Retail experienced a seismic during the onset of e-commerce. Many people claimed that wholesale was dead, that people were going to open their own stores. Why would you sell? The benefit of selling to a wholesaler is that you can take your product, sell it to them, and don't have to worry about the product again, right? If it doesn't sell, you don't have to worry about what to do with it. You don't have to worry about marking it down. You don't have to worry about where you're going to put it. You don't have to worry about stock space. You sell it to them, and then it's their problem—Nordstrom's problem.
When you operate a store and sell directly to consumers, you must worry where you're putting the product, where you're housing the product, paying your employees, keeping lights on, rotating floor sets, all of those things. But generally, you have a bit higher margin when selling directly to the consumer than you would be selling to wholesale manufacturers.
The onset of the internet may have led people to believe, “Okay, I don't have to have employees. I don't have to keep lights on. I don't have to do any of those things, and I can still sell direct to consumers, so it's a win-win."
It’s interesting that over the last decade and a half the shift has led to a direct-to-consumer sales model. That has placed some brands in a great position regarding the margin they can charge because if you’re selling directly to consumers, you’re not selling to a retailer that buys at price. A wholesale price, which is usually a markup price. For example, the product is marked at $50, and you sell it to them at $100, they then sell it to the consumer for $200.
So, if you’re selling directly to the consumer at $200, you’d see a 3X margin from what you were making with your wholesale account. And that’s very attractive. Wholesale accounts had been the norm for almost a hundred years. Older brands have wholesale accounts, and it’s been difficult for them to shift to a direct-to-consumer model because of that.