Opportunities for new Labels and Small Brands. What, Exactly, Should You Do?

I’ve been chanting for the last few months, and maybe longer, that our current economic environment represents a great opportunity for new and smaller brands. At an ASR seminar in September, somebody actually, finally, asked me, “What do you mean by that exactly?”

My answer was that if you were a specialty retailer, and were still standing, you weren’t likely to succeed by relying on big, national brands as much as you use to. I think I cited four reasons this was true.
 
First, a lot of that product has become available in different channels cheaper than you can afford to sell it. Second, a specialty retailer can’t differentiate itself (which it has to do) by carrying the same product everybody else carries. Third, the percentage of revenue large brands get from specialty retailers is declining and even though those brands may be supportive, specialty retailers are simply financially less important to them then they use to be. Fourth, the size of some of the offerings from the large brands makes it tough as a smaller square footage store to carry and effectively merchandise a selection from that brand that meets customer expectations. And of course, we’re not talking about just one brand.
 
I think I’ll add a fifth. If those big national brands are the focus of your store, then you risk being defined by the brands you carry, and I like to think it should be the other way around. The specialty retailer should give credibility to the brands they carry.
 
What Specialty Retailers Want
 If you’re a new label or small brand, and you agree with my above points, what should you do? First, consider this from the specialty retailer’s perspective. I think the ones I’ve talked with would mostly agree with what I’ve said. But that doesn’t mean they are ready to throw out the big national brands they have long term relationships with and make money on. The ones they don’t make money on are another issue, but that’s for a different article.
 
What do they get from, or at least expect to get from, the established, larger, brands?
·         An advertising and promotion campaign that, hopefully, creates demand.
·         Discounts and extended payment terms.
·         Maybe some POP and other kinds of in store support.
·         Reliable, though certainly not always perfect, delivery.
·         Some level of customer service.
·         Margins and a merchandise selection you can make money on. Hopefully.
 
And they also get a comfortable, long term relationship that has a certain momentum to it. I’m not quite sure if that’s a good thing or not.
As a new label or small brand, you might look at that list and think, “Well, I’m screwed. No way can I match that.” You are, I suppose, partly right. But if we cut to the chase, what does a retailer really require?
 
You have to be able to reliably deliver a quality product that offers the retailer some exclusivity and differentiation and that turns well at a good margin. That’s it. And if the retailer is sophisticated, or maybe has read an earlier column of mine, they might also be interested on the possible gross margin return on inventory investment.   If you can do that, I guarantee all the other stuff will fall into place.
On the other hand, if you can’t do that, forget it. You’re not in business.
 
A Checklist
Life’s a whole easier once you’re brand with a track record, so I’ll address my comments to people with new labels that they want to turn into brands. However, most of these items are appropriate to small brands as well.
 
First, we’re assuming you can make and reliably supply a quality product and have identified some trend or point of differentiation that makes the product relevant to the specialty retailer. You’re on your own as far as doing that goes. You also have to have access to some working capital. One of your advantages- maybe your biggest- is that unlike a large brand, you don’t have much to lose by trying something really innovative, creative, and maybe even a little controversial.
 
Second, you’ve got to prepare a business plan. This document will be important not just in clarifying your own thinking, but in building credibility with stakeholders. More on that later.
 
Third, you have to solidify your relationship with a supplier. A known, reliable one would be good. This is not a matter of a few emails and a phone call. It requires visits and takes some time. Show potential suppliers your plan. Explain to them the market opportunity you see. Make sure they understand how they will get paid, and what the longer term potential can be. A supplier can be a crucial source of support.
 
Fourth, figure out your initial target market. Are there three skate parks where you first want to show your product around? What local influential people do you know that can help you build a little credibility?
 
Gotcha founder Michael Tomson, in an interview in the last issue of Transworld Biz, pointed out that when you start, you don’t have a brand- just a label. “You become a brand once you develop equity in that name and label,” he said. That takes time. Maybe five years he suggested.
 
He’s right, and it’s a great distinction. But of course you’re not a label one day and suddenly a brand five years later. There are baby steps along the continuum of brand building. As a new label, you have to pick the place or places where you want to become a brand first. On a mountain, in a skate park, at a couple of local retailers in a club, or some combination of these and others. You aren’t a brand because you call yourself one. You’re a brand when people recognize the name and attribute certain characteristics to it and the product it’s on.
 
Now, it’s time to make some product, and because of all the work you’ve done educating and building your supplier relationship, that hopefully goes well. Or as well as production ever goes. I don’t mean you’re going to make three samples. That’s already happened. It’s time to make enough product to make a quality presentation to potential retailers (assuming you’ve decided you’re not strictly internet) and to begin to build some support and awareness in the local community you’ve chosen as your first target. If somebody says, “Okay, we’ll take it,” you need to be ready to supply and service your new account. “Great! I’ll have product for you in three months,” is probably not the answer you want to give.
 
The steps I’ve listed above don’t happen as independently and sequentially as I’ve listed them. But they all have to happen. Now comes the big moment.
 
Meeting With the Potential Customer
This cannot be a casual meeting where you talk in off the street.  And it cannot be with the second string, substitute, relief buyer. Because of all the work you’ve done, the owner/decision making buyer may have heard of you and your label. Maybe they’ve even had a few kids ask for it. You schedule half an hour or 45 minutes or maybe more and when they say, “I don’t have that kind of time for a brand I’ve never heard of,” you say, “Mr. Owner, we both know it’s a great time to look at new labels, but I have no idea how you’d decide to take a risk on one without spending that kind of time on it.”
 
And no matter what they say, you do not just “drop off a few samples” or let yourself be pushed down to somebody who isn’t in charge.
Now comes the hard work. You have to get ready for this meeting. Find all you can about the shop. Prepare a meeting agenda and send it to them in advance. Put together a folder or a power point for the meeting that might include, but is not limited to:
 
·         The executive summary of your business plan.
·         An explanation of your points of differentiation and the niche the product is going to fill. Why are you going to be competitive?
·         How you are financed and why that financing is adequate.
·         Information on your suppliers. Who they are, how long they’ve been around, who else they produce for. Perhaps a personal letter   to the owner of the shop explaining how you’ve been working with them and that they are prepared to provide product.
·         Personal and business references.
·         An explanation of your distribution strategy. Who else in the area will have the product and when?
·         A copy of your insurance certificate, business license, etc.
·         Brief biographies of the principals and investors.
·         A suggested order, terms sheet, and explanation of how you’ll support the shop in merchandising the product. If you’ve done your homework, you should be able to suggest where in the shop the product should go, and how much space it will take.
·         Your marketing and promotional program- what you’ve done, and what you plan to do.
 
This list isn’t all inclusive, and not everybody will be able to make equally strong presentations of all the items. But if you do this, and you’re making the presentation (which you have practiced for hours and hours) to a business person, I can pretty much guarantee you will blow their socks off. Because for some unfathomable reason, in this industry, they will generally not have seen this level of professionalism from a new label.
 
This whole discussion started with the premise that it’s a great time to be a new label or small brand. Here’s a link to an article in the New Yorker that talks specifically about why opportunities exist right now. http://www.newyorker.com/talk/financial/2009/04/20/090420ta_talk_surowiecki.