Recently, I did a talk at NRF’s Big Show on how Retail is becoming more accessible and how it’s affecting the entire Retail landscape. Retail at its core is all about capturing and fulfilling demand. Store and Fulfillment. Businesses capture demand through their physical, online, and partner reseller’s stores and fulfill demand through their storefronts, warehouses, and distribution partners.
However, behind these two simple concepts are many layers of complexity. Setting up an online store can be a gargantuan task for many brands: building responsive websites and connecting them to point of sale systems, order management systems, warehouse APIs (all of which painfully unique), shipping endpoints, and returns systems. In theory, Retail is simple, but in practice, it’s extremely complicated. This complexity separates the largest brands from the smaller ones, big brands have the capital and resources to build out world-class commerce systems that consistently deliver delightful experiences.
But all this is changing at a rapid pace. According to a recently released Goldman Sachs report, the annual number of new brands has been growing faster than ever.
Why is that?
First, it requires far less capital to start a new retail brand than it used to. Businesses no longer need physical storefronts with locked inventories to get started. Asset-lite Commerce storefronts and centralized inventory reduces the need of upfront capital. At Symphony, we have seen very successful businesses start with little to no up-front capital
Second, it’s cheaper to operate a retail business these days. Businesses no longer need to staff physical stores or buy expensive ad space. Lower overhead and better marketing tools are fostering faster growth rates for businesses. When we compare growth rates for comparable periods between two sets of very respectable companies – two big players and two rising stars – we can see that brands in the new era of retail are growing much faster than before.
So we have more brands getting created, we require less capital, we have better marketing at our disposal, and we have new generation retail businesses growing faster than ever. So is world-class commerce truly available to everyone?
Unfortunately, we’re not completely there. The next step for democratizing retail is lowering the cost barrier of Fulfillment. Fulfillment accounts for at least half of the commerce experience, if not more. It’s also the single biggest expense after product manufacturing. Fulfillment – which includes storage, pick pack, inbound shipping, outbound shipping, and returns – accounts for 25% of revenues for an average brand. But when we compare that to Amazon, we can see why Fulfillment has room for democratization. Amazon, who probably delivers one of the fastest and most delightful Fulfillment experiences in the market, only spends 12% of their revenue on Fulfillment. If we want true democratization of retail, we have to offer systems and cost structures that deliver an Amazon-like experience to any brand.
So what can a brand do to create a world-class fulfillment experience for their customer? Instead of wishing for Amazon’s extensive fulfillment network and resources, there are a few ways to recreate their cost savings and shipping speed:
- Choose Multi-Warehouse Distribution: If you are shipping over 500 packages a day, you have to start thinking about distributing your products in 2-3 warehouse in the US. Multi-warehouse allows you to reach the majority of your customers in a much shorter time frame using standard ground shipping, which deeply cuts your Fulfillment costs.
- Economies of Scale: Brands should partner with companies that can help them achieve economies of scale. Thanks to their sheer scale, Amazon is able set up Fulfillment networks that quickly deliver packages and negotiate rates for less than the industry average. In order to mimic this, young and mature businesses alike should partner together or work with Fulfillment networks that can pool demand and create efficiencies for everyone, creating economies of scale that can compete better with Amazon.
Companies that invest in Fulfillment infrastructure to deliver world class Fulfillment have a great future in the new era. Goldman Sachs estimates that “Brand.com” (the modern online arm of a retail brand) will grow at 22% YOY over next 10 years and will see a 10% increase in profitability.
The Golden Age of Retail is upon us. It’s time to seize this opportunity and become truly iconic.
If you’d like to learn more, click here for the full set of slides I used at my NRF presentation. If you’re interested about discussing democratization affecting your brand or how to improve your current commerce set-up, we’d love to talk.