Featured: The Rise of The Rebels

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Type the brand Allbirds into Amazon and any number of woolly shoes are displayed. None, though, belongs to the San Francisco-based shoemaker whose Merino-wool sneakers began the trend. Joey Zwillinger, Allbirds’ co-founder, grumbles about what he calls the “knock-off” shoes he sees on Amazon. But he says that, since the company first started selling online in 2016, it has avoided the online giant, as well as physical wholesalers like Shoe Locker. That strategy is revolutionary in the global shoe industry, with revenues of $80bn in America alone. The rationale is that by avoiding middlemen, whether online or offline, Allbirds can invest in more sustainable materials that go down well with its rich, techie clientele. It also helps it keep tabs on its customers.

Rather than selling on Amazon, it uses Shopify, an Ottawa-based platform operating in 175 countries that allows it to sell through its own online channels, as well as its physical stores. Yet despite Allbirds’ thirst for independence, Mr Zwillinger is not starry-eyed about the ability of direct-to-consumer (dtc) retailers to resist the gravitational pull of Amazon and other tech platforms. He notes that more than half of all product searches start on Amazon, making it easy to be overlooked (or imitated). Digital advertising needed to start a brand and maintain its popularity is mostly in the hands of a powerful triumvirate of Google, Facebook and Amazon, and its costs are rising. “It’s probably the easiest time in the history of the world to build a business of reasonable size,” he says. Keeping it there is a different matter. “Will a bunch of [dtc] companies be able to overcome the headwinds? The answer is likely to be no,” he says grimly.

For physical retailers, the Amazon effect has been brutal. Many have collapsed, leaving malls and high streets abandoned. In America and Britain, the closure of stores has far exceeded openings in recent years. During the pandemic in 2020, the big ones were particularly hard hit. Goldman Sachs, a bank, says that in Britain, which has a high share of online retail, existing stores have been cannibalised by e-commerce, driving down profit margins.

Not everyone is suffering equally. Big global brands such as Nike or Zara, owned by Inditex, a Spanish retailer, have reputations that encourage customers to find them without their having to fork out a fortune to win loyalty. They can preserve profit margins by keeping supply chains lean, adding rfid identifier tags to ensure clothes can be switched for in-store or online shopping, depending where the demand is, and using their stores as sales points, distribution centres or places to return items. Yet Inditex said last year it would close up to 1,200 stores around the world.

Discount stores, such as Dollar General in America, are thriving. Many continue to open shops. Primark, a low-cost European fashion chain that has eschewed online, is convinced that low prices are such a powerful draw that shoppers will flock back to its shops when lockdowns are lifted. As long as they have a strong brand, “the shop is a much more efficient, lower-cost, lower-carbon method of fulfilment than the little van driving up and down our streets during lockdown,” insists George Weston, boss of Associated British Foods (abf), Primark’s owner.

Some online-fashion retailers are creating portfolios of brands out of failed physical retailers, on the assumption that, if brands are well-known, it is easy to attract customers. In America Authentic Brands, a New-York based firm, has acquired Brooks Brothers and Barneys. In Britain Boohoo has bought the Dorothy Perkins, Burton and Wallis brands from the failed chain Arcadia.

For digitally native retailers such as Allbirds, one way to expand the business is to open shops as well as selling online. Mr Zwillinger sees the irony that, although people lament the “retail apocalypse” caused by e-commerce, Allbirds is opening not closing shops. Other digital insurgents doing the same include Warby Parker, a firm of eyewear specialists, and Casper, a mattress-maker. Three Squirrels, a snack company that started as a digital darling in China, now has 300 shops.

The trick is to make the shops not just sales nodes but ways for shoppers to interact with the product. Allbirds finesses what Mr Zwillinger calls the “try-on experience”. It stacks artfully presented shoeboxes in the store, not in a backroom, so fittings are available within seconds, not minutes. Casper offers “nap appointments” on its mattresses. Other swanky retailers talk of curating stores like art galleries. This approach may not work for all income brackets. “Bond Street is lovely, but that’s not how most people shop,” quips abf’s Mr Weston. Nonetheless, the more impersonally goods are sold online, the more urgent it is that shops stand out for customer service.

One drawback in avoiding Amazon is that it is tiresome for shoppers to toggle between apps belonging to different marques. Mr Zwillinger hopes Shopify may provide an answer by building a virtual storefront where brands can display their wares, as Alibaba’s tmall does in China. Not everyone believes independent brands are fighting an uphill battle against the tech giants. Harley Finkelstein, Shopify’s boss, disputes the idea. “I vehemently disagree that it’s only the big folks that are going to get bigger and I have proof of that,” he insists. He points to brands from Beyond Yoga, a clothing company, to Beyond Meat, a vegan one, that have grown rapidly via Shopify. He says their desire to keep close to their customers, to champion sustainability, and to offer inspiring examples of entrepreneurship all support them.

That view is shared by Sebastian Siemiatkowski, founder of Klarna, an online-payments platform that works with many dtc brands. He disdains what he calls the “scrolling” nature of much online shopping. He thinks the infrastructure of e-commerce, including online marketplaces, delivery and payments, will become commoditised. But as digitalisation removes friction between buyers and sellers it will create “a more perfect economy” with almost limitless scope for growth. “People totally underestimate how large the internet economy is,” he says. Even Netflix movies could be a sales channel for shoppers keen to buy what they see on screen. Customer-centric innovations (he includes Klarna’s buy-now, pay-later schemes) will be essential for survival.

Strangely, the pandemic has given part of the retail industry least known for innovation, grocery selling, a crash course in reinvention. As one of the fastest-growing online categories around the world in 2020, it has become the next frontier of e-commerce. But do not get your hopes up. The weekly trip to the supermarket will not become a thing of the past.

This article was originally found at The Economist