Which E-commerce Business Model is for you: Multi Brand Vs. Proprietary Brand
When you decide to start your own online store, the biggest question you have to deal with is – what should you sell?
- should you sell other people’s brands or
- should you sell products from small manufacturers under your own label or
- should you rather get your own clothing line manufactured
These are questions that every start-up has to deal with in the early stages of business. Until you’re not a Fashion Designer who knows exactly what you want to sell, it’s a tricky question to answer. It starts an intense debate about business models, profitability, core strategy etc. As a start-up, you mainly have to pick between two business models:
- Multi-Brand Store: you can sell other people’s brands, for example – Amazon Fashion & Zappos
- Sell Proprietary Products brand: you can start your own label, while providing a great customer service, for example, NastyGal.com
There is an also a 3rd kind – proprietary experience, in which you can start your own label and sell other brands with a proprietary customer experience. Subscription-based e-commerce company – burchbox.com is a good example of proprietary experience. But in this article, I would like to only focus on Multi Brand Online Store Vs. Proprietary Products Brand Online Store.
Starting a Multi-brand Online Store
The problem with starting a multi-brand online store is that it’s a bad business model. It’s practically impossible for a start-up brand to meet the service expectation of customers who have experienced multi-brand online shopping at stores like Amazon & Zappos. If you offer free shipping & return policy, you do a lot of free shipping and also a lot of free returns, which is a big cost. Apart from the cost factor, free shipping and returns also make your business logistics more complex. And then you have unforeseen costs, that you don’t think of when you start your business, such as cost attached with the support, fulfillment, marketing, payroll, rent etc.
And before you know, all these costs eat your profit margins and you find yourself fighting for survival, and growth becomes secondary. But then we also have companies such as Gilt (which is a Flash sale website), running multi-brand e-commerce business and is not only profitable but also rapidly growing. But these companies operate on proprietary pricing. They offer multi-brand products at prices that no one else can offer. Multi-Brand E-commerce Business such as Gilt is successful also because it is a strong brand. The relation between Gilt and its customers is not only about lower price but also a compelling shopping experience and customer service.
Starting a Proprietary Products Online Store Nothing comes close to the excitement of selling exclusive fashion products. When you sell something that no one else is selling, it’s no longer about price and competition, it’s about catching and cashing fashion trends. This is the real business of fashion. There are a couple of ways how you can go about selling proprietary merchandise:
- you can either get your own clothing line designed or manufactured
- or you can sell exclusive/proprietary products manufactured by a vendor-base
You can either start selling proprietary products and nurture your own vendor-base of manufacturers and suppliers who can give you exclusive products to sell on your store OR you can work with smaller manufacturers to produce exclusive products for you. When you source products from these small manufacturers and suppliers, you enjoy much higher profit margins than what you get by selling branded merchandise. And then if you sign-up an exclusivity contract with these vendors, your products become exclusive and they won’t sell that product to anyone else, which means you can sell these products at desired profit margins and not at the margins dictated by a competitor.
There are few essential requirements for building a Proprietary Products Online Store though, such as:
- Niche: You must offer a narrow and deep selection of a rare category of products to people who have a common belief, taste, likes, dislikes, style, art, size, body type etc
- Remarkably different: There has to be something ‘remarkably’ different about your business that makes your company newsworthy.
- Solid Core product: There has to be one core product category that works as the foundation of your business.
- Solid content strategy: You will need a solid editorial content strategy to establish a relationship with your audience
- Great Service: If you have done everything right in the above 4, you should have enough cash liquidity to invest in providing great customer service.
- Innovation: You need to constantly innovate your products and brand experience to be the ultimate work in progress.
Which business model is for you?
Be ambitious, yet realistic. If you’re looking to venture into Multi Brand E-commerce venture, just remember that your chances to build a profitable & sustainable business are very low, let alone your chance of being the next Amazon or Zappos. You must pick a business model that ensures enough profit margins that you are not only able to cover your costs but also make enough profits to ensure long-term growth of your business. That’s why we recommend most of our clients to go for a Proprietary Products Business Model; because even if you don’t become the next NastyGal or ModCloth, you can still build a profitable & sustainable business.
I am the Founder at ILoveFashionRetail, where we design & develop e-commerce websites & mobile apps for fashion retailers. We also help fashion brands grow their online sales & traffic. My essays are featured at Forbes, Moz, Fairchild, FIT and more. Contact me.