The relationship between retailers and brands has changed. You’re probably already aware of this, but retailers aren’t defaulting to wholesale orders like they used to.
They have plenty of options to engage with brands, including dropship and curated marketplaces. Just look at the fact that in 2021, Macy’s, Nordstrom, and Foot Locker all announced plans to invest in dropshipping operations to reduce their dependence on wholesale inventory.
A model we’ve been paying attention to in the world of luxury retail is e-concessions. While it is incorporated more often in marketplace models, retailers can leverage it within their dropship programs as well.
In this article, we’ll share what e-concessions are, how they benefit both brands and retailers, and how you can get started with one for your store.
What are e-concessions?
E-concessions are a business model by which e-commerce brands can sell through a retailer’s online platform while maintaining control over their pricing, discounts, branding activities, and product assortment. In exchange, the retailer charges a commission on every sale.
An e-concession is the digital counterpart to retail concessions, in which multi-brand retailers provide dedicated space for brands to sell their products to customers. Similar to the marketplace and dropship model, e-concessions benefit ecommerce and DTC brands because they can leverage a retailer’s reach without having to go through a traditional wholesale model to get their products live in a retailer’s store.
Benefits of e-concession for brands
E-concessions provide an alternative path to pure marketplace and dropship models for brands.
In recent years, both top-tier luxury and e-commerce brands have started pulling back from wholesale and they are now pushing retailers to adopt an e-concession model. Here’s why:
1. More control over product data
E-concessions allow greater control for brands—product merchandising, brand colors, product pictures, pricing, discounts, store marketing—you name it, you’ve got it.
Brands can also swap out products on the fly to keep up with market trends — this benefits retailers because they aren’t exposed to inventory risks and can operate more nimbly than they would otherwise.
2. Consistent customer experience
E-concessions allow brands to get in front of millions of shoppers without compromising on their pricing, catalog, and overall customer experience. This creates another touchpoint for brands that can influence sales outside the retailer’s store.
3. Higher profit margins
E-concessions work on commissions. The retailer negotiates a commission percentage off every product sold by the brand. However, brands stand to profit more from an e-concession model since they can pocket anywhere between 65 to 90 percent off every sale, as opposed to a wholesale model where they would only keep 40 to 50 percent of the product’s retail price.
Benefits of e-concession for retailers
With e-concessions, retailers can partner with brands that would otherwise be opposed to a pure marketplace or dropship program. This helps them increase their product assortment without absorbing additional inventory risk.
Let’s look at these core benefits in more detail:
1. Zero inventory-related risks
In a wholesale model, retailers purchase products in bulk, store them, and then ship them from their warehouses and physical stores. This has inherent inventory risks as the inventory might be outdated, there could be product damage, and shipping delays, among other supply chain issues. E-concessions eliminate all these risks as brands manage everything independently.
2. Expanded assortment
By default, retailers want to offer a large assortment of products to their customers to foster customer loyalty.
With an e-concession model, retailers can onboard multiple brands without the long timelines and frequent back-and-forth communication that comes with a wholesale model.
3. Faster go-to-market
An e-concession contract between a brand and a retailer is faster to execute than a wholesale one. Once both parties have negotiated financials that work for both of them, retailers can take brands to live in a matter of days (using a platform like Convictional). In contrast, a wholesale agreement takes longer to execute, especially if a retailer is using EDI to purchase wholesale orders from brands.
Since the model is simple and straightforward, e-concessions are quickly gaining traction among retailers as they strive to onboard online luxury brands that prefer to have more control over how customers discover their products and purchase them.
Here are a few examples that are considered early adopters of this model:
Amazon launched Luxury Stores in 2020. It’s powered by an e-concession model, with top brands like Elie Saab, Rodarte, Car Shoe, RéVive Skincare, Mark Cross, and others listed there.
Currently, Luxury Stores are available in the US and you can access them through the web browsers or the latest version of the mobile app.
2. Tmall by Alibaba
Touted as the fastest-growing example of the e-concession model for fashion brands, Tmall’s Luxury Pavillion has onboarded over 200 luxury brands, including Balmain, Cartier, Ferragamo, Prada, Chloé, and Saint Laurent.
The platform has demonstrated early success: sales grew 159 percent year-on-year from January to March of 2021.
Nordstrom plans to grow its partner and shared revenue streams from 5% of its business to 30%, and concessions will be the key driver. The company also announced plans to reduce its traditional wholesale from 85% to 50% of total sales as it looks to innovative partnership models like retail and e-concessions.
Brands like Suitsupply, Bonobos, Away, and SKIMS have signed e-concession partnerships with Nordstrom.
“Not only are we the only global luxury platform offering e-concessions but we are continuing to offer revolutionary innovation by advancing Luxury New Retail (LNR), which is what brands need right now,” said Farfetch CFO Elliot Jordan.
Farfetch, a luxury retailer, touts their e-concession model as being different and unique as they’re fully integrated into the warehouses of the brands they carry, like Mulberry and Gucci, which increases their supply chain efficiency.
Mytheresa is known for its highly curated selection of luxury brands on its platform. Although they have grown their business on a traditional model, they recently introduced a “curated platform model” for brands like Gucci and Moncler.
Under the model, instead of buying from them wholesale, Mytheresa holds inventory from select brands in its warehouses and will ship it directly to customers whenever they make a purchase. The inventory still belongs to the brand, which makes it different from traditional wholesale.
And as with all e-concession models, the company charges a commission on every sale. What makes this model unique is that Mytheresa still curates its selection of items as it normally would.
How to start an e-concession model for your retail business
It’s easy to start an e-concession store for your business. At Convictional, we regularly stand up e-concessions for our customers.
In this walkthrough, we’ll show you how you can do the same in three steps:
1. Integrate with Convictional
First, you’ll need to integrate your store with Convictional to set up your e-concession model.
There are two ways you can do this: a direct integration, or a custom integration. Direct integrations can be done through our Shopify, API, or EDI integrations. Depending on the path, a direct integration can take a few minutes to a couple of days.
However, if you’re a larger retailer, it’s likely you have a custom system with many platforms working together in your stack. That’s where you’ll need to use a custom integration.
Convictional can integrate at any level in your stack. We often integrate directly into your PIM or your ERP depending on where your product and order information lives.
Curious to hear what a custom integration would look like for you? Talk to our team and we can get into the details with you.
2. Pitch brands to partner with you
You can’t stand up an e-concession model without having brand partners who are ready to work with you.
Your market power as a retailer and the prevalence of e-concessions in your category can determine how long the pitch process can take. We talk about the idea of Supplier Appetite — how likely it is that a brand will partner with you when you pitch to them.
To incentivize brands to partner with you, have these metrics ready to share with brands:
- Monthly website visits
- Total social media following
- Social media engagement rate
- Email subscriber data
One more piece of advice here: have a range of commission percentages you’re willing to negotiate with when you’re talking to brands. Your finance team may also prefer a fixed commission rate across all e-concession brands, so make sure to check on your flexibility with having different commission rates with different brands.
3. Get brands live on your store
Once a brand agrees to partner for an e-concession, you’re on a deadline to get them live on your store as quickly as you can to start selling.
Onboarding a brand is quick and easy on Convictional:
- Connect to their store
- Have them accept your e-concession program policies (including your commission rate)
- Sync their products and inventory
- Get their price lists
- Set up their billing information
4. Have custom storefronts for top-tier brands (optional)
Once you’ve onboarded a brand on your store under an e-concession model, you may want to consider giving them custom storefronts within your store. This isn’t as common today with e-concessions, but it can make it even more enticing for brands to partner with you. It also reflects the shop-in-shop model that existed with physical retail concession stores.
E-concessions strike the right balance for retailers and brands
As the e-concession model gains traction, we'll be seeing many more retailers and brands endorsing this, as it’s already proving to be a win-win for all parties involved.
Retailers get to appeal to more brands to list products on their stores. Unlike a pure marketplace, however, retailers can provide e-concessions alongside an existing dropship program for top-tier brands that want more control.
Brands get to control how their products are presented and priced. They can also tweak pricing with one retailer so that sales with another retail partner aren’t impacted.
If you’re looking to start an e-concession model for your business, Convictional can help! Contact our sales team today to get started.