Retail Business Models

I’ve been in love with my job at Overstock since day one.  The more I learn about the business, the more I become fascinated with the industry and how Overstock fits within it.  It’s so funny because I never would have expected to see myself working in retail, let alone data analytics, but I absolutely love both worlds.

I sometimes feel that Overstock operates a lot like a start-up in that its strategy isn’t very complete or well-defined.  From my perspective, the company seems to have goals that are all over the place, and it’s easy to get lost in all the noise because we’re not just a retailer, we’re also in the tech industry.  It’s difficult to understand who exactly our competitors are, because we have so many product lines and there are competitors springing up from every direction, channel and industry.  We don’t really compete directly with Amazon, because we use a differentiation strategy when it comes to our furniture department.  But we also don’t really compete head to head with exclusively furniture e-retailers like Wayfair because we sell more product beyond just furniture.  Then, there’s also retailers who were formerly brick-and-mortar stores moving into the e-commerce scene, like Wal-Mart and Sears.  Are they competitors too?

I think that having a clear, well-defined strategy, and sticking to it is the key to running a successful business.  Rather than trying to have a hand in everything, I think it’s important to build a core competency and own that competitive advantage.

One of my favorite entrepreneurs of all time is Tory Burch.  The story of her road to success is so inspiring, and I feel that she built her company with a distinct strategy in mind from the onset.  She didn’t aim to compete head on with top-tier designers, but instead brought her own classic-boho look into the high fashion scene at more affordable prices.  There are very few designers whose style identically matches her product line.  And while she introduced a broad range of items from swimwear, apparel, sunglasses and handbags, she built her competitive advantage around her Reva ballet flats and her classic tunics, new styles for which are introduced each year and likely support a majority of her revenue streams.  Similar to Hermes scarves and Diane von Furstenburg’s wrap dress, Tory Burch built a competitive advantage around one signature item for which her brand could be built around.  Within a decade, Tory became a multi-billionaire and represented a threat to already-established mid-level brands like Michael Kors, Coach and Kate Spade  (See guys, I’m not just obsessed with her product – I’m in love with her story!).

Another favorite retailer of mine is Zara.  Zara is known as a fashion-forward retailer, but it’s funny to me because their strategy does not involve their designers bringing new and fresh designs to life.  In fact, it’s the exact opposite – Zara buyers closely monitor the attributes of products that are depleted from Nordstrom and Saks’ shelves the fastest.  As soon as they buyers identify styles that are “trending”, these designs can be seen on Zara’s racks within two weeks.  And, they intentionally hold low quantities of each style so that they sell out fast.  Thus, Zara does not risk incurring additional costs of releasing designs that don’t sell, and by limiting the quantities they have available they mitigate the cost of holding weak economic inventory.  I love this strategy because they avoid the uncertainty associated with being an “early adopter” of new and innovative styles, but are able to maximize the benefit of profitability while the style is at its peak and before it reaches its life cycle.

Even though Overstock is not primarily a fashion or apparel retailer like Tory Burch or Zara, I feel that Overstock can learn a thing or two from their strategies.  By differentiating itself, Tory Burch was able to make herself stand out among other mid-level brands.  Had Tory Burch tried to compete head on with designers of all tiers, or had the company invested additional time in developing other signature items beyond their tunics and ballet flats, it probably may not have been as successful as its competitors.  And Zara, deciding not to be the trend-setter, but instead a damn close follower of already-popular styles, probably would not have as robust of a business model if it decided to be a trend-setter as well.  Overstock should considering companies like Amazon, Alibaba,and Rakuten as competitors.  We don’t have as wide of a selection as they do in many of our stores, because the basis of our competitive advantage is in furniture.  And Overstock should not try to predict the next big fad and stock up on new and fresh inventory in anticipation – it should continue what it does best and generate revenue off of styles and attributes that have already proven themselves successful and coveted by the market.

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