Why and How should an online t-shirt seller retail physically? — Threadless Case Study
1. Should Threadless move into physical retail distribution? Why or why not?
Threadless is a Chicago based clothing manufacturer that specialises in producing tee shirts with crowdsourced designs. Threadless was co-founded by Jacob Nickell and Jacob DeHart in 2000 as a competition where the most voted design was a winner. Later, this turned into massive success and a business model that was first of its kind at that time. Basically, Threadless is a website where users submit their designs, other users rate it from zero to five, and then the winning designs are produced and sold as tee-shirts. Few points to note are — about a thousand designs are submitted each week, the users vote their favourite designs, Threadless employees pick out 10 designs after 7 days after various considerations and then those designs are put into production and sold through the same Threadless website. The users whose designs are selected are compensated with 20% royalty on the net profits and a $250 gift card to be used on the Threadless website, which can be swapped for $200 cash.
Threadless had been selling their tees through their website up until when they opened a physical retail store in Chicago in 2007. But it was not a success at all since sales declined heavily and they were forced to close it down.
Now to answer the given question, I personally believe that Threadless should adopt physical retail distribution and below are my insights on that belief.
- Even if Threadless’ past attempt of physical distribution in 2007 was not very successful, the current time calls for multi-channel strategies so Threadless can maximise their sales.
- The ‘touch and fitting’ factor matters a lot when it comes to clothing. Some customers will prefer visiting the physical store and pick out clothes instead of doing so on an online portal.
- The physical store provides more visibility to the t-shirts as they are on a display all the time and even by-passers are likely to pay attention and subsequently check out the products which may end up as a successful purchase.
- Majority of apparel sales is done through physical retail distribution channels. An offline retail store is likely to gain more traffic than its online counterpart. More traffic means potentially more sales.
- Physical retail stores can provide a personal level of interaction and familiarity with a lot of customers. That helps the brand and the customers are likely to keep coming back to the store.
- More products being sold means more artists getting paid in turn, which is the main goal of Threadless.
Although there are various threats to Threadless with the physical retail approach, such as — additional staff requirement, need to monitor more activities, update more stocks, dealing with price inconsistencies as well as dilution of brand image and reduction of control, Threadless should form mutually beneficial partnerships and implement strategies to successfully adopt physical retail channel of distribution. One such example would be Threadless’ partnership with the clothing giant, Gap.
I will further explain why I think Threadless should sell through an existing retailer instead of opening its own stores.
2. If Threadless were to move into physical retail distribution, how? Should it open its own store or sell through an existing retailer?
Opening a brand’s own retail stores may sound like a great idea to maintain authenticity, better control, and overall unimpacted brand image but that may not be the case for every company out there. The two biggest reasons why Threadless’ attempt at physical retail distribution failed in 2007–2014 are — lack of sales and heavy expenditure. Lack of sales can be dealt with by implementing correct strategies while heavy expenditure of setting up own stores can be eliminated by simply forming foresighted partnerships with existing retailers. Below are a few reasons why I consider that Threadless should sell through existing retailers:
- While it may sound insignificant but the past experience of Threadless with setting up own physical distribution stores proves that they should stay away from repeating that again.
- Speaking of experiences, Threadless has had a much more positive experience with forming up partnerships with other retailers, such as Gap, Dell, Bed Bath & Beyond, etc. Threadless has denied partnership offers from big retailers such as Target and Urban Outfitters. The founder is quite confident about that decision and so am I. As Nickell points out, the main concern of forming up a partnership should be whether individual artists are being benefitted or not.
- Forming better partnerships is going to build better brand value and reduce some level of competition as well since the retailers are already in that market for quite some time. This also ensures mutual benefit in the form of more exposure to artists, higher sales for Threadless and a bigger pool of designs for retailers. The combined goodwill of brands is going to help as well.
- Obvious, but selling through existing retailers can help Threadless significantly reduce upfront fixed costs and heavy expenses. Staff requirement is going to be less as well.
There are some drawbacks of selling through existing retailers such as limited control, competition with other brands for shelf space and exposure in the store, dilution of brand image as well as the reduction in control. But, by engaging in well-analysed partnerships, Threadless can manage to maximise sales and minimise costs as well as artist and customer dissatisfaction. And if own stores are to be opened, ‘scarcity marketing’ strategies should be implemented considering the type of company Threadless is. I may suggest opening ‘pop-up stores’ as one of such strategies.
While partnering with 3rd party can upset the artists and customers of Threadless, it can be eliminated by implementing a strategic relationship between its online and physical distribution. I will discuss that below.
3. If Threadless were to move into physical retail distribution, what should the relationship be between its online vs. physical distribution?
While forming better partnerships with retailers is the first big step in successfully adopting physical distribution, perfecting the blend of online and physical distribution is the next big step. A proper strategy in place will ensure that both online and offline sales are in harmony and not negating each other. I would like to suggest a few strategies on how should the relationship between online and physical retail be.
I believe that scarcity marketing could be beneficial for a brand like Threadless. The users of Threadless are generally within the age range of teenage and late 20s. The designs and community, in general, are based on the pop culture and cultures of the internet, technology and other similar cultures of the millennial and generation Z. These generations are usually the ‘trendsetters’ and not the ‘trend followers’ so that would mean they like to be first in the line and the highlight of the party. Keeping these in mind, Threadless should try to keep their designs unique & creative and most importantly fresh & limited. Mundane designs that are available everywhere are not likely to appeal to its userbase. This is where scarcity marketing tactics come into place.
Threadless started out as a t-shirt seller through online channel and has been quite successful at that, and it should stick to it as its main ‘retail channel’ which will show its loyalty to the users and artists. Forming bad partnerships and making exclusive designs mass available may make the brand appear as a ‘sell-out’ as it has done in the past. So the foremost priority should be to maintain the exclusivity of the products sold in the online store. Threadless could release its designs in the prevailing manner i.e. 10 designs per week on its website while additionally releasing more new designs for its physical retail channels for a relatively longer period as compared to the online counterpart, such as a month or so. This will maintain the exclusivity and integrity of both channels while also helping the physical stores spend less energy in dealing with stock maintaining. The ‘limited’ designs released on the website could be hyped up during the ‘selling’ week so more people would want to buy the designs and then the some of the designs could be sold with a bit higher price in the physical stores after a waiting period, say 6 months. This strategy is nothing new and has been successfully implemented by various firms.
Other phenomena such as Paradox of Choice, FOMO (Fear of missing out) and many more could be implemented in order to maintain the uniqueness, exclusivity and authenticity of the t-shirts and other future products at Threadless.
