With the threat of Amazon looming over most in the sector, some retailers are doing away with long-standing rivalries in order to take on the online Goliath. But how should retailers decide when to compete and when to collaborate?
With insight on:
- Executives from M&S, Tesco and Farfetch on their approach to working with other retailers
- The opportunities to collaborate on products, delivery and technology
- Lawyers and advisers on what precautionary measures should be taken to protect your business
- Spotlight on Nike: why the sportswear giant is collaborating with some retailers but cutting ties with others
Last year, one-time bitter media rivals BBC and ITV unveiled plans to collaborate on a streaming service, which would enable users to watch programmes from across both channels in one place.
The one-time unthinkable tie-up, called Britbox, was motivated by the need for both traditional platforms to launch a defence against the stratospheric rise of streaming services such as Netflix and Amazon Prime. The tie-up is a living example of the old adage ‘My enemy’s enemy is my friend’.
Teaming up with the competition to fight a greater battle is becoming increasingly common in the retail world, too. From traditional grocer M&S tying up with Ocado, to Sainsbury’s attempted merger with Asda, there are plenty of examples of former rivals joining – or at least attempting to join – forces to win customer spend.
But not all partnerships are made equal. So how should retailers work together to drive a competitive advantage without cannibalising sales or risking offering business insight to a rival?
We take a look at when retailers should – and shouldn’t – collaborate, and what makes a partnership that equally benefits both businesses.
In recent years, there has been a surge in product collaborations, such as Selfridges opening a Depop pop-up in store for second-hand clothes and Tesco giving away floor space to retailers such as Next and Holland & Barrett.
KPMG head of retail Paul Martin says that the increasingly burdensome costs of running a store estate will make collaborations of this kind more common as retailers seek to use partnerships to drive footfall and increase average spend.
“From a product partnership perspective, we are going to see far more collaboration. We have far too much space in the UK and retailers need to utilise it better.
“If you look at the square footage of a Tesco, for example, versus what you will need to run a grocery business in the future, it could be quite compelling to create partnerships, which will say to a retail partner ‘We can give you X million square foot’ and create a different reason for someone to come to store.
“From a product partnership perspective we are going to see far more collaboration. We have far too much space in the UK and retailers need to utilise it better”
Paul Martin, KPMG
”We will see more and more locations of this type in the future because the economics do not stack up otherwise.”
Tesco head of retail partnerships and repurposing Louise Goodland argues that the grocer’s ever-growing range of store-in-store partnerships, with retailers ranging from Next to Dixons Carphone and Arcadia, are of mutual benefit to the supermarket and its third-party partners.
“In our large stores we have several retail partnerships that have been carefully selected to complement our offer and provide customers with a great variety of services,” she says.
“We are making the most of our store space, while our partners benefit from the excellent locations and strong footfall.”
However, strategy consultant OC&C partner Matt Coode says that partnerships of this kind must be selected carefully to ensure there is sufficient differentiation between a retailer’s own-brand ranges and the third party to avoid cannibalising sales.
He points to Sainsbury’s tie-up with Oasis as an example of a savvy retail partnership as its range has some overlap in “style and design handwriting” with the retailer’s own Tu range, but a “slight stretch on price”.
By contrast, a partnership with a more price-savvy retailer, such as Matalan, would not make sense for a grocery tie-up, he says.
“The last thing you want is for someone to come into your store for a basic white T-shirt, which you sell for £5 and a concession sells for £4 – partnerships need to have an overlap in terms of customers, but shouldn’t offer products that are identical to your own, particularly from a pricing standpoint,” says Coode.
”If that happens, you are effectively just a landlord, not a retail partner.”
Another retail analyst highlights that poorly executed retailer partnerships can degrade your brand value to existing customers.
“The Sports Direct tie-up was clearly motivated by shareholders, rather than strategic logic, and it showed.
“The assortment served a slightly different customer type, was quite jarring in terms of positioning and negatively affected Debenhams because it cheapened their offer by association,” he says.
Law firm DWF’s global regulatory, compliance and investigations partner Hilary Ross says in-store collaboration between different retailers could prove advantageous to an industry that is coming under increased scrutiny from the Competition and Market Authority (CMA) – a move that has put the kibosh on M&A such as Sainsbury’s and Asda.
Ross says: “There are lots of examples of collaboration between retailers in-store, and the good news is the CMA allows this type of collaboration.
”Where you have to start worrying is if the collaboration would account for more than 15% of an industry or sector’s turnover – but in most cases that will not be the situation, so it won’t come under the same level of scrutiny or restriction.”
However, to avoid falling foul of competition rules, Ross recommends a “clean team” for any project that involves collaboration with other retailers, such as product development employees who have no insight on pricing, data collection or other sensitive information.
“It helps to have set up systems internally that act as Chinese walls, so someone in pricing can’t see something commercially sensitive in another retailer’s operations, for example.”
Accenture’s customer analytics lead Suzy Ross argues that one-off collaborations that leverage the scale and accessibility of one retailer’s store network and the desirability of another’s brand – such as H&M’s collaborations with designers such as Roberto Cavalli, Sonia Rykiel and Viktor & Rolf – can be a highly effective means of driving customer engagement and brand awareness.
“A collaboration of that kind can galvanise so much excitement and goes beyond product into creating content and huge marketing collateral – it goes beyond just flogging product to a story and a campaign, which can unlock some really exciting things for a business.
“It also allows a retailer to acquire and retain some of their most important customers by collaborating with a partner that has brand adjacencies and access to an audience with deep pockets and a capacity to spend.”
“A collaboration can galvanise so much excitement – it goes beyond just flogging product to a story and a campaign, which can unlock some really exciting things for a business”
Suzy Ross, Accenture
Marks & Spencer’s food managing director Stuart Machin says this type of partnership is something the retailer is dipping its toe into across its grocery division.
At the retailer’s new Hedge End store, M&S has introduced a Pasta Evangelists concession, its first tie-up with an external partner. Machin did not rule out similar arrangements with “up-and-coming concepts”.
However, Accenture’s Ross warns that, in order to really make a splash with shoppers, collaborations need to create a level of excitement.
She points to Selfridges’ tie-up with Depop last year, which ran for three months and combined a weekly rotation of products to drive interest from shoppers, an eye-catching moving-rail display – like those found at a dry-cleaner – to showcase the clothes, as well as monthly workshops and talks hosted by Depop sellers.
“The reason a retailer like Selfridges has had success with its partnerships is because it has thought of its role as that of an entertainer, and created, not just one, but a programme of activities,” says Ross.
Sourcing and delivery gains
Delivery is another area where retailers are pairing up, something which KPMG’s Martin believes will be necessary in the future.
He points out that current projections for the growth of online retail will lead to “a level of city traffic and number of white vans” that will not be sustainable.
“There’s the whole environmental and infrastructure question that retail needs to answer,” he says.
“Retailers will need to regulate and collaborate because there will come a point when policymakers will regulate against it, so retailers need to think about fulfilment partnerships and collaboration before they are made to.”
DWF’s Ross concurs: ”There are huge opportunities for retailers in collaborative fulfilment. Online delivery is expensive for retailers and has an environmental impact – there are so many boxes to tick with collaboration, which make it the safest and most profitable way to go.
“It would be good to see an industry that is often quite disparate and siloed come together and flex its muscles collectively, rather than competing.”
German online marketplace Zalando sees scope to outsource its fulfilment services to brands and retailers.
The etailer began a trial with Adidas last year to deliver orders that have been placed directly through the sportswear giant’s website to shoppers based in Paris.
When unveiling the pilot, Jan Bartels, senior vice-president for customer fulfilment at Zalando, said: “We see a great deal of potential to test the multichannel approach with brands that already store parts of their assortment with us.
“By opening up Zalando’s strong European logistics network to our partners, they profit from our logistics expertise, and together we work more efficiently.”
The department store allows shoppers to collect online orders from the Co-op, despite being part of the same group as fellow grocer Waitrose.
Martin says the partnership is not an issue from a competition standpoint.
“The reality is John Lewis has a comparatively limited geographic footprint and home delivery is very expensive. The Co-op customer is a more affluent and rural customer. In many locations, it’s the only kid in town, which is particularly relevant when combined with the fact that Waitrose is not opening more physical locations.
“It’s a partnership that allows a John Lewis shopper to access orders in a physical location where Waitrose is not present.”
Martin also points to possible synergies between retailers further back in the supply chain than last-mile delivery and says there are opportunities for retailers to collaborate at the sourcing stage.
He points to the strategic alliance between Tesco and Carrefour, who are using their joint buying power to cut costs and offer lower prices to customers.
Despite operating in different markets, both grocers are under similar pressure in their domestic markets from discounter rivals Aldi and Lidl, which have operations across Europe that give them significant buying power with suppliers.
Tesco and Carrefour hope their partnership will enable them to narrow the price gap between themselves and the discounters while operating in the different markets should enable them to side-step the regulatory measures that led to the CMA blocking Sainsbury’s proposed merger with Asda.
Meanwhile, Morrisons is part of the AMS Sourcing group, which spans 11 different grocers, such as Dutch supermarket chain Ahold Delhaize and Swedish chain ICA, allowing each member to secure more competitive prices through buying higher volumes.
Martin says there is a great opportunity for a “global co-operative” of this kind to be established in the coming years without falling foul of the competition rules.
Nike’s approach to collaboration
Sportswear titan Nike is vying to slash its global retailer partners from 30,000 to just 40 as part of its ‘Direct Consumer Offense’, which aims to boost direct sales to shoppers.
DTC sales have jumped to $11.8bn last year, compared with $5.3bn in 2014.
Nike will only maintain partnerships with third-party retailers that offer both scale and a premium shopping experience for customers and has started severing ties with those it feels do not deliver on both of these premises.
It was a strategic shift that led to Nike pulling its stock from Amazon last year.
Conversely, Nike has strengthened its ties with Zalando. Nike’s vice-president of marketplace development Stuart Hogue told delegates at NRF last month that Zalando has been one of the key drivers of growth for the brand in Europe and helped accelerate its “Triple-Double” strategy – doubling the pace of innovation, doubling speed to market and doubling connections to consumers.
Hogue said the sportswear giant has three principles for working with a digital marketplace in the wake of its leaving Amazon: it must “matter to consumers”; “extend the reach of Nike and enable us to reach consumers we might not be able to”; and be committed to “elevating the consumer experience” – be that through storytelling or “fighting friction” in the shopping journey.
Nike is also applying this mindset to its bricks-and-mortar retail partners and tailoring what products it offers to partners based on their market position.
For example, it will provide premium lines of football boots and running shoes through Sports Direct, while JD Sports will get access to more of its fashion-focused lines.
Nike is also using its retail partners to strengthen its delivery network. The sportswear brand will allow shoppers that order its products on Zalando to pick them up at its stores in Berlin from spring 2020 – something Zalando has done for the past four years with Adidas.
In recent years, retailers have joined forces to face into the technology challenges facing the sector at large – with businesses such as The Hut Group, Ocado and Farfetch launching technology platforms to offer retailers a short cut to ecommerce expertise.
“If I look at the value chain of old in retail, the three-step process of sourcing, shipping and selling has become significantly more complex,” says KPMG’s Martin.
“While retailers used to get away with having a couple of people in marketing or IT, increasingly those departments have to be as big as the trading parts and the reality is, in a low-margin business, you can’t afford that.”
He says this is why the likes of M&S have partnered with Ocado to build an online food business.
“If you are M&S, the reality is you will never have a 2,500-strong software engineer team, but you are competing against businesses that can and do afford to, so partnering, rather than trying to be a jack of all trades, becomes the most sensible move,” says Martin.
However, not all partnerships have been successful. Marks & Spencer paired with Amazon to launch its transactional website in 2007, but former M&S executive Laura Wade-Gery described the ecommerce tie-up as “renting the car, rather than owning it” and launched its own platform in 2014.
It was perhaps the failure of this dynamic that has caused the department store retailer to take a joint venture approach with Ocado.
“When you’re part of a joint venture, you very much feel part of it. We have 50% of the business; we’re not just a supplier. It’s two great brands coming together as one”
Stuart Machin, M&S, on the Ocado tie-up
Speaking of Marks & Spencer’s tie-up with Ocado, Machin says: “Do I think we should just have been a supplier? No. What we both wanted was a joint venture over the long term, not a short-term supplier partnership.”
“When you’re part of a joint venture, you very much feel part of it. We have 50% of the business; we’re not just a supplier. It’s two great brands coming together as one and we’ll build the business together. It’s many years of work together that we’re planning.”.
For Farfetch, which has a white-label platform used by retail partners such as Harrods, tech partnerships are key to its long-term growth strategy.
Vice-president of Farfetch platform solutions Kelly Kowal says: “The retailers and brands we work with value our partnership approach, and we work hand-in-hand to help scale their global digital presence.
“Farfetch launched as a tech company, a global technology platform for the luxury fashion industry – and it still is. Our vision was to create a single operating system that could address the complex demands of consumers and luxury sellers alike.”
Farfetch is working with Harrods to create a “state-of-the-art” global online platform. Farfetch will be responsible for ecommerce management, operations support, international logistics support and technical support, while Harrods will oversee trading on the site, marketing, brand relationship and product strategy, all creative and editorial content, and customer services.
Kowal describes the partnership as win-win for both businesses – it allows Farfetch to leverage its expertise, while Harrods focuses on its strengths.
“Harrods has a global customer base, a fantastic product offering and exceptional services, such as its loyalty programme,” she says.
“We will leverage all of our experience in managing technical and logistical complexity for luxury brand partners to deliver everything required to achieve the best digital luxury experience for Harrods’ customers.”
While this arrangement has allowed Harrods to fast-track its ecommerce offer, OC&C’s Coode warns that retailers who partner with a more tech-savvy peer must ensure the proposition is not entirely reliant on their expertise.
”You need to be really careful that you don’t become overly dependent on another business, and that you are getting as much insight from the technology retail partner’s business as they are getting from yours,” he says.
”A retail partner should not view its partnership with a more tech-enabled business as an end state, but a movement towards having the expertise to own that division of the business themselves in the longer term.
“That way, if it were to all go wrong, you could take what you have inherited and keep that bit of the business moving forward, rather than the whole thing standing or falling based on the expertise of another business.”
For many businesses, working with a one-time competitor is far from a sign of defeat, but a lifeline that allows a business to innovate faster, reach new customers and save money. But retailers should be wary and make sure that such partnerships really are win-win.