Global retail giants are snaffling up - or imitating - small, lean startup competitors in a bid for market share, but they could find themselves with big, fat inventory problems as well.
Digital disruption comes in many forms, particularly in the retail world. But few would have imagined that retail giants and manufacturers would be facing competitive pressure from “small batch” Mom & Pop-style startups.
The Wall Street Journal said: “Shoppers have gravitated in droves toward smaller, niche or locally made products. The world’s biggest brands are facing a broad-based revolt among shoppers, threatening a business model that has served them, and their investors, for decades.”
Customers are flocking to buy products that would not have been available to them before the Internet. From handmade soaps and shampoos, to locally sourced ice cream, there are few entry barriers for starting up and marketing a new small batch business. Manufacturing costs are low and social media makes it easy to reach customers.
These new enterprises, so-called “lean startups,” have the advantage of taking a small batch of a new product to market and gaining feedback before they go on to going big. And these small firms are beginning to take a bite out of the big guys’ revenues.
Unilever is fighting back by creating its own, more locally viable brands but also buying lean startups such as Brazilian organic packaged-foods maker Mãe Terra; Carver Korea, a maker of toners and moisturizers; Beauty Bakerie, an online makeup brand; and Pukka Herbal, a British herbal-tea brand. Switzerland-based Nestlé SA has been buying up small, local brands like vegan food producer Sweet Earth, to help fight off competition to its Lean Cuisine brand.
The cosmetic industry started this trend years ago, snapping up small (and not-so-small) firms. Seven conglomerates now own at least 182 beauty companies. L’Oreal alone has 39 brands including iconic firms like Kiehl’s, which started as a homeopathic pharmacy in 1851 in New York City.
Buyouts and mergers are not news, but in these cases the buyers are not bundling their purchases under their own brand. The brands remain independent looking while – at the same time – have to be handled as part and parcel of the conglomerate.
This is where the challenge lies. Buying and creating dozens of new brands, then handling the customer feedback and quickly making changes and improvements can be tricky. Inventory visibility will be the number one issue.
What happens when an unpopular product is replaced by a fresh new version? How does a giant retailer like Unilever or L’Oreal know what is where? Supply chain can be disrupted, with discontinued products still heading for the retail outlet while the new version is already there.
The need to be big and small at the same time has long been a challenge but with digital disruption this becomes a bigger challenge, culturally and technologically. Careful management and alignment is essential. The Internet of Things, among other technologies, will surely have to be considered as the path to inventory and supply chain visibility.