The new digitally native brand roadmap looks something like this: Build your brand online first. Then move — cautiously! — into wholesale.
That’s how Jeff Johnson, the co-founder of luxury outerwear and one-time online-only brand The Arrivals, navigated his company’s move into third-party retail. This month, the brand will begin selling its core men’s and women’s styles, and a few pieces from its newest collection in six Nordstrom stores and online.
Although the brand launched in 2014 as a direct business on the premise that it would leave out the wholesale middlemen, Johnson predicts now that wholesale will eventually account for 20 percent of the company’s revenue. It wasn’t an overnight decision: The Arrivals has spent the last four years perfecting product and building up a loyal customer base online, using a waitlist approach to gather emails and fulfill orders for customers missing out on an initial product launch. Now, the 10-person company reported that it’s seen revenue increase threefold over the past year, although it doesn’t share specific figures.
“Every year since launch, we’ve been discussing when it makes sense to go wholesale. In the beginning, it was: ‘We’ll never do that,’” said Johnson. “But over several seasons, we had a handful of learnings, and then Nordstrom came along. It felt like we had all of our ducks in a row.”
The Arrivals, which sells leather jackets, shearling coats and parkas at a price range of $500 to $1,295, is far from the first direct-to-consumer brand to come around to the stability and scale of wholesale retail several years into business. Brands like Greats, Bonobos, Reformation, La Ligne and Everlane have added wholesale to their previously direct retail businesses after finding that growth online is easy to scale with some marketing spend and momentum, but a lot more difficult — and expensive — to maintain.
To get to a place where it could sell to Nordstrom, The Arrivals had to first perfect its product quality and fit, as well as its business model and margins, said Johnson. For DTC brands, selling online only means product essentially exists in a vacuum of the brand’s own creation. Putting quality and fit to the test in a multibrand retail setting too early could be disastrous when a new company’s merchandise isn’t quite there. For The Arrivals, it spent a few seasons responding directly to early customer feedback on construction and details, and improving the quality of every piece’s design. Then it dealt with its margins: Since each new launch is produced in a limited inventory run, the brand was able to tweak its cost model every time in preparation for accommodating the right partner.
Then, Nordstrom approached the brand, said Johnson, saying it was “looking for brands with online cult followings.” Nordstrom has become a go-to retail partner for DTC brands since it restructured its merchandising strategy to account for more brands with small inventory runs, faster production schedules and different margin structures. Setting the precedent of not burning these brands has paid off.
“We had to realize that most of these brands don’t launch with the intent to have wholesale, typical retail partners. So we had to work on our ability to be able to talk through what it could look like,” said Tricia Smith, Nordstrom’s evp and gm of women’s apparel, in a previous Glossy interview. “With these partnerships, the brands want to be introduced to a customer in a place where they might never have been seen, and then customers see us as a place to discover brands, which really adds to the experience.”
So The Arrivals sought out Nordstrom locations in markets where the brand has low awareness, but that make sense for an outerwear company, like Chicago, Seattle, Philadelphia, Minnesota and upstate New York. The brand also worked out a deal that would exclude all Arrivals products from Nordstrom promotional sales. If there’s leftover inventory at the end of a season, The Arrivals will buy it back instead of mark it down. To try to capture the customers that encounter the brand through Nordstrom, Johnson said the team will be doing aggressive “reactive marketing” in areas around the Nordstrom stores, in the form of VIP events and pop-ups.
As customer acquisition costs quickly mount for online-only brands, wholesale partners are moving in to replace some of that spend. As a result, retailers are becoming brands’ acquisition channels, rather than primary retail channels. Johnson said that while it may cost more to sell a product through Nordstrom than it does on its own site, it’s a smarter expense: Customers who encounter the brand there, try on the product and maybe make a purchase will be more loyal than customers who are targeted on Facebook.
Overall, what’s changed in the brand-retailer relationship comes down to who’s in control. “In the past, brands had no awareness when they started selling in department stores. That gave the department stores all the leverage,” said Adam Winters, the CEO of Merchant Financial Group. “Now, brands are being approached by retailers who are saying, ‘You have a nice online audience, and we want a piece of it.’”
But Johnson is careful to avoid the trappings of existing wholesale brands who rely on the channel for revenue.
“We want to make sure it’s a really tight, calculated brand experience that can scale up, rather than having to re-strategize and pull back,” he said. “All these traditional brands working with wholesalers became beholden to retailer sales. If the retailer represents more than 50 percent of your sales, and something happens, you’re in trouble. We want to be immune to that.”