A.T. Kearney, Millennials

Digitally Native Vertical Brands & Guideshops

RR Bonobos Andy DunnA Conversation with Andy Dunn, CEO and Founder, Bonobos

Any discussion of the future of retailing would be incomplete without Bonobos, the visionary menswear brand founded by CEO Andy Dunn in 2007. Bonobos grew steadily as a purely online retailer before opening its first brick-and-mortar pres-ence in 2011. Bonobos “Guideshops” are a place where customers can (per the company’s website) “Try it on before you buy. No crowds. One-on-one service. Exactly what you want, delivered right to your door.” Bonobos has also partnered with Nordstrom, which made a $16.4 million investment in the brand, to offer a more traditional retail experience and engagement with the brand.

In his recent interview for our Retail@250 series. Andy pledged that Bonobos will continue to innovate, moving in directions even he never anticipated. Andy shared his vision for the future—of his own brand, and of retail as a whole.

Retail Revolution Ahead of Schedule

When Andy started Bonobos in 2007, he had no idea e-commerce would disrupt traditional retailing as quickly as it has.“If you had told me then that within a decade we would see the emerging meltdown of the traditional way of  doing retail, that some of the strongest traditional players would be struggling just to exist, I would have told you your thinking was ahead of schedule,” he said. “We’re in the midst of a hundred-year change. Retail spent the past century organizing around the automobile. We’ll spend the next 100 years re-urbanizing, with smart phones and the internet as the primary means  of engagement.

“Given that historic shift, the existing store structure for vertical retailers like Gap Inc. or The Limited is far too big,” he added. “The decline in foot traffic forces you to both condense your fleet and change your footprint. We are seeing some big retailers come under significant threat. They have too much of their vertical orientation in brick and mortar.”

Andy sees Bonobos as a pioneering  example of a new retail model he calls digitally native vertical brands (or “DNVBs”), whose ranks currently include retailers like Everlane, Pinrose, Casper and Dollar Shave Club.

“In 2007, we were the only DNVB. Today we see literally thousands starting up. The biggest are hitting $100 million, and many are at $20 to $50 million,” Andy said. “DNVBs, together with Amazon, will be taking a huge amount of retail share in the coming decade.”

Despite the rapid growth of DNVBs and other online-only retailers, Andy doesn’t think physical stores—which he calls “offline retail”—will disappear entirely.

“I don’t think we’re trending to 90 percent e-commerce, 10 percent offline retail. I think we’ll more likely see 50/50, excluding perishables,” he said.

Guideshops

Andy didn’t originally envision Bonobos ever having a brick-and-mortar presence. That, of course, has changed. The brand has 27 physical locations today, and will have close to 30 stores by the end of the year and on track to have over 40 doors by the end of 2017. “We were mistaken in thinking that we would always be  online-only,” he said. “We discovered that is there is a future in offline. Still, we will always be an online brand. Right now we are online brand figuring out offline, not an offline brand figuring out online.”

Andy explained that Bonobos’ offline retail locations are called Guideshops to highlight a clearly differentiated shopping experience. “We didn’t want to use the term store, because it connotes ‘storage,’ which is not what we’re doing,” he said. “In a lot of clothing and apparel stores, you’ll see the staff fussing around with the stock—straightening it, counting it, replenishing it. That sucks up a lot of their time, leaving only marginal attention for the customer. When you take the inventory out, your store personnel can focus more on your customers. So our Guideshops don’t hold physical inventory. Just staff and samples. We chose to stay small, experiential, high intimacy, and high customer service. By 2026, we expect we’ll have hundreds of Guideshops where consumers can see and feel the goods. They can then make their purchases online.”

Bonobos did go a different route in its partnership with Nordstrom—offering a selection of Bonobos product in a full inventory retail model. Andy said this move was designed to  jumpstart growth.

“It will take time to scale the Guideshops, but we want to have brand ubiquity now,” he said. “Nordstrom was the obvious partner. We’re the number-one chino and short at Nordstrom, and we share a strong commitment to delivering  differentiated customer experience. We have been able to build the brand quickly with them, raising  consumer awareness that drives traffic to the online business. The wholesale model is good, but we don’t want 80 percent of our busi-ness in wholesale. As I said, Bonobos will always be an online brand.”

Winning in Retail@250

Andy believes strong brands will be best positioned to successfully transition to the multi-channel world of Retail@250.

“Brands are slow to build but also slow to die, because human beings form trust and have a loyalty to them,” Andy said. “It takes a decade to build a great brand, and even then you’re just getting started. I fear not for established brands that have good direct-to-consumer DNA, like LL Bean and Patagonia, nor for brands that have good store build-out, like Kate Spade. There’s still potential  for those kinds of brands to grow, because they bring a strong core  offering as they figure out how to evolve to the new channel mix. Not everyone will be able to shape-shift out of hundreds of doors. Those that can’t, because they’re too dependent on their current model or don’t have core strengths to carry outside the channel, will probably go bankrupt.”

Andy recognizes that even successful DNVBs like Bonobos must continue to evolve.

“The DNVB is increasingly about customer experience, a bundle of good product and service at the same time,” he said. “Competing just on the clothing is too commoditized an approach. You must add great service to be loved by the consumer. We can own the relationship with the consumer. Vertically integrating differentiated product and differentiated customer experiences can make the DNVBs all the more powerful.”

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