2017 was yet another transformative year for the consumer economy. There were a range of new developments and trends from the last few years that continued accelerating. What follows is a recap of 2017, along with some predictions and recommendations for 2018.

The highlights:

  • Traditional Sales Channels Regain Favor  
  • More Questions Around Brand Longevity and Durability
  • Digital Customer Acquisition Costs Skyrocket
  • Amazon Increases its Fashion and Private Label Ambitions
  • Media Supercharges its Focus on Commerce
  • Old Retail Continues to Struggle
  • Holding Companies Modernize
  • Underserved Markets Are Waiting

Loose Threads Members get access to the full year in review, which outlines the implications of each section for brands, retailers, investors and real estate developers. Learn more about Membership or start a free trial.  

Traditional Sales Channels Regain Favor  

One of the biggest developments of 2017 was the ongoing game of musical chairs that brands played with their sales channels. Many digitally-native brands spent the year doing things they said they would not, such as opening retail stores or selling through wholesale. These brands collectively opened hundreds of stores and entered into wholesale relationships with retailers such as Nordstrom, Bloomingdales and a range of independent boutiques. The reason behind these developments is quite simple: brands will naturally flock to the most cost-effective avenues to acquire customers, and as digital advertising costs continue to rise, retail and wholesale is increasingly attractive.

Map of digitally-native brands opening stores in 2016 vs 2017. Via Foundry Commercial.

More Reading

The Retail Revolution Report

The Wholesale Evolution Report

The Customer Acquisition Report

Brands think wholesale is the problem. Is it actually the solution?

The internet was supposed to eliminate sales associates. Then it revitalized them.

More Questions About Brand Longevity and Durability

This year the inverse correlation between money-raised and exit opportunities intensified, further proof that expectations affect everything. We dove into these topics in two massive reports: Building Bulletproof Brands, which looks at how the internet destroyed traditional moats for physical goods brands and created new ones, and Fast or Frivolous, which detailed how building consumer brands is evolving, accelerating and evaporating. To do this, we examined how the brand building playbook is changing by looking at the growth of both heritage and digitally-native brands.

The takeaways from these two series are somewhat paradoxical: while the playbook for building brands has evolved more incrementally than many expect—growing profitability and sustainability matter more than ever—the internet has changed the playing field for both the potential scale and the defensibility of a brand. Having a good product is no longer enough. Having a good brand is no longer enough. Having a website or a store is no longer enough. With more competition than ever before on all of these fronts, standing out is increasingly a challenge.

This makes growing a brand harder, but also more interesting. It’s forcing companies to really push the boundaries of marketing and growth, looking at old ideas in new ways and using technology as a backbone to scale these ideas more effectively than in the past. Think about Glossier’s influencer program, Peloton’s competitive community, and Supreme’s thriving secondary market.

More Reading

Building Bulletproof Brands

Digital Customer Acquisition Costs Skyrocket

For many of the digitally-native brands that raised money, the looming question is what is their end game. Many are not profitable, which makes it hard to maintain independence for long without needing to fundraise again and again to stay afloat. Further, private equity and the public markets are usually not interested in investing in these companies because there is not enough cash flow to make their model work or for the company to support itself.

Acquisitions are the other viable outcome, but the landscape is bifurcated. There are few acquirers—aside from Walmart—for most soft goods, such as fashion, apparel, footwear and accessories, particularly because Amazon buys platforms and not brands. Traditional companies like LVMH are not very acquisitive, as their interest in, and ability to help digitally-native brands remains unclear.

But for other industries, such as beauty and cosmetics, there are a number of large strategic companies actively looking for new energy, as the flurry of acquisition activity shows. We expect that the best exits will continue to be in markets that many investors—mostly white men that live in their own echo chambers—don’t understand or are customers in.

More Reading

The Customer Acquisition Report

Brands think wholesale is the problem. Is it actually the solution?

Amazon Increases its Fashion and Private Label Ambitions

Amazon’s fashion and apparel ambitions gained further clarity this year. Amazon Fashion forged partnerships with more brands, entering new territory with collaborations like Amazon Fashion x Calvin Klein, which included both online and offline shopping experiences, as well as new celebrity collaborations with Drew Barrymore, Nicopanda and others. Amazon continued harnessing its aesthetic as well. With photography efforts leading the way, Amazon continues to invest in more aesthetic and technical infrastructure to support these improvements.

On the private label front, the company is rapidly expanding its offering, with over 41 brands that have either launched or will do so imminently. Amazon is capturing the low-hanging fruit of apparel, accessories, electronics and CPG, where billions of dollars, spent mostly on commodity items, are up for the taking. There are no signs Amazon will be slowing down in this category, and it seems possible that by the end of 2018, it could operate close to 100 brands. The success on this front is further evidence that building and preserving an audience is harder and more valuable than simply having product expertise.

More Reading

The Private Label Report

What does private label even mean anymore?

Amazon and Absolutism

Media Supercharges its Focus on Commerce

One of the more under-the-radar evolutions in the past year was the emergence that digital media companies are playing a larger role in commerce, from the perspective of both  recommendations (i.e., gift guides) and product creation. Companies like The New York Times/Wirecutter and BuzzFeed Product Labs are making serious strides in integrating media audiences with products and services. BuzzFeed is the standout here, as the company has put out dozens of products that are performing incredibly well because of its massive audience and intimate understanding of market needs. Based on BuzzFeed, which is looking to commerce for a bigger percentage of its revenue, (traditional ad sales are not hitting targets) we expect major growth in this area, which raises major questions about how much power these companies have, given their tens of millions of online visitors each month.

There is a good chance digital media companies with massive audiences can start replacing department stores as crucial distribution points for consumer products, while using the data they gather on brands to create their own products that are somewhere between named brands and private labels. The intersection of media and commerce is not a new discussion, but the new crop of its manifestations are finding better results than ever before.

More Reading

The Gifting and Holiday Shopping Report

Old Retail Continues to Struggle

2017 was probably the worst year for traditional retail yet, and there are no signs the agony is slowing. There are a number of reasons behind this downward trend: for decades, retailers have failed to evolve their business model and shopping experience; Amazon is now eating a massive chunk of online sales; digitally-native brands are soaking up endless attention; and people are more interested in buying experiences rather than things. Regardless, people are still spending money and companies are still making money, so plenty of opportunity remains.

Next year, more companies will go bankrupt, close stores, lay off workers and cut their financial outlooks. While this trend entails job loss and major upheaval for people’s livelihoods, the new constraints will force companies to come up with new, creative solutions for building sustainable businesses.  Even though online sales are surging, offline retail will forever be a crucial part of the shopping experience. Instead of denying vast changes in the consumer economy, those involved in traditional retail now have the opportunity to reassess and rechart their course.

More Reading

The Retail Revolution Report

Mickey Drexler and the death of a supply-driven world

Malls give Apple special treatment. Is it paying off?

The Amorphous Evolution of Retail — with Rachel Shechtman of Story

Rethinking the Purpose of a Store — with Alana Branston of Bulletin

Holding Companies Modernize

This year was also important for the composition and outlook of holding companies. Traditional players like LVMH continued on their normal path, mostly working with expected brands. Yoox and Net-a-Porter merged, consolidating luxury ecommerce. Walmart is building its own holding company with acquisitions of Jet, Bonobos and Modcloth.

But we are also seeing new holding companies emerge that are much more rooted in technology and feature deeper integration across their brand portfolio. Resonance, for example, is incubating brands on a deep technology and manufacturing platform and seeks to give smaller brands the infrastructure to produce and scale incredibly quickly. As competition increases, holding companies that offer infrastructure, expertise and working capital for their portfolio will have massive advantages over traditional players who simply buy companies and let them operate without leveraging the assets of the portfolio.

Underserved Markets Are Waiting

2017 was probably the most saturated year for companies working in traditional markets. With more custom [insert product] companies, athleisure companies, basics companies and cutting-out-the-middleman companies, it will be increasingly challenging to make a meaningful dent in any of these areas.

The most exciting opportunities are in less-discovered markets beyond the coastal elites and the eyesight of male financiers. There are still greenfield growth opportunities left where customers are begging for solutions, where there is little competition, and where the acquisition landscape is much more favorable as there are fewer companies bidding for the same customers.

For example, though there are more companies now serving the plus-size market, it still has a ways to go before it reaches saturation. Additionally, products that serve women, not just men, are new opportunities to build lasting companies, which will require funding more founders—both women and people of color—who bring their own experiences and needs to the table. Also, products that traditionally served women but might be appealing to men are also interesting, such as makeup and skincare for men.

More Reading

The Plus Size Opportunity

What is Stitch Fix? A platform, a retailer or something new?

The Cross Country Opportunity — with Kevin Lavelle of Mizzen + Main

Reinventing Plus Size from the Ground Up — with Nadia Boujarwah of Dia&Co

An Umbrella Obsession — with Dave Kahng of Davek

Democratizing the Swimsuit — with Moshe Laniado of Swimsuits For All

Thank you!

Thank you to all of our readers and members for making 2017 the most transformative year yet for Loose Threads. This year the company evolved from a hobby into a quickly-growing company, as we expanded our offering, team and ambitions. But we have an immense amount more to do, and we can’t wait to share what is coming next year.

Happy Holidays!

Richie Siegel
Founder and CEO
Loose Threads