhance brand. But the wrong partner will damage it.”

Anthony Thompson, the outgoing chief executive of lifestyle retailer Fat Face, says digital concessions can give smaller brands exposure they would not otherwise receive, but agrees that the relationship “has to be appropriate to your DNA”.

Fat Face has had a concession on Next’s website since 2016, and launched with Zalando in late 2018. 

“We are a very small fish in a very big pond,” says Thompson. “Yes, we have a great website, but we miss customers all the time. There are people who have never been exposed to the Fat Face brand – the relationship with Next was to see how to meet a wider audience. We’ve been really pleased and I don’t think it has cannibalised our core business, but even if it did, it would be worth it to reach a broader audience.”

He adds that the tie-up with Zalando is an opportunity to test the water in new markets: “We will see if there is a consumer in Europe who is interested in our brand, is attracted to our brand, and see whether it’s worth building a physical location there or opening bespoke websites in France or Belgium.”

With the right partner, online concessions let brands can engage with consumers they may not encounter via their usual channels, and expand into new markets without the high cost of putting in place all the associated infrastructure. The costs are losing some control of the customer journey and potentially cannibalising sales from other channels – it is up to individual brands whether they are worth it.

 

 

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