Online retailing has changed the way brands come closer to their consumers. While the advent of the ‘click’ is being felt in the fashion space as well, for brands built on conventional business models, the ‘brick’ continues to play a significant role in their growth stories. In the previous issue, the Fashion Focus article had covered how the human touch in fashion retailing has changed from an experience of the hand feel of the product to the use of the latest touch screen devices these days. We also happened to ‘touch’ upon the fact that exclusive branded stores (EBO) play a big part in taking the brand story forward.
For fashion brands, each retail channel has its role to play, be it in business development or in enhancing saliency. In this article, we dwell on how the EBOs differ from other channels in terms of the way they serve the brand. EBOs are expensive, both in terms of operational as well as capital expenditure; yet many brands want to have them and take a huge amount of pride in their network of exclusive stores. Let us explore the reasons for this a little more here!
EBOs are solid foundations on which retail brands are built. They enable the brand to showcase a wide range of products that is normally not possible through multi-branded stores. The width of merchandise display might vary from one EBO to the other depending on factors like size of the store, location and purchase patterns in the catchment market. However, in general, the inventory level in an EBO will be significantly higher than that in an MBO, for that brand, which enables the consumers to experience the brand in the manner that it is intended to be. Unique services that the brand wants the customer to experience, like customized tailoring, or redemption of reward points, are more easily achieved in EBOs.
At this stage, we must also take cognizance of the fact that there are different ways in which EBOs can be managed; depending on the kind of business engagement the brand gets into with its channel partner, the franchisee. The classic format of EBOs is the one in which there is no franchisee involvement, with the ownership and operation of the store being in the hands of the company that owns the brand. Quite naturally, this format, normally called COCO (Company owned Company operated) enables the brand owner to control all consumer experience related aspects. Needless to say, this great power comes with the great responsibility of keeping the store running in all aspects of operations- with accountability in terms of product inventory, capital expenditure, real estate rentals, people and other operational costs. In other formats that come with a franchisee involvement, like FOFO (Franchisee Owned Franchisee Operated) and other engagement models, the brand and the franchisee partner each other, in the highs as well as the lows. In stores where the business partner purchases the merchandise from the brand, he practically has the final say in deciding what products the consumer gets to see. In such cases the brand has limited control over the consumer experience and completeness of the brand story that is being told. It needs to be considered that in many such cases, the business partner has great understanding of the local market and the brand could benefit immensely from that wisdom. In the eye of the consumer, there should ideally be not much difference from one model to the other, though in reality it may quite not be the case.
For now, let us not digress much from the topic into related areas like types of EBO contracts. EBOs communicate the brand’s value proposition in a strong and effective manner; they also use window displays, product placement and other visual merchandising elements to tell a compelling story for the season. The experience a customer gets will normally be the same from store to store. Many brands have loyal customers in the sense that a sizeable proportion of business comes from repeat customers. Brands have loyalty programs that help them track how these customers have been shopping. With the advent of technology, the level of data analysis in loyalty programs is much higher than earlier and this enables brands to send focused promotional communications to customers. For instance, a menswear brand could communicate about the arrival of European linen shirts, to a customer who had shown a propensity in the past to buy linen products. This is just an example to show the level of data availability, which is easier to leverage in an EBO network.
Multi-Branded outlets too play a major role in generating sales. The business partner, called the dealer, purchases the merchandise from the brand and retails them in a store he runs, along with products from competing brands too. The tendency in this case is for the store to have a certain level of equity in the consumer’s mind which is leveraged to provide a good spread of fashion products across different brands, thereby catering to the requirements of the target consumers who walk in to the store. Well, in this case the store kind of becomes the brand, from the point of view of a purchase decision from the consumer. We would have come across situations where we, or someone we know, would have bought a garment and given credit to the store rather than the name of the product-maker that appears on the garment! The question here is, did the shirt or trouser sell because it is from brand X? Chances are that it is not the case. The MBO channel is more profitable for brands because the store operations and necessary investments are the responsibility of the dealer, who in turn gets his margin for the sale of the product. The brand, on the other hand, taps into the goodwill of a shop in a particular market. Here, we must also understand the fact that there are consumers who like buying products from a particular brand from an MBO. Hence it would be wrong to assume that all the sales from EBOs come from loyal consumers and all the MBO sales come from consumers who do not relate to the brand. The skew, however, is in that direction.
The third channel, called Large Format Stores (LFS) are big department stores where the consumer gets to see a very high number of brands on display. They offer sophisticated and modern shopping environments in comparison with MBOs and an opportunity to shop from a wider spectrum of brands. The format also sees the presence of a large number of private labels that do not retail outside the network of the chain. These private labels enable the LFS chains to get higher profitability and therefore earn better returns on space too. The brands normally do not get to showcase a wide range of merchandise as they do in EBOs, and often the decision of which products of a specific brand is made available to the consumers, is taken by the buyers from these LFS chains. This channel also enables a brand to see how they measure up against competition, before embarking on a capital-intensive EBO-driven approach.
From the point of view of a brand, it could possibly fulfill different needs of a consumer, in terms of offering clothing for different occasions, projecting a certain personality, a certain mood as well as other lifestyle aspects. It could, therefore, draw a line in terms of what all customer groups it wants to serve and what all needs of each group it intends to cater to. The EBO channel becomes the perfect route to showcase this; in fact not all EBOs will cater to all customer groups. Brands can have different retail formats, each having its own role within the brand architecture.
So we have now seen that EBOs have an important role to play in the marketing mix of a brand. Brands go to a large extent to sustain them; often accommodating loss-making stores for the sheer image value they bring to the brand. Retail rentals pose serious challenges to brands and often we see that even stores with reasonable footfall levels will struggle to break even. Retail locations like Khan Market in Delhi and Linking Road in Mumbai are very expensive for brands, yet many of them retain stores there for the prestige associated with them. Retail profitability is therefore an important item on the annual agenda of fashion brands.
I like keeping things simple. So while talking about retail profitability, let’s try to reduce jargons as much as possible. How do we make a retail network more profitable? We can achieve it by selling more or by incurring less expenses- or better still, a combination of both. Given a certain cost structure involved in showing the aura of a brand in a store, one that would have become optimized over time, the benefits of a sales upside is always an area of prime focus for brands. How can you sell more in an EBO? While pages can be written as we attempt to answer this seemingly innocuous question, in keeping with the plan to not complicate things, we can say that we could increase sales by two means
- Sell more to existing consumers
- Sell to more consumers
Sometimes simplicity is incontrovertible, right? Let us take these two challenges separately and see how they can be tackled. First, on selling more to existing consumers- the big tool here is the customer database which brands have, irrespective of whether there is an organized loyalty program or not. For existing customers, brands could track parameters like total purchase value in a time period, average purchase in a visit, specific products purchased, or not purchased etc. Store Managers and selling staff are trained on cross selling so as to increase the ticket size, like suggesting a pair of matching trousers to a customer who has just bought a shirt. Once a customer has established a preference for a brand, be it because of its designs, fits or just the brand value, it becomes easier for the salesperson on the floor to suggest other products that he might like, this comes from good customer service standards and understanding of his needs.
On the other hand, getting more consumers involves casting out a wider net; this could bring into play a combination of push and pull strategies. Advertising campaigns on media create aspiration and tend to cater to the needs of the brand across wider geographies and not necessarily to specific stores. This could be backed up by localized customer acquisition initiatives that may or may not involve discounts and other deals for the customer. Brands need to continuously add new customers to sustain growths year after year; for there will always be lapsed customers for various reasons. There is a significant role that impulse plays in purchase decisions in this category and the retail landscape is in a state of continuous metamorphosis.
Fashion brands with a mature EBO network constantly track parameters that give an idea of how the stores are performing. While the terminologies and indices used by different companies could vary from the simple to the complex, here are a few that, for obvious reasons, are important to track.
- Number of customers who walk in
- Conversion rate that shows what percentage of customers who walk in, actually make a purchase
- Sales per square feet (per day/year etc.)
- Ratio of rent to revenue
- Sales to inventory ratio
- Average transaction value
At a slightly more evolved level, there are parameters that track Gross Margin return on footage, investment etc.
We have explored, in this article, the dynamics of the interplay among the brick and mortar channels with a bit of added focus on EBOs. While a few years back, brands typically looked at breaking up the sales goals into three significant channels- EBO, MBO and LFS, the change now is that e-commerce is not just a tick mark in the sheet. Brands have begun to see it as a channel that holds potential for sales. There was a point of time when having a website with a payment gateway was seen as a ‘nice to do’ thing. With the online retailing space evolving fast, brands are now looking to find presence there and get additional business, including having their own store on the web.
EBOs play a big role in building stature for a brand, which triggers sales in different channels, including e-commerce. Don’t we feel better about buying a reputed brand online, than an unknown entity? Brands need to be flexible in adapting to the changing environment around us. There is a growing market out there with a huge opportunity, the brands that adapt fast will do well, and those who do not, will not. In fact, an online presence that is not up to speed with the changes around, exposes a brand. On the other hand, an innovation gets applauded too.
While the discussions on the impact of online retailing often take the shape of a Brick vs. Click debate, we should acknowledge the fact that both have their respective roles to play in driving a brand. The clicks are growing at a fast pace, even as the brick continues to click with the customer. Fair to say, the click is, in fact, a very important brick in the wall of the edifice, built on the strong bedrock called the EBO network.
At a slightly more evolved level, there are parameters that track Gross Margin return on footage, investment etc.
We have explored, in this article, the dynamics of the interplay among the brick and mortar channels with a bit of added focus on EBOs. While a few years back, brands typically looked at breaking up the sales goals into three significant channels- EBO, MBO and LFS, the change now is that e-commerce is not just a tick mark in the sheet. Brands have begun to see it as a channel that holds potential for sales. There was a point of time when having a website with a payment gateway was seen as a ‘nice to do’ thing. With the online retailing space evolving fast, brands are now looking to find presence there and get additional business, including having their own store on the web.
EBOs play a big role in building stature for a brand, which triggers sales in different channels, including e-commerce. Don’t we feel better about buying a reputed brand online, than an unknown entity? Brands need to be flexible in adapting to the changing environment around us. There is a growing market out there with a huge opportunity, the brands that adapt fast will do well, and those who do not, will not. In fact, an online presence that is not up to speed with the changes around, exposes a brand. On the other hand, an innovation gets applauded too.
While the discussions on the impact of online retailing often take the shape of a Brick vs. Click debate, we should acknowledge the fact that both have their respective roles to play in driving a brand. The clicks are growing at a fast pace, even as the brick continues to click with the customer. Fair to say, the click is, in fact, a very important brick in the wall of the edifice, built on the strong bedrock called the EBO network.
