In its study, “The Rise Of The 21st Century Brand Economy,” the Interactive Advertising Bureau (IAB) published research suggesting that growth in most consumer categories is shifting to brands centered on direct consumer relationships and agile supply chains flexible enough to serve consumer needs as they evolve. It notes that companies like Warby Parker, Glossier and Away represent an “enduring shift in the way the consumer economy operates.”
The IAB study says that high-bandwidth internet connectivity has generated two distinct revolutions that intersected to permanently alter the way consumer brands create and extract value. A business-to-business revolution enabled companies to gradually shift value creation from capital-intensive, high-barrier-to-entry, “owned and operated” supply chains to capital-flexible, low-barrier, “leased or rented” supply chains, opening access to thousands of new market entrants across all consumer categories during the past decade. A business-to-consumer revolution has enabled consumers and companies to communicate with each other directly, bypassing the third-party intermediaries—including advertising agencies, publishers and retailers—that controlled the ways brands historically realized the value they were creating.
At the IAB’s annual leadership meeting, IAB Chief Executive Officer Randall Rothenberg noted that while most direct brands are small, with less than $1 billion in annual sales, they have had a pronounced effect on category incumbents. In the men’s grooming category, Gillette’s share of the U.S. men’s-razors business fell to 54 percent in 2016, from 70 percent in 2010, with most of that share shifting to Dollar Shave Club, Harry’s and others. In the mattress category, dozens of mattress companies selling direct to consumers online garnered more than five percent of the market in 2016 and doubled their share in 2017.
Grocery store revenue growth is projected to be about one percent annually through 2022. Over that same period, the market for meal kits is expected to grow by a factor of 10. Sales at U.S. shoe stores in February 2017 fell 5.2 percent, the biggest year-over-year decline since 2009. Online-only businesses like Allbirds ($16 million in revenue), Jack Erwin ($6 million in revenue), and M.Gemi ($9 million in revenue) have gained nearly 15 percent of the market over the past five years.
“You must watch them. You must know them. You must partner with them,” says Rothenberg. Incumbent brands continue to maintain a scale advantage, but the start-up brands have pushed them to alter their strategies and operations. Unilever expects experience platforms and e-commerce to account for nearly one-third of sales by 2022, and Nike expects direct-to-consumer sales to grow almost 2.5 times over the next five years.
The IAB’s “The Rise Of The 21st Century Brand Economy,” can be found here.
