According to a recent Credit Suisse research report, more than 8,600 brick-and-mortar stores may close their doors in 2017. While these closings obviously impact retailers, they also have a deep impact on the brands they sell.
The decline of physical stores affects brands in several ways, according to Jed Ferdinand, founder and senior managing partner of Ferdinand IP. He is an attorney who has worked with brand and celebrity licensing for more than 20 years. First, there are simply fewer retailers available to buy licensed products on a wholesale basis from manufacturers. Second, those retailers that do survive the have to face pricing pressures, which they pass on to manufacturers.
In addition, as brands move their items into e-commerce, they are faced with a more crowded and competitive market.
FierceRetail sat down with Ferdinand to learn more about where brands are headed in 2017.
FierceRetail (FR): What effect does the increase in online shopping have on brands?
Jed Ferdinand (JF): The marketplace is more competitive than ever because of the emergence of e-commerce. Many traditional brands are struggling. Yet, e-commerce has allowed new brands to thrive—brands that were never sold at traditional brick-and-mortar retail. This is largely seen in demographic shifts, such as with millennials, who largely purchase online. The most interesting future development may be with Amazon, who dominates e-commerce. Amazon is making a big push into branded products. How other brands adapt and survive in a world dominated by Amazon will be quite important.
FR: What about the downsizing of physical retail space, is that also affecting brands?
JF: Yes, particularly for older, established brands. There are many examples. Take Cherokee, for one. Cherokee had thrived for years as a brand exclusively sold at Target. Two years ago, Target indicated that it was canceling its license with Cherokee. If you are Cherokee, how do you replace a retailer like Target when so many other retailers are struggling, downsizing or simply going out of business? The answer is, you cannot replicate that level of business.
FR: For the brands that are managing to survive and thrive, what are they doing differently?
JF: That is the essential question. I think the answer is by being different, authentic and appealing to a particular demographic. The “all things to all people” approach of the Gap, etc., from the past, really doesn’t work so well anymore. Specialization and distinctiveness are key—plus substantial social media outreach with celebrity influencers doesn’t hurt either.
FR: What do you see as the challenges brands will be facing in the next 5 years?
JF: Further consolidation of brick-and-mortar retailers mean that traditional wholesale manufacturers are getting squeezed. No one wants to sell wholesale anymore because the margins aren’t there. For so many brands, they are ecstatic when they land a retail account, only to find that because of discounts, allowances, chargebacks and returns, they will end up making no money and can be sitting on a ton of inventory. This is particularly hurting the licensed-brand business, because the wholesale manufacturers are disappearing.
FR: How has the change in retail affected how manufacturers do business?
JF: Many are going broke, leaving the business entirely or foregoing traditional wholesale in favor of an e-commerce only strategy. Most are not making any money at traditional retail anymore. The profit margins simply don’t exist anymore, particularly when many major retailers are starting to act like monopolists and are trying to control pricing and supply chain management more than ever before.
FR: What else can you tell retailers about brands in 2017 and the future of branding?
JF: The strong will survive, for sure. And new and exciting brands will surely emerge. But I think we will continue to see a squeeze in the middle. More and more traditional brands may die out, particularly luxury brands where people can no longer afford them and/or suitable lower-priced alternatives exist that younger shoppers prefer.