The Evolution of Commerce
We are witnessing a rapid acceleration of change in the commerce arena. Whether it’s direct, indirect, distributed, B2C, or B2B, how we exchange goods and services is undergoing a transformation. As brands and retailers navigate and shift their operating models and go-to-market strategies, there are complex considerations around the advantages and disadvantages of their channel trade-offs.
As we dive deeper into the various commerce models, here are some fundamental differences between the indirect, direct, and distributed (B2C and B2B) strategies.
- Direct distribution (DTC – i.e., Nike) is when a manufacturer sells directly to a consumer. This distribution channel gives the manufacturer control over the distribution process, marketing, branding, and customer experience.
- Indirect distribution is when a manufacturer uses a third party, like a wholesaler or retailer (Amazon, Target, Walmart), to sell their products (B2C – i.e., your traditional mall retailer, etc.)
- B2B stands for business-to-business and refers to a type of transaction that takes place between one business and another
Each of these business models requires resiliency, the ability to adapt, change, and adjust to evolving macroeconomic climates and consumer behaviors. Two critical elements have to be considered:
The relationship between consumers and brands is a delicate one and requires a customer-first strategy
- This relationship transcends all channels. Customers have never thought about channels when they go shopping. They focus on experiences.
- Social commerce, storytelling, personalized experiences, compelling merchandising strategies, and livestreaming represent the future of shopping and engagement with the emerging next generation of customers, GenZ and Gen Alpha
Brands and retailers already have an ecommerce and supportive supply chain distribution ecosystem. However, immersive commerce requires a highly adaptive, agile, scalable, and product-centric digital-first ecosystem
- Compelling storytelling, merchandising, livestreaming, and in-store and digital experiences matter. However, it’s the end-to-end execution from the discovery process to fulfillment that matters
- Business and digital transformations are a critical imperative for all business models. However, the innovation mindset requires a continuous loop where management removes the fear of failure to drive the business forward
There has always been a symbiotic relationship between Nike and its retail partners
Nike is an omnipresent force in the sneaker culture and the athletic footwear arena. In February 2022, Foot Locker announced that Nike’s portion of Foot Locker’s sales would decline to about 55 percent by the fourth quarter of 2022, down from 68 percent in 2021. The reallocation was driven by Nike’s efforts to emphasize direct-to-consumer sales and consolidate wholesale accounts.
While Nike’s strategies to take greater control over its brand narrative, messaging, and social media campaigns have been impressive and paid dividends, increasing the DTC business model has proven challenging. Unfortunately, the increased inflationary pressures and supply chain disruptions have led to an overabundance of Nike products in the marketplace as consumers cut back on their spending.
Nike CFO Matt Friend said on the company’s quarterly call that inventory was up 44% company-wide, primarily driven by a 65% hike in North America, its largest market. Friend said Nike plans to “tighten buys in the second half of the financial year and liquidate excess inventory more aggressively beginning in the current quarter” in the hope it better balances inventory for the balance of 2023 and into 2024.
The wholesale operating model has proven highly effective, as retailers offer the scale, reach, and supply chain inventory distribution capabilities to enable the growth that Nike seeks to achieve. There is a clear dependency on the scale and reach that Foot Locker and other retailers have to offer. Foot Locker was in the process of rationalizing their vendor footprint as Nike pulled back their business. However, Nike and Foot Locker will benefit from the enhanced collaborative model.
Foot Locker was in the process of rationalizing their vendor footprint as Nike pulled back their business. However, Nike and Foot Locker will benefit from the enhanced collaborative model.
Legacy retailers such as Barnes & Noble are undergoing transformations and are being reimagined in the digital-first age
Sometimes, business turnaround and transformations, such as the one Barnes & Noble, Inc. is undergoing, require returning to the basics and consistency in store design and branding. Barnes & Noble has introduced the new look at several dozen of its nearly 600 locations, including the Upper West Side of Manhattan and the Grove shopping mall in Los Angeles, and at the 20 new stores opening in 2023.
“Any design agency would have a heart attack if they could see what we’re doing,” Barnes & Noble chief executive James Daunt said. “We don’t have any architect doing our design at any stage. There’s no interior designer.” The result has been an idiosyncratic approach to mass retail. Mr. Daunt, who describes himself as “an independent bookseller in background and ethos,” pushes the chain to act more like the indie stores it was once notorious for displacing — and for embracing lighter, brighter interiors with modular shelves designed for maximum flexibility.
The Upper West Side renovation cost $4 million and is on track to pay for itself in a couple of years, according to Mr. Daunt. “I’d be surprised if we don’t end up doubling its sales,” he said. (Barnes & Noble, formerly a public company, does not disclose its financials; it has been privately held since Elliott Advisors acquired it.) Next month, the chain plans to open its largest new-format store: a 35,000-square-foot location in Paramus, N.J.
One of Mr. Daunt’s first acts as chief executive was to strip all stores of the footfall counters that many mass retailers use to tally the number of customers and calculate sales rates. That move has cut costs (tracking customers is expensive) and “liberated the bookstore managers, and everybody else, so they could just concentrate on being nice,” he said.
The change goes along with his strategy of embracing the mindset of his typical employee. “Booksellers are about as uncommercial a breed of people as possible to come across,” Mr. Daunt said. “The irony is that the less concerned we are with the commercial, the better it works commercially.” What do you think about the reimagined Barnes & Noble? Do physical books have a future in our digital-first world? Will consistency in their branding, as well as a revamped store design, have a positive impact? Or will it be a curated, more impactful assortment?
It will be fascinating to see how the WHP Global-led Toys”R” Us reimagines its operating model and go-to-market strategies in the age of digital commerce, livestreaming, social commerce, and experiential retail.
The final years of the former version of Toys R Us were predominantly brick-and-mortar operations that experienced inventory management and supply chain challenges, were inefficient, and had significant operating costs. Additionally, their lack of a significant eCommerce presence contributed to the once-dominant toy retailer losing its market share to Target, Walmart, Amazon, and others.
As we all know, the aggressive expansion of retail locations is a cautionary tale as old as time. We have seen countless retailers overexpand, and some are no longer existing.
Let’s hope this comeback is done strategically, focusing on executing an outstanding customer experience with high-quality products, competitively priced, and great in-store and digital experiences.
Signed,
All the Toys R Us Kids
PS. We all love a good comeback story
This is only the beginning of livestreaming and social commerce in the US.
Social commerce and livestreaming represent the future of shopping and engagement with the emerging next generation of customers, GenZ and Gen Alpha. Conceptually, livestreaming has existed in other formats, including what QVC and the Home Shopping Network offered for decades.
For the moment, live streaming may appear to be a niche engagement strategy. However, US livestream sales are forecast to reach $50 billion in 2023, per Coresight Research, as platforms like TikTok, Poshmark, Instagram, and eBay try to replicate the format’s success in China.
In today’s digital-first world, an optimized commerce strategy requires a resilient, agile, scalable, customer-centric operating model to provide the content, engagement, discovery, and personalized experiences consumers expect. We will eventually face an inflection point where social media, led by TikTok, Instagram, and YouTube, will become synonymous with social commerce.
As we wrap up 2023, throughout 2024, we should expect that livestreaming will continue to gain momentum as brands and retailers engage with customers in real-time. Interactive and personalized experiences will become more prominent in livestreaming.
Collaborations with influencers and creators will continue to gain momentum as brands recognize the authentic storytelling appeal they bring to livestream campaigns.
In a channel-less and increasingly digital-first world, omnichannel as a strategy has pivoted to what we know as immersive commerce.
We have evolved well past thinking in terms of shopping and fulfillment channels. The term omnichannel was devised by strategy consultants 15-plus years ago to integrate the emerging ecommerce shopping channel with the dominant physical retail store channels. As digital has become such an omnipresent force in all of our lives, consumers are engaging with brands on a 24/7 basis.
Omnichannel as a strategy is a foundational element that has evolved into unified commerce and, with all the emerging technologies and social commerce capabilities, immersive commerce. With that said, companies have to have the capabilities, strategies, supply chain fulfillment ecosystem, and technologies to support a 24/7 channel-less world.
The average consumer has never heard of the term omnichannel and is simply looking to engage with a brand on their terms and convenience. Modern commerce in the digital world is not limited to the constraints of shopping in a physical store with its 85% share of the retail dollar and across ecommerce and marketplace apps (Amazon, Walmart, TikTok Shop, etc.).
With the emergence of social commerce, livestreaming, and retail media networks, retailers and brands must consider far more complex customer journeys and touchpoints when developing customer-centric strategies. With the ultimate goals of driving conversions, AOV, engagement, etc, product discovery can happen across physical and digital channels, and the customer is seeking new, innovative, and experiential ways to engage with a brand in a channels-less world.
Connect with Brandon Rael on LinkedIn.
