When I compiled my newsletter over the weekend – I added a new section to it. Direct to customer ecommerce is something that stumbled across and have over the last few months looked at in depth. However these direct to customer businesses are now using Target, Nordstrom and Amazon as a channel to reach new customers. This is a double sided agreement as the startups involved (Harry’s, Bevel and now Casper) are providing these older businesses with the opportunity to access a new customer base.
Ecommerce is at a cross roads
If your business is not called Amazon, ecommerce is increasingly becoming more complex as customers demand Amazon like experiences (shipping and customer service) and that requires investment both in people and capital. Investors are also more looking at these direct to customer startups as they are ultimately margin businesses at scale. Instead of spending X on a product and selling it via multiple channels that take their own commissions these business are going straight to the customer and passing on that savings directly to the customer.
After Dollar Shave Club was acquired by Unilever for a billion dollars the signs were clear – niche specific startups with founders that have deep domain experience creating great products are reasonable prices are the future. There is only one giant that can slow down Amazon and that is Walmart due to its scale and potential to invest in providing customers with pricing similar to that seen on Amazon.
Target is the one incumbent no-one is looking at
After reading “The Everything Store” I realized that Amazon is strategic in a manner that no-one is willing to put in public. Brad Stone told the story of how Amazon took the best warehouse staff from Walmart to build their fulfillment centers. The point is Bezos and company use hiring of exceptional performers from other companies to slow down their current employers until they become Amazonians. Where was the last big non-Amazon hire made by Amazon? you guessed it Target. Notice that that the title that Jamil Ghani had at Target, Senior Vice President of Strategy and Innovation. (I am aware that Amazon would be less willing to hire Walmart staff based on previous litigation between the 2 companies).
Target has over the last 18 months also had their struggles as seen in US retailing but I am a firm believer that they are going to be just fine long term. By partnering with these direct to customer startups Target is able to get data and metrics on the impact these businesses have on their specific category at Target. I view this in a much better light than what Gillette had as they were caught by these businesses and then used lawsuits and marketing to try and defeat Harry’s. By partnering with these businesses Target is able to also become an investor in these fast growing businesses.
Target has partnered with the following direct to customer startups:
Nordstrom continues to be Nordstrom
I have for a long time said that the most aggressive retailer in terms of ecommerce is Nordstrom and the fact that they are partnering with direct to customer startups is not surprising. Nordstrom has always either invested in ecommerce businesses or provided floor space to popular direct to customer businesses. The ecommerce investment has impacted their financials but in the long run Nordstrom has experience of providing upstarts with customers and an ecosystem that is mutually beneficial.
Nordstrom has partnered with the following direct to customer startups:
- Bonobos – 2012
- Bauble Bar – 2014
- Warby Parker – 2015
- GOOP – 2017
Amazon partnering with direct to customer startups?
I think Amazon has very quietly without too much publicity ensured that they are a part of the future of direct to customer ecommerce. Why? When they opened Amazon Launchpad it was in my mind focused on competing with Kickstarter and Indiegogo but increasingly I am seeing direct to customer startups leveraging Amazon’s customer base. What makes Launchpad incredibly interesting for me is the ecosystem around it in which Amazon provides the tools for any inventor to create something and sell it.
The most dominant direct to customers have used the above channels to scale their businesses but have ensured that they control their growth via customer ownership.
The future of direct to customer ecommerce
The sky is the limit as these businesses will raise capital from investors who understand the opportunity. These businesses are ultimately able to grow based on customer obsession and limit product ranges. Are they the real Anti-Amazon that could disrupt the most dominant ecommerce business ever created?