In 2014, our clothing company announced plans to largely transition out of traditional offline wholesale partnerships to focus on connecting directly with our consumers. Our rationale was simple: To create a new category in our industry, we couldn’t rely on the people who pushed forward only the existing categories.
We were already operating online, retailing directly to our loyal customer base. But in 2014, we decided to branch out and ended up with four channels: retail online, retail offline, wholesale online and wholesale offline. Like many young companies, we prided ourselves not only on our product and brand but also on our ability to tell our story. (We consider education a key component of our growth strategy.) Our business is based on consumer-insight design; however, we were shifting towards buyers, not customers. This would have been a dangerous mistake — not only preventing us from telling our story, but also from designing our way.
After about a year of pushing — attending grueling trade shows, succumbing to painful terms and worst of all, hard selling our product line — we decided to call it quits with traditional wholesale. Here’s why, and how you can do the same without losing too much business if you find yourself similarly constrained.
Questioning Categories Shouldn’t Be Off Limits
In traditional brick-and-mortar sales, such as local department stores, you can’t question traditional categories. But like our predecessors Lululemon and Tesla, who each invented a new space, we aimed to create a totally new category of clothing (in our case, Performance Menswear). The old guard doesn’t leave much room for category creation, where locations are stocked by tightly defined, existing constructs of categories. These are separated by aisles, buying teams and pricing strategies. Unfortunately, this wasn’t a model that fit our product.
Many young companies face the same challenge — deciding whether to alter their product plans to fit an existing market, or trying to build their own system. For us, category creation is core to our mission. The key to our decision, though, came down to a few factors:
- Acting fast. Although a cliche in the startup world, an act-quickly mindset was key to avoiding the wrong business model. Had we been any slower, our revenue stream would have started to rely on offline wholesale purchase orders, and going back would have been almost impossible. It would have been a slippery slope away from innovation. Catering to buyers with little to no leverage leaves your business’s future partly out of your hands.
- Acting decisively. It was important for us to take a stance on the offline-wholesale category. When we shared our plans with our partners, we were clear: Offline wholesale wasn’t in our plans going forward. We let them know that if the model evolved we might be back, and we wanted to stay in touch. But we never minced words. Offline wholesale was out, no exceptions.
- Acting carefully. It’s great to act quickly and decisively, but in a small industry, burning bridges is a bad idea. So if you go this route, you may end up with unhappy partners. We handled those conversations with a consistent point of view — we’re not leaving anyone hanging. We worked out transition plans with existing retailers and reminded them that we’d be leaving on their schedules. In terms of prospective partners, the transition was much easier. We simply shared a clear view of our new strategy and rationale. We hoped that by being transparent about what steered us away from the traditional offline-wholesale approach, we might help move the industry forward.
Staying in Business
The next logical question: How do you stay afloat after this loss?
Though this is certainly a natural follow-up, we found that it was the wrong question. Soon after making this move, we realized that we would survive because of the change, not in spite of it. That is, had we stayed in the confines of the existing market space, we likely wouldn’t exist today. Altering our business model to fit tradition would have left us with a watered down version of our original goal.
The risk might seem daunting — cutting your business down intentionally for a potential long-term benefit can be terrifying. Though we also didn’t like the highly seasonal and highly transactional mindset of our offline-wholesale partners, the ultimate deciding factor was that our core competency and reason for existing couldn’t flourish in that system.
Luckily, there are other avenues. There’s a new crop of retailers that emphasize education, category-independence and storytelling. In our evacuation of the “old guard,” we were careful to shift focus to forward-thinking curators such as Isetan in Japan and Zappos and Huckberry online, which exemplify the ideals and shopping preferences of our customers.
We also saw these principles apply to wider decisions on how to treat partners as a young company — use equal parts clarity and empathy. Though a channel strategy might be obvious in your industry, take a moment to make an intentional decision on how you connect with your customer, as it might not be the assumed path.
In the end, our decision paid off. We have stronger customer relationships and are able to amplify our brand message and value proposition. We focused our now-free resources on adding volume and improving our direct-to-consumer business. With fewer channels to worry about, we were able to unify our messaging and better control its dissemination.
For anyone considering a similar dramatic shift, the most important factor to consider is alignment to your brand and values. Ask yourself: Do your partners amplify your brand? If not, make a change.