*guest editorial by Matt Falcinelli, Founder/CEO of TheDrop.com
The recent withdrawal of Nike from Amazon, something many of us knew was eventual, reminded me of one of the reasons we launched TheDrop.com in the first place.
Formerly, 'Big Retail' controlled the broader Streetwear market, being the primary point of sale, owning the customer relationship and aggregating all the data (not that many were terribly organized in this regard). Once the rise of the influencer took shape, Big Retail no longer influenced what the youth consumer purchased and therefore brands didn't need to be as aligned with big retailers. The cause and effect equation is now dominated by the relationship between the Influencers <> Brands <> Consumers. To a few larger brands like Nike, Adidas, etc who had enough product lines to be able to segment low-to-mid level collections onto Amazon, the opportunity presented one of immediate reach. Meanwhile, these brands were learning the finer points of DTC (Direct to Consumer) Logistics, Demand Planning, and other aspects not core areas of expertise of a wholesale biz. Now that the larger players have honed their internal DTC competencies, they can exert more leverage, as recently demonstrated by Nike’s exit of Amazon.
In the 175B global 'Streetwear' industry - a culmination of fashion ranging from Urbanwear to Hipster attire, Amazon represents less than 1% of total annual sales. When we were pre-revenue with TheDrop.com, investors would always state that "...why should we invest when Amazon could crush you at anytime?" In my head, I thought a few things...
- This person is an idiot (or they clearly don’t “get it”).
- Amazon can launch ANYTHING and crush that particular industry.
- WISH built a multi-billion business competing directly with Amazon
- Are you going to stop being an investor because of Amazon?
But of course I'd respond more politely and state that authentic Streetwear brands don't want to be on Amazon and that the Nikes and Adidases of the world would pull out immediately if they weren’t public companies and didn't have strong rev streams tied to Amazon, because it would be too drastic of a hit to numbers. Additionally, it’s well-theorized that the better you do on Amazon, the more likely Amazon is to knock off your brand/product. We saw this at Backcountry.com. Footwear brands know this, and I would convey the same to investors; that any good brand who values their brand equity and authenticity will segment their premium lines off of Amazon, if not more.
In launching TheDrop.com in the U.S. market, we wanted to address three long-standing challenges for brands in our industry - none of which Amazon has been able to solve, as evident with Nike's reasoning for pulling out. These are still the pillars of TheDrop.com today...
- Brands on TheDrop.com are sync'd in real-time and the price that shows on TheDrop.com is exactly what it is on the Brand's own DTC site.
- For the first-time ever in a niche 'retail' environment, a Brand has complete control over their pricing.
- In taking 17-20% of each transaction, 80-83% of the transaction goes directly to the Brand
- TheDrop covers marketing, customer service, payments, fraud/chargebacks, and platform transaction costs.
- For the first time ever, a Brand can realize DTC margins within a niche 'retail' environment
- Most brands see a 2-3x Return on Ad Spend (ROAS) and have to optimize clicks and impressions to get to that ROAS, but TheDrop brings a 5-6x ROAS plus covering other costs.
- For the first time ever, a Brand can inject their content and storytelling into a niche 'retail' environment and have their differentiating stories told at the primary POS.
Even as Brands now work to evolve digitally and scale DTC strategies that are currently years behind the level of digital savvy of their consumers, the reality persists that Millennial and Gen Z consumers are multi-brand consumers. At least 80% of their spend is at multi-brand destinations. One of the problems we set out to solve with TheDrop.com platform is to address the multi-brand consumer demand that continues to grow but also give control, margin, and reach to the Brands and select small retailers.
So as Nike and others triple down on DTC strategies, they will increase their leverage over various aspects of the market and over the consumer as well. To maximize opportunity, the rise of niche marketplaces will only continue. A negotiation of brand control will be at the center of those relationships. A new challenge for brands then becomes how to enforce their pricing across their wholesale partners, as this is often viewed as an enemy of DTC strategies... hence brands like Nike cutting their retail network. But that topic is an entirely separate post.
Our industry is evolving quickly. Being in the digital and data world for 20 yrs, the phrase 'Innovate or Die' has become repetitive and even cliché. Still, truer words have not been spoken.
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