Traditional retail brands are increasingly looking to e-commerce start-ups for innovation, wedding their physical distribution and resource abundance with nimble, digital sales. Walgreen’s acquisition of Drugstore.com and Walmart's purchase of Kosmix are two high-profile examples. “These guys are usually slow and lumbering giants,” said Forrester analyst Sucharita Mulpuru to the New York Times. “But they need to make proactive investments. Because, left to their own devices, they could never emulate these businesses.”
Add Nordstrom to the list of startup-hungry retailers. The Seattle-based upmarket store brand made few acquisitions in its 111-year-old history before last year, when it acquired ‘flash sales’ site HauteLook and became a lead investor in shoe subscription service Sole Society, a spin-off of HauteLook. This month Nordstrom acquired a stake in socially savvy e-tailer Bonobos in a deal that gives the latter $16.4 million in cash and access to more than 100 Nordstrom stores, while the latter can tap into the Bonobos team's expertise on branding and digital marketing with humor and savvy.
Just how deft is the Bonobos brand when it comes to tapping the zeitgeist? For Earth Day, the menswear e-tailer has created a line of denim made from beer bottles. That's right. Recycled. Beer. Bottles.
Billed as Bottle Rocket Denim, the Bonobos eco-pants are comprised (as Esquire notes) "of 23 percent synthetic, recycled, beer-bottle yarn. The rest is cotton yarn, and there's no need to worry about Heineken's green glass rubbing against your knees. Instead, they sourced plastic beer bottles — those terrible things you get at concerts, sports venues, and other outdoor events where sandals may be involved — to create this new material."
The breezy upstart launched in 2009 with a “mission to give American men a complex about their backsides. The pants’ distinguishing feature is that they eliminate the sagging bottom of ill-fitting trousers,” as the New York Times noted at the time. “It’s like a shame campaign,” said Bonobos founder and CEO Andy Dunn, who cut costs by only selling online so he could invest in what would make a virtual splash. Instead of bricks and mortar retail, he put the brand focus on a great product, web presence and customer service, backed by a generous return policy and the assistance of ’style ninjas’ by phone, e-mail and video chat.
"Our mission became about delivering two things that men want that no other company is providing: excellence in fit and excellence in service," said Dunn in 2009. "You can do that with a web-driven model, where you're not disconnected by the partitions of store distribution.
Named for a promiscuous species of primates, Bonobos began advertising on Facebook in 2010 with the slogan, "End Khaki Diaper Butt" and drew about 20% of its initial customer base through the social network. In honor of the brand name, Bonobos supported its endangered namesake with donations of $1 per sale to an ape sanctuary in the Congo.
Dunn was bullish on his model, earning $1.6 million in net revenue on sales of more than 30,000 pairs of pants, and declaring to Ad Age, “You've got to focus on the product, not the marketing. If word-of-mouth isn't there, it's hard to get to those first 10,000 customers." But by 2011, Bonobos found their sales and word of mouth marketing lagging and advertising taking 20% of revenues, twice as much as in 2010.
Meanwhile, venerable Nordstrom’s, despite a planned budget of $140 million for e-commerce in 2012 and about $1 billion allocated for online growth overall, was struggling to migrate to the web and early efforts caused consumer confusion with an online presence different from the brand’s store persona.
“We’ve been thinking about where growth is going to come from across all retail over the next 10 years,” said Jamie F. Nordstrom, head of Nordstrom.com and great-grandson of the company’s founder, to the New York Times earlier this month. “Square-footage growth is not where that growth is coming from.”
As Nordstrom’s investigated the online landscape their first interest in Bonobos was as a distribution partner, but upon further research they were impressed with the newcomer’s operations acumen, especially their customer engagement via e-mails and links to original YouTube videos.
Dunn is expectant that the partnership with Nordstrom’s will bring marketing benefits that more than equal any downturn in direct sales. “It was foolish to contain this brand in one channel,” he told the Times. “For so long we were operating like we were so different from store-driven retailers, but we are more similar.”
The Web continues to deliver an increasing portion of retailers’ sales as the models of commerce are iterating a better fit.