How the Recession Affected Entrepreneur Financing In the Best Way Possible The recession is why flash sale sites are old news, online-only stores are opening brick-and-mortars and why luxury brands now forgo exclusivity.
By Tracey Wallace •
Opinions expressed by Entrepreneur contributors are their own.
If the Gilt Groupe's acquisition by Saks Fifth Avenue teaches us anything, it's this: the Great Recession isn't done with the U.S. economy just yet. For the unfamiliar, the Gilt Groupe was a dominant fashion flash sale company launched in the middle of the recession, when manufacturers and retailers had plenty of excess stock. Over the years, they earned themselves a valuation of more than $1 billion, but in early January 2016, Hudson Bay, the parent company of Saks Fifth Avenue and other department store chains, purchased the company for $250 million.
That $250 million is still a pretty penny, but investors and employees at the Gilt Groupe aren't exactly stoked about the ticket price. After all, they thought it would come in much higher. What happened between valuation and actual purchase?
The economy changed. Startups including the Gilt Groupe and One Kings Lane, which built their fame and fortune on the backs of timed discounts, are learning a hard lesson: consumer shopping preferences change quickly and dramatically.
This lesson isn't unique to flash sale sites, however. The entire retail industry is feeling the squeeze, both from the slow start coming out of the Great Recession, as well as the technology disruptions that have altered how consumers search, browse, consider and buy items. Think for a moment about legacy luxury brands that built their fame and fortune on the idea of exclusivity. Sure, these brands had websites, but there was no shopping option. To shop, you had to go into a boutique.
But, in 2014, nearly all luxury brands gave in to the need for online shopping capabilities and announced their plans for online shopping sites in 2015. Chanel and Celine, the two brands which held off longest on the change (Burberry, for instance, was an early adopter), will be launching their online shopping sites this year. Turns out even luxury buyers opt for convenience over exclusivity. At the very least, they want both.
And yet, while these once brick-and-mortar only brands are being forced to dip their toes into the online waters, the reverse is occurring for those brands native to the Internet. BirchBox, Nasty Gal, ModCloth, Rent the Runway, Warby Parker and even Amazon have all opened brick-and-mortar locations. Many of them have plans to expand those operations.
So, what is happening here? Flash sale sites are being bought and wrapped up into the holistic offerings of department stores. Luxury brands are opening up shop online, with proximity no longer part of their exclusivity effort. Dominant online retailers are seeking out physical locations throughout the U.S., often buying out the spaces from those slower to adapt competitors that have been forced to shutter their doors. These are only a few of the larger trends taking shape in the world of retail.
Related: Conceived Online, Birchbox Embraces the Beauty of Brick and Mortar
The recession's looming retail presence.
Retail is a supply and demand chain and consumers, whether they realize it or not, get the final say. During the Great Recession years, low prices for excess stock was appealing to a large part of the market. As the recession lingers back into our forgone memory, the discount-hungry audience is shrinking back to its typically younger demographic. But the recession did play a large part in educating the market on how to shop online –– and quickly at that. Those demographics which are traditionally late-adopters to new technologies, but high spenders, are now demanding both quality and convenience, forcing those luxury brands to rethink how they create an environment of exclusivity. As those once online-only stores' loyal demographic ages and grows out of their discount hunger, looking instead for value, quality and experience, brick-and-mortar stores are being used to display physical goods customers can touch, examine and Instagram.
For the retail entrepreneurs of the world, this analysis may be too much detail. You are probably thinking: of course consumers have the final say. Of course times have changed. Of course there is now a need to be everywhere the customer is, and no retail niche is protected from that fact. But, read between the lines here. Yes, innovation and agility are now key to a successful brand. So, too, are humility and transparency, especially as you test out new strategies and offerings. This is a big shift from the more corporate retailers of the past. We have the recession and the huge amount of innovation that occurred during it to thank for that.
One thing, though, has not shifted. To execute on these business personality traits, you need cash flow. That cash flow will help you to create either a unique marketing angle or a unique product, and its better if you have both. But know this: you don't have to rely on traditional funding options. Those options are what have the Gilt Groupe disappointed over their $250 million buy out. Those options are why companies like Fab couldn't keep up. It isn't that there aren't good people working there. It isn't that the product ideas were bad or that the business model didn't work. Sure, in some cases, these are the reasons behind a shuttering. But for most, it's a loss in agility that does them in.
Related: Gilt Groupe Co-Founder: The 5 Secrets of Super Successful Founder Relationships
Foregoing the venture firm in the new world of business funding.
Venture funding works well for many, but in looking at some of the most successful online stores started since the recession, few have a dime of venture funding to their name. Instead, they go through Kickstarter. Instead, they build a business as a side hobby. Instead, they fund their brands through passion and community. This, too, is a shift that allows both consumers and entrepreneurs to begin their lifetime loyalty on the same page.
The biggest industry shifts over the last few years, and what will be the biggest industry shifts looking forward in 2016, are all efforts by brands to reconcile the consumer preference and expectation gap created, most often, by fear. Fear of the unknown. Fear of investing in the wrong platform. Fear of doing what has not yet been done. Yet, technology is not the enemy.
The lines of commerce are blurring, and no longer is one medium better for one niche than is any other. The same is true for each of us, consumers in our own ways. Technology may be the eraser, but entrepreneurs and brands are the lead. While what your brand says and how you market it matters, consumers are beginning to pay attention to the finer details. The source of your lead matters to your customers, to your bottom line and to your entrepreneurial aspirations.
We're back to the days of bootstrapping in which community ideas and expert execution drive success. Don't let money, tradition or conceit get in your way. You've got a job to do. The community is waiting.
Related: 10 Bootstrapping Tips to Help Turn Your Idea Into a Reality
