1) Target looks to build a platform for third-party vendors that can differentiate from Amazon by playing to its strengths.

WHAT HAPPENED: Target is inviting sellers in high-performance product categories to join its third-party retail platform, Target +.

Why it matters

  • Target has been pouring more money into improving and expanding its brick-and-mortar stores and ecommerce. Now, Target + can build off of the retailer’s own insights as a wholesaler while saving costs on fulfillment, which vendors on the platform will account for themselves. The company is reportedly looking to brands in the sporting goods and toys arenas, both of which are promising categories at the retailer. Target + also comes with similar benefits as Amazon; Third-party marketplaces provide the companies that run them with large swathes of data from vendors about how consumers are shopping, further optimizing the platform, as well as the development of private labels by the platform retailer. While Target already has owned brands, an online vendor presence with infinite shelf space could provide even more insights about what consumers want and how the retailer could make this a reality.
  • But Target’s approach is much different from Amazon’s. For one, brands only have to fill out an application to gain approval to sell on Amazon. Target’s current invite-only strategy is significantly more selective, which, while limiting the number of vendors that join Target +, works in Target’s favor: Unable to build a marketplace that competes with Amazon in terms of breadth, Target’s selection process mirrors its reputation of a retailer that sells high-quality, on-trend brands (this will likely also prevent major issues Amazon has faced with counterfeit products). Because Target has established itself as a reputable wholesale partner, especially for digitally-native brands seeking to build an offline footprint, Target + has potential to bring these relationships online and reap rewards in the form of new insights that it can apply to its own growing roster of private labels and digital sales, which it wants to grow by 25% this year.

2) 3G’s zero-base budgeting goes out of style as companies see innovation as a more promising growth mechanism than simply cutting costs.

WHAT HAPPENED: The Brazilian investment firm 3G received awe and acclaim after acquiring and sharply cutting operation costs at a swathe of American food brands, including Bud Light, Burger King, Heinz and Kraft Macaroni—but now it appears its shopping spree and budget cuts lacked foresight.

Why it matters

  • 3G is known for zero-base budgeting—a budgetary strategy that demands rationale for every single expense in a company, rather than comparing costs to the previous year’s budget. The firm found success with this concept among Brazilian beer brands, and brought it to the U.S., applying it to a range of classic American food and beverage companies. However, timing was an issue. 3G’s acquisitions were made as many of these brands—Burger King, Popeyes, Bud Light, etc.—began to fall out of favor among consumers who were increasingly seeking healthier options like natural and organic brands.
  • Because research and development, as well as marketing, were largely ignored in order to streamline operations at 3G’s acquisitions, many brands have floundered, unable to generate sales growth and evolve in a way that reflects consumer interest. Heinz, which 3G acquired in 2013, and then merged with Kraft in 2015 to become the fifth-largest food company in the world, saw comparable sales rise 2.4% in Q4 2018 after spending $300 million on forging new products and purchasing better shelf space in stores, but adjusted Ebitda fell 13.9%, suggesting that these innovative measures came too late. As other companies within the 3G umbrella experience similar issues, zero-base budgeting seems to be going out of style—a study by Deloitte found that while between 2016-2018, 16% of U.S. companies planned to use the budgeting strategy, only 7% plan to use it in the next two years. Additionally, 3G hasn’t been able to rely on its typical growth path (acquisitions) as fewer potential deals have appeared. Meanwhile, food and beverage brands outside of 3G’s force field such as Panera and Starbucks were focusing on rejuvenating their stores and menus and introducing new technology into retail that has given them a leg up against 3G’s brands.

3) Zara’s parent Inditex launches portfolio apparel brand Pull&Bear online in the U.S.—the latest move by the company to establish a global online presence.

WHAT HAPPENED: In the U.S., Pull&Bear, one of Inditex’s eight brands, will compete with young adult apparel players such as Brandy Melville, Forever 21 and Hollister Co. as Inditex seeks to grow a global footprint.

Why it matters

  • Inditex currently owns eight brands—Zara, Zara Home, Oysho, Massimo Dutti, Bershka, Pull&Bear, Stradivarius and Uterqüe—whose products are available in 7,000-plus stores in 96 countries. The company’s biggest market is its native Spain, followed by China and Russia, both of which have almost six-times as many stores as the U.S.’ 94 Zara locations, three Massimo Dutti locations and one Bershka store. The company’s largest brand, Zara, competes with global fast fashion players including Asos, Boohoo and Zalando, but has also poured funds into developing tech solutions both at stores (AR and tablets in dressing rooms) and for product fulfillment (robotic delivery solutions). After announcing that it wants to sell in every online market in the world by 2020—even in those where it lacks a physical store—Pull&Bear is the first taste of Inditex’s new wave of expansion.
  • While Zara’s online sales have improved—according to its last annual report for 2017, ecommerce accounted for 10% of net sales, a 41% increase from the year prior—they still fall short of competitors. H&M, for example, sees 12% of sales from ecommerce. But the bigger issue for Inditex’s global expansion is inventory. While Inditex has a wide-reaching presence, there is heavy concentration in Europe, which saw 61.2% of all sales in 2017, 16.3% of which occurred in Spain. The Americas accounted for 15.6% of sales during the same period, followed by Asia and the “rest of the world,” with 23.2%. The rest of the world, however, is a lot of territory. Especially in countries that lack a physical Inditex brand store—and therefore don’t have a strong supply chain or warehouses to fulfill online orders—or those that are less attuned to ecommerce, the parent company may be spreading itself too thin.

4) Dover Street Market launches first beauty-dedicated, parisian store—a continuation of parent company Comme des Garçons’ flexible growth.

WHAT HAPPENED: Dover Street Market, Comme des Garçons’ retail concept, will open a 2,150-square-foot beauty store this spring, selling the brand’s 60 fragrances in addition to cosmetics from third-party brands.

Why it matters

  • Comme des Garçons (CDG) launched Dover Street Market (DSM) in 2004, selling both CDG’s own brands and a range of luxury and streetwear brands via wholesale deals. Over time, DSM has gained a reputation as a cultural hub and artistic destination. The retail concept, which revamps its brand assortment and interior design twice a year (a process controlled by the brands themselves, while CDG handles inventory and operations), now accounts for 35% of CDG’s overall revenue.
  • CDG has evolved its holding company and ecosystem in a way that builds off of backend expertise to experiment with new concepts on the front end—the Paris store reflects this flexible growth not only by extending DSM to a new city, but also by attending to the cosmetics sector, which currently comprises less than 3% of CDG’s total sales. CDG began designing and packaging perfume manufactured and sold by the Barcelona-based company Puig in 2002. It later licensed Comme des Garçons Parfums to Puig (which holds licenses to 40% of CDG’s fragrances today) while also creating an autonomous brand, Comme des Garçons Parfums Parfums for a more experimental line whose production and distribution is controlled solely by CDG. Now with a beauty-focused DSM, its perfume brand will be even more vertically integrated, while still existing as an experimental playground for other cosmetics brands and concepts. This may also be a way to enter a promising product category, but in a more frugal way—the last location to open in LA is 21,500 square feet, or ten times the square footage of the planned Paris store.