As the middle continues to collapse—and many well established retailers struggle to move from boring to remarkable—brands must continually seek new ways to become unique, more intensely relevant and truly memorable. One strategy that seems to be picking up steam involves so-called digitally native brands creating alliances with much larger legacy retail companies. Earlier this month, as just one example, Walgreen’s announced a partnership with fast growing online beauty brand Birchbox. An initial pilot will feature a Birchbox offering in 11 Walgreen stores.
The Walgreen’s and Birchbox deal is only the most recent of many business marriages forged in recent years. Target has been especially forward leaning, expanding its assortments via industry disruptors Casper (mattresses), Quip (ultrasonic toothbrushes) and Harry’s (razorblades), among more than a half dozen others. Nordstrom has been active as well, having added (and invested in) Bonobo’s (menswear) way back in 2012. More recently, it has augmented its offering with Reformation (women’s clothing) and Allbirds (shoes). Earlier this year Macy’s invested in and expanded the number of stores featuring b8ta’s store-within-a store concept and Blue Apron began testing distribution through Costco.
I first came to understand the potential power of these alliances when I worked on Sears’ 2002 acquisition of Lands’ End. While the roll-out of Lands’ End products at Sears was horribly botched (and hindered by Sears’ bigger problems), the strategic motivations are easy to grasp. For Sears, struggling to offer powerfully customer relevant brands that weren’t widely distributed at competing retailers, Land’s End held the promise of providing product differentiation, an image upgrade and acquiring new apparel shoppers. For Lands’ End, gaining access to hundreds of Sears stores provided substantially broadened customer reach, lower customer acquisition cost and improved product return rates. Importantly, Lands’ End management knew the biggest barrier to growing its customer base was making it easy for potential customers to experience the product in person—something only physical stores could help deliver. The Sears deal addressed this issue rapidly and at dramatically lower incremental capital investment.
More than 15 years later, the rationale for retailers with a large brick-and-mortar footprint and newer D2C brands to hook up is only stronger. In a world where consumers have nearly infinite product choices and it’s quite easy to shop on the basis of price, it’s never been more important for retailers to differentiate their assortments. Private brands (not “labels”) are one critically important element. Exclusive (or narrowly) distributed products is the other. Not only do these alliances present brands that are largely unique at retail, they can help boost a legacy brand’s overall image, attract new customers and drive incremental traffic.
For many fast-growing digitally native brands the appeal of such partnerships is compelling as well. While many of these brands are opening their own stores, some have used these partnership to test the waters prior to embarking on their own brick-and-mortar strategy. Some use wholesale distribution to drive incremental business in markets where their own stores won’t work. Others (Quip and Harry’s are prime examples) can expand their consumer reach when an owned store strategy simply won’t make sense given their particularly narrow products lines. The opportunity to dramatically expand customer awareness and trial with very little incremental marketing or capital investment is especially attractive.
Of course traditional retail and digitally native brands alike must be quite intentional about how strategic alliances advance their long-term goals. Yet done for the right reason and executed well, these partnerships can address real pain points for each and help accelerate growth. As Amazon continues to gobble up market share—and more and more tools are introduced to help consumers compare product features and prices from any and all retailers—retail brands will face increasing pressure to find meaningful and memorable points of differentiation. And, as the broader market is finally starting to accept, few disruptive direct-to-consumer brands can scale profitability without a material brick-and-mortar presence.
Seen in this light, the rise in these partnership is far from strange. Indeed, they often are quite logical. Which is why we are likely to see quite a few more in the very near future.
A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.