Twenty million dollars might not seem like a lot of money to established, iconic retailers whose legacies stretch back decades and whose balance sheets run 10 digits deep. But much like the fable of the frog boiled alive, some retailers might not see the true threat from upstart digitally native brands until it’s too late.
As the fable goes, a frog left in a pot of tepid water doesn’t try to escape when the temperature gradually increases, such that even when the water’s boiling the creature doesn’t feel the heat and thus doesn’t try to escape the danger. That’s similar to how First Insight CEO Greg Petro, speaking at an NRF event last week, described the current state of affairs for many legacy department stores that are feeling the “death by a thousand cuts,” the Chinese practice of lingchi — a form of torture and execution — that the country banned in 1905.
Far from the threat businesses feel from a direct competitor, the rise of digitally native brands might siphon off $20 million from one a department store’s many categories. But as that new brand’s business grows, that $20 million swells to $50 million — and the retailer’s pain is that much greater.
Multiply that across the many startups focused on best-of-breed product excellence and the biggest retailers around find themselves on shaky ground.
There are signs, though, that big-box merchants can harness that power of these smaller, newer players or even nontraditional competitors, for the sake of their own survival. Macy’s experiments with The Market @ Macy’s brings emerging brands that might typically live online into a curated, in-store pop-up. Over the holidays, it ramped up this effort with 100 young, underexposed brands, aiming to drive store traffic with the freshness these newbies offer. Walmart’s buying spree of brands including Bonobos, Eloquii, Moosejaw and Bare Necessities illustrates the value of owning, rather than competing with, nimble startup brands resonating with a younger, more moneyed customer.
That’s the reasoning that led Petro to proclaim “small is the new big,” confirming the role that this new crop of brands, from Naadam and Allbirds to Warby Parker and Casper, will play in the future of retail and consumerism. These newcomers are “taking away business from traditional retailers because they’re engaging in a way that’s very authentic,” he added.