1) Walgreens refreshes its beauty aisle with Birchbox partnership, but it’s not the only mass retailer to embrace cosmetics.

What happened

  • Walgreens is launching a pilot partnership program with the online subscription beauty service Birchbox both online and at 11 stores across six cities—Chicago, Los Angeles, Dallas, Miami, Minneapolis and New York. The stores will devote 400 to 1,000 square feet to a “Build your own Birchbox” experience, further cinching the drugstore’s efforts to cater to millennial shoppers by offering more premium brands in the beauty sector. The company has also taken an undisclosed minority stake in Birchbox.
  • This news comes just months after Birchbox’s acquisition deal with QVC fell through and the company’s initial investor, Viking Global Investors, bought a majority stake and poured $15 million into the brand to keep it alive. Founded in 2010, Birchbox has struggled with debt tied to poor unit economics and an inflated subscription box market. The company previously discussed acquisition plans with Walmart—now the Walgreens partnership will get it in front of new faces and ideally spur new business.

Why it matters

  • Much of Birchbox’s problems revolve around scaling sustainably, and Walgreens will ideally allow for cheaper customer acquisition. But the success of the partnership for the beauty brand will be dependent on how Birchbox uses it to sell its own (higher-margin) brands as opposed to other brands. It’s also not clear how Birchbox will use the Walgreens partnership to convert drugstore shoppers into monthly or yearly subscribers. Additionally, the partnership may unravel in the long term, since both Walgreens and Birchbox want to become destinations in their own right.
  • The partnership is also Walgreens’ latest effort to harness cosmetics and remake the drugstore experience in the face of direct-to-consumer and Amazon threats. The company acquired the British drugstore chain Alliance Boots in 2014, known for its beauty aisle, and has since debuted a Beauty Enthusiast membership program, as well as rejuvenated its brand assortment with more high-profile names like NYX and OPI. But Birchbox will bring an experiential component to Walgreens to help it stand out, despite the competition. Among other mass retailers, CVS debuted a K-Beauty HQ section and an exclusive K-beauty brand in August 2018—Target also expanded its digital beauty services this year and began selling $7 beauty boxes with monthly samples.

2) Grocery stores rethink their blueprints and supply chains to meet online order demands, but must equally prioritize offline and online experiences.

What happened

  • Food and beverage sales are growing faster online than in brick-and-mortar grocery stores, up 26% between 2016 and 2017—by 2022, Forrester Analytics estimates that the U.S. online grocery market will amount to $36.5 billion (up from $26.7 billion in 2018). Walmart’s 2016 acquisition of Jet.com and Amazon’s 2017 purchase of Whole Foods point to rising online ordering and delivery demands in the food and beverage sector. Now grocery stores are adapting their spaces and supply chains to fulfill online orders themselves, but most lack the warehouses of Walmart and Amazon.
  • Within grocery stores, companies are adding freezers and racks near the doors for quick pickup, as well as dedicated checkout lines for orders fulfilled by third-party online grocery delivery services like Instacart, which employs 50,000 grocery shoppers. Outside, grocery stores are adding curbside pickup lanes or reserving parking spaces for customers coming in to quickly grab their online order.

Why it matters

  • Food and beverage is an $800 billion industry that must now adjust to online ordering trends—perhaps the biggest shift since the emergence of barcodes. As grocery stores strive to keep up with online shopping demands, they must do so while balancing a positive experience in their stores, where shopping still accounts for the majority of sales (the failure of AmazonFresh, which led Amazon to purchase Whole Foods, also indicates that consumers still want to shop at physical grocery stores). Remodeling their physical spaces to meet both needs requires companies to think through traffic flow, especially as most grocers still fulfill online orders with products in their own stores rather than in warehouses.
  • As they bring online order services to their brick-and-mortar spaces, grocers must also improve the online shopping experience. Online grocery out-of-stock rates are about 15% (nearly double the in-store average), and 70% of online shoppers who cannot find what they want end their order or seek out another service. Coca Cola’s ecommerce team also found that 50% of online orders are placed at night, so more grocery companies are restocking items on a 24/7 basis to stay up-to-date. In the shift online, it remains to be seen how other grocery shopping aspects translate to the internet. On the one hand, the beloved checkout-line impulse buys aren’t the same online, threatening snack company sales. On the other hand, Kroger saw an opportunity to launch a direct-to-consumer service for non-perishable items, which are inexpensive to ship and which shoppers like to buy in bulk.

3) Rotarity merges the rental model with streetwear, ushering in a new era for street fashion.

What happened

  • Rotarity will launch a Rent the Runway-like business for streetwear in 2019. The company will allow customers to rent individual items for approximately 10% of their retail value or subscribe monthly to rent out four to five items at a time. Monthly subscribers will access free shipping both ways; single-item rentals will receive free shipping if over $100. Once an item is rented six to ten times, it will be retired through consignment, sale or donation.

Why it matters

  • Rotarity is built on the ethos that young consumers (the typical streetwear demographic) care more about access than ownership—the founder specifically mentions watching three or four friends show up at a store “and put their money together to buy one pair of Yeezys to share.” While it’s true that Rotarity will provide the opportunity to stay abreast of the latest trends without breaking the bank, the streetwear industry comes with a few eccentricities that may not translate well to the rental model. Though the founder’s anecdote ends there, it’s unlikely that these friends would be wearing the Yeezys themselves (and even less likely they would share the same shoe size!). Instead, they would be purchasing the Yeezys in order to sell them at a premium on streetwear’s robust secondary market—and either way, they definitely wouldn’t be renting Yeezys. Then there’s the problem of collectibility. When streetwear aficionados aren’t reselling, many are focused on collecting pristine pieces—something Rotarity’s rental model won’t facilitate. Plus, the lifecycle of streetwear items is significantly shorter than the season- or even occasion-specific items rented through Rent the Runway.
  • Rent the Runway was pioneering because it made the luxury market accessible. Today, the fact Rotarity sees an opportunity to have streetwear follow in its footsteps speaks to the evolution of the industry into a standalone market with an increasingly premium price point. Streetwear has evolved a great deal since its origins in hip hop and skate culture—it’s also popular for its dextrous vacillation between subculture and the mainstream, especially its irreverence to high fashion. But streetwear’s expansion and secondary market dilute these core values, reducing accessibility with luxury price tags and reducing its rich culture to mere transactions. Rotarity now seems to be taking the industry full-circle, returning affordability and accessibility to the industry, if the model can make sense.

4) Netflix is buying a film and television studio to build its brand on original content.

What happened

  • Netflix will purchase ABQ, a nine-stage studio located in Albuquerque, New Mexico where the company has plans to pour $1 billion into original production in the next ten years. This is the streaming platform’s latest move to vertically integrate its business. In the past, original content on Netflix meant that the company helped produced it or distributed it exclusively, but acquiring the studio will allow it to own the entire end-to-end process for the first time.

Why it matters

  • The majority of Netflix’s television and movies are still produced by third parties, meaning that the streaming platform acts largely as a distributor. But earlier this year, Netflix announced that it plans to make half of what subscribers find on its platform original content sometime within the next few years—the company has also stated that it will spend more than $12 billion on original content in 2018, which the ABQ purchase is directly tied to. In doing so, the streaming platform is catalyzing its move from a retailer (a distributor of content) to a brand in its own right—a move reverberating across the consumer industry, including at Amazon, whose focus on developing higher-margin private labels is transitioning the business from pure retailer to brand.
  • In the streaming industry, Netflix must also compete with Disney, soon to launch a streaming service of its own, as well as Hulu and Amazon Prime, both of which have ramped up original content production. However, with its now 130 million subscribers, Netflix is increasingly well poised to create and distribute original content to a wide swathe of viewers. As of September 2018, Netflix had 245 original TV shows, with 257 in the works—compared to Amazon, which has 80 original TV shows and 97 in production, and Hulu, which has 34 original TV shows and 53 in production. Owning and operating full rights to more content will shield Netflix even more, despite growing competition.