The long-term strategy for brands you carry is to go direct-to-consumer, cutting you out. The only sustainable defense for a retailer is to build its own brand equity by creating and marketing its own private-label products, transitioning from a utility to a destination brand.
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Physical products are easily copied. While patents help, brand is the most durable competitive moat. A strong brand lowers acquisition costs, increases lifetime value, and commands premium pricing—advantages that copycats cannot replicate, even if they perfectly clone the product.
Unlike competitors whose store brands are cheaper versions of national products, Trader Joe's mandates that its private label items offer a unique value proposition. This could be a novel ingredient, unique packaging, or a better price on a superior item, reinforcing their brand as an innovator, not a discounter.
Key Opinion Leaders (KOLs) and creators are shifting from being brand partners to direct competitors. They leverage their audiences to launch their own products (e.g., Prime vs. Gatorade), posing a significant strategic threat to established CPG brands by bypassing traditional retail and marketing.
Large CPG players have slow, agency-driven feedback loops. Nimble DTC brands can win by rapidly testing creative, messaging, and offers online, gaining an insurmountable learning advantage. Speed itself becomes the strategic edge, not just a byproduct of being small.
Large retailers are moving toward having effectively the same massive product catalogs via marketplaces. As selection becomes commoditized and ceases to be a differentiator, retailers will be forced to compete on the next level: deeply personalized service and unique customer experiences.
When Sephora first approached T3, their request was to create a Sephora-branded hair dryer. Despite being a young, bootstrapped company, T3 declined the white-label opportunity. They insisted on selling under their own brand name, a crucial decision that allowed them to build long-term brand equity instead of becoming a disposable supplier.
Startups focus 100% on direct-to-purchase ads, making them vulnerable. Long-term, successful brands shift to a 70/30 split between brand awareness and direct response. This builds a durable moat that performance-only marketing cannot, protecting them from competitors and rising ad costs.
Focusing solely on direct-to-consumer (DTC) or wholesale is a failed strategy. Nike's retreat from wholesale and Allbirds' late entry into physical retail both backfired. A balanced, multi-channel presence is now a non-negotiable for consumer brands to meet customer expectations.
For CPG brands, a physical retail presence, even with lower margins, should be viewed as a customer acquisition strategy. It provides crucial visibility and trial, driving customers to your higher-margin direct-to-consumer website for subsequent purchases and retention.
The core value of department stores like Saks was curating multiple luxury brands in one place. However, with brands like Louis Vuitton building their own flagship stores and generating 95% of sales directly, they have bypassed the middleman. This direct access to consumers makes the traditional department store model obsolete.
