1) Direct-to-consumer brands dip their toes in Canada as a testing ground before expanding abroad to Europe and Asia.

WHAT HAPPENED: Digitally-native brands including Allbirds, SmileDirectClub and Thinx began their international expansion in Canada, where they can glean valuable insights before entering less familiar foreign markets.

Why it matters

  • Both the saturation of digitally-native brands and the inherent limitations of selling online only continue to push consumer brands to locate new avenues for growth. For many, this means striking a multi-channel strategy that combines ecommerce, wholesale and owned retail—but increasingly, U.S. brands are also looking to foreign markets. Founded in 2014, SmileDirectClub has since entered 206 stores through wholesale deals—in 2018, it opened its first owned stores (SmileShops) in Canada, with plans to grow this footprint to 20 by May 2019 and then expand to two more foreign countries by the end of the year. Thinx will debut its second international wholesale partnership with Drake General store in Canada in February 2019, and Allbirds opened a pop-up in Toronto in 2018, with plans to establish permanent owned retail in the country.
  • Canada is a relatively safe testing ground for international expansion, which makes sense for brands just starting to move beyond the U.S., but can also somewhat limiting to their international development. Establishing logistics and brand resonance in a new place is culture-specific, and Canada’s similarities to the U.S. as a largely English-speaking market located directly next door make it an easier market than most. Still, while directly expanding to Europe or Asia might have a steeper learning curve, starting with Canada can give brands a sense of what they need to prepare for in the future, whether in terms of fulfillment needs, consumer makeup, retail culture or national tax laws. This can be a big hurdle for companies, regardless of their age—Levi Strauss & Co., which announced last week that it plans to go public, is on the quest to become a “global lifestyle brand” and has its sights set on the Chinese market, which accounted for a mere 3% of 2018 sales. Casper, on the other hand, began selling in Canada in 2014—the same year it launched—which it said helped its expansion to Germany, Austria, Switzerland and the UK in 2016.

2) Wayfair’s first permanent store somewhat derisks outlet retail, but won’t shield the company from mounting competition in the home goods and furniture space.

WHAT HAPPENED: Digitally-native furniture retailer Wayfair opened its first big box store in Florence, KY within a company warehouse, selling items from customer returns and other discounted products.

Why it matters

  • Wayfair was founded in 2002 as an online-only retailer, and only dabbled in offline retail with pop-ups prior to opening the store in Kentucky. Though its first offline retail concept problematically fixates on off-price sales, it attempts to solve for a major issue faced by online retailers: returns. This store comes with a few additional advantages for the retailer. First, it is located within a pre-existing warehouse that processes returns and is in close proximity to one of Wayfair’s distribution centers, saving the company delivery costs, which are particularly high for the furniture retailer’s more cumbersome items. Second, the store’s location in Kentucky aligns with Wayfair’s positioning as a mass market retailer, even if the pool of customers who can visit the store in person is inherently limiting.
  • While the company says it doesn’t have plans to open additional outlet stores, which is a good sign and a chance to preserve brand equity, the bigger question for Wayfair is what the best path forward might be given the rising competition in the home goods and furniture space. Wayfair lacks IKEA’s established network of showroom-stores and Amazon’s hegemony over ecommerce, which is particularly concerning given the retailer’s continued private-label home goods push and wholesale partnerships with digitally-native brands like Casper—not to mention its 100 million-plus Prime members who have incentive to purchase home goods from Amazon more than anywhere else. Walmart is yet another contender with its old-school and growing new-wave private labels including Allswell and Modrn and wide-reaching network of stores. Right now, it’s unclear which niche Wayfair is currently trying to carve out for itself among these other players.

3) Luxury brands contemplate purchasing property in premium shopping locations, banking on destination retail.

WHAT HAPPENED: More luxury brands are seeking to buy out their stores on Rodeo Drive, the Champs-Élysées, and other premium real estate spots, but investors aren’t convinced this is the best use of cash.

Why it matters

  • Luxury brands inhabit some of the most expensive real estate in the world. Between 2008 and 2018, rents on the Champs-Élysées in Paris almost doubled, and between 2014 and 2018, rents on London’s New Bond Street rose approximately 44% to about $2,550 per square foot. Now some brands on LA’s Rodeo Drive—which boasts the second most expensive retail rents in the U.S. after Fifth Avenue in New York—want to buy out their properties to evade rent inflation and claim the space from competitors. In late 2018, for example, LVMH purchased three properties on Rodeo Drive for more than $400 million.
  • Though rents in some places such as Fifth Avenue are beginning to lower from their previous peaks, making it a more opportune time for these luxury brands to buy, investors would rather see cash directed to their returns than costly real estate. Still, there may be a case for LVMH and other luxury brands to pay a lot upfront on commercial property for long-term gains. Unlike mid-market or mass market brands, locations like Rodeo Drive and the Champs-Élysées are destinations in their own right—tourist meccas that could actually buffer luxury brands against the rise of ecommerce and give them an opportunity to hone experiential retail. In Paris, for example, Chanel and Louis Vuitton recently renovated their Parisian flagships—the latter’s store is in a building designed by the same architect as Versailles, making it a museum-like, highly Instagrammable point of interest for shoppers and tourists alike. Plus, since luxury brands drive up the value of a given neighborhood, brands that own their property will reap additional gains through vertically integrating, rather than forfeiting this value to landlords. Since many of these luxury companies are also legacy brands, some of which have existed for more than 100 years, the burning question is why they didn’t purchase their real estate earlier.

4) Ulta Beauty directs traffic to its full-service salon through its loyalty program, further spinning its flywheel.

WHAT HAPPENED: Ulta Beauty’s Ultamate Rewards program operates on a point system that shoppers can now transfer to discounted salon and waxing services, in addition to product discounts.

Why it matters

  • While it doesn’t appear that Ulta is in need of driving more consumers into its stores—retail accounted for 83% of Q3 2018 sales, according to its latest quarterly financial report—the retailer’s new loyalty perk could help boost Ulta’s salon services, which comprised only 5% of sales during the same period. Considering that every Ulta store includes a salon and the number of stores blossomed from 550 in 2015 to about 1,000 in 2018, this could help strike a better balance between sales drivers and establish stronger relationships with customers who could use discounts on salon services to spend more time with stylists.
  • In-store salons are also a major differentiator for Ulta against its main competitor, Sephora, which has makeup stations where customers can consult with sales associates and education-based events through its Beauty Insider loyalty program, but falls short of operating a full-service salon. Though Ulta’s loyalty program is discount-focused, which risks degrading brand equity, it’s likely that this tactic aligns better with its mid-market customer. Plus, just as a hair appointment might incite a customer to buy a new bottle of shampoo, visitors to Ulta’s salon will have a wide-reaching collection of makeup, hair products, and other cosmetics to shop before or after their appointment, spinning the company’s flywheel even further.