Nordstrom: Jack Erwin’s New Nationwide Marketing Channel.
Some DTC upstarts are now using wholesale deals as marketing tools. As such, the retailer-brand power dynamic has been turned on its head.
NEW YORK – It used to be that brands were at the beck and call of big name retailers. Now, it seems, the roles have been reversed.
Monday’s announcement that Jack Erwin had begun selling its shoes at Nordstrom was met with head scratches and raised eyebrows from several of the more vocal members of the Lean Luxe base.
In emails, and in discussions in the Lean Luxe Slack channel, we found that subscribers were asking recurring questions. Who, for example, reached out to whom? Can Jack Erwin still be considered a DTC company after this? What about the crunch this brings to their margins — will this be passed on to shoppers, or will JE just absorb them?
Well, we’ve got answers. First, let’s start with the basics of the deal, and why it came together.
How and why did this deal get made? This was initiated by Nordstrom, co-founder Ariel Nelson told us. And that shouldn’t be surprising given the retailer’s demonstrated gravitation towards upstarts in the online-first space. In recent years they’ve acquired Trunk Club and HauteLook (which, frankly, hasn’t worked out that well for them). But they continue to monitor opportunities, we’re hearing. Nelson and fellow founder Lane Gerson have been Nordstrom fans for awhile, and there was little convincing needed. “Simply the right time and the right partner,” said Nelson.
He didn’t go into specifics, but since JE had nothing to lose in discussions, Nordstrom was likely willing to work with them on making the margins work. Nelson suggests as much. “Since this is a unique partnership, we were able to work on favorable terms that make sense for both brands,” he said.
What’s the significance? A few things. This is Jack Erwin’s first wholesale move. They’ve given Nordstrom a curated collection to be stocked at ten locations in major cities where Jack Erwin is currently not, among them: Chicago, Dallas, Houston, and Los Angeles.
This is important. JE is based in NYC, but Nelson and Gerson have clusters of loyal customers in big cities nationwide and fully grasp that many customers still want to experience the shoes in person before buying. Since JE has just one showroom at the moment (in NYC), Nordstrom helps them get their shoes in front of shoppers in large hubs outside of Manhattan.
This is where the deal starts to make the most sense for Nelson and Gerson. Ostensibly, Nordstrom is acting as an extension of JE’s showroom model. It’s giving them a presence in cities that they aren’t currently able to reach from the confines of New York. It quickly becomes clear here that JE is treating their wholesale deal with Nordstrom as a marketing channel for customer acquisition.
Why does this make sense? We’ll let Jeremy Liew, partner at VC firm Lightspeed Venture Partners, take it from here:
“If you have repeat purchase data you can think about wholesale as an entirely variable cost positive margin (not high margin, but positive to neutral) customer acquisition channel, whereas every other customer acquisition channel will COST you money. But it depends on believing that customers will buy again, and will do so direct from you. So you don’t want to give Nordstrom the whole line. The idea is that the customer falls in love with your brand, comes back to your website for a second pair of shoes, and finds a whole bunch of stuff that they like that isn’t available anywhere else, and you get to capture full margin without paying for user [acquisition] this time.”
Translation: It’s the old drug dealer strategy — get them hooked, and hope they come back for more. The key here is to treat wholesale as part of the omnichannel mix, rather than something you depend on. Wholesale then becomes more or less a marketing tool, and any difference in margins are made up later when customers come back to your site to buy directly from you instead.
Nelson and Gerson are using the Nordstrom deal as a vessel to funnel customers back to them. In that sense, this Nordstrom deal is a clever one.