Many retail leaders believe niche is important to success and when it comes to retail trends there has been an explosion of niche brands onto the marketplace.
Many have grown internationals legs or been acquired by larger conglomerates. T2 tea is a classic example having started in Melbourne in 1996, it grew into every state in Australia and to New Zealand before being acquired by Unilever in 2013.
This trajectory from birth to growth and acquisition is common and it means that in a global marketplace niche is not about being small, even though many people think of it in this way.
Instead, niche is about a mindset.
It’s about something that surprises, delights and connects us beyond what we see as an everyday proposition, regardless of how big or small, old or young it is or who owns the brand. A niche product can exist within a massive parent company or as a startup.
But to stay niche it must have a focused vision that connects a community around something larger than the product. That means knowing clearly where it wants to play and even more clearly, where it doesn’t.
Fifteen years ago it was really hard to find something that stood out.
Retail was dominated by behemoth organisations that tried to aggregate everything under one roof for everyone, consumers were constrained by whatever was available and in essence chosen for them by buyers.
It was hard for businesses with interesting ideas to get into the market because of the high cost of entry. Production had to be done en masse and distribution often required a footprint in a department store or mall, which is expensive and a long term commitment. Hard to start.
But the digitisation of the economy turned that on its head for sellers and buyers.
Start-up businesses were able to access seed capital. They could design and produce in smaller volumes accessing and unlocking production markets, which meant new and interesting ideas saw the light of day. The dual distribution model of online and offline selling made funding new businesses more appealing and the direct, global access consumers meant a home-based business could all of a sudden reach a global market.
The world opened up for consumers too. Digital technology enables 24 hour shopping no longer requiring the outing to a mall as the only access to a brand experience.
Once limited by what they could drive to, they were able to access goods around the world with a click and came to expect more, better, different choices.
The growth of niche
As a result, we’ve seen the emergence and growth of many successful niche brands.
They stand out because they have a clear sense of purpose, identity, personality but also community.
People who love a particular activity talk about ‘we’. ‘We’ cyclists, ‘we’ tea lovers, ‘we’ readers. And they love to bond with others who are similar minded.
In the age of high connectivity, the increasing sense of isolation people feel can be a key lever for niche brand growth. Niche allows brands to localise and immerse in their community and in a specific product category.
Rapha for example is built around the sole passion of cycling and has helped to bring people out of isolation and into a passionate and engaged global cycling community that now includes Cycle Clubs and Rapha Travel.
With so much choice it’s hard to make a brand matter but those that connect us and deepen a passion with each other as lovers of that product lifestyle, turn into cult brands. We want them to thrive. We want them to be part of our lives and identity.
Once a niche brand grows or is acquired there needs to be what I call ‘hybrid thinking’ to keep it niche.
Niche brands coming into big, established conglomerates, what do they bring?
They’re important because they bring innovation, freshness and a growth path that offsets the more stable efficiency based expectations of the mature brands in the mix.
The success of mature brands is often based on smaller top line growth, CODB focus and the function is holding or growing profit and that often comes from multiplying cost efficiency, so there’s a limited risk-taking lens. This is true for publicly listed companies that have to navigate the reporting cycle and shareholder expectations.
On the other hand, niche has a higher risk profile because it’s on the edge of what could be, it is about possibilities yet to be realised.
To manage the dance, you have to think about and treat these subsets differently, even to the point of having different business models and metrics. For existing brands its bottom line while niche brands include deeper focus on consumer feedback such as talkability in digital and social media as this influences brand development and financial metrics.
It means bringing together ways of thinking, from those who want the lowest, most efficient way forward to those who want to take leaps in the dark on the assumption that some attempts will fail.
One way I have seen that work is to apportion a percentage of forecast revenue and cost base to high risk-taking ventures and obtain agreement on success through something like an innovation fund that is managed within the brand. In essence, ring fencing innovation to ensure the creative process is not blocked.
Success is not about ‘niche or not niche’ as a way of describing a product or where you are on the path it’s about thinking like a niche brand thinks no matter what.
When you look at niche brands like Lululemon or large department stores like Selfridges that perform well compared with those like Macey’s which struggle, what you see is that those categories that succeed have a single-minded reason and vision that everyone can buy into.
Often there’s an inspirational leader who creates an inspired leadership team (and that’s not just defined by the position they hold) and delivers a strong, clear vision consistently driven through strategy, execution, culture, communication and customer engagement, in other words, everything.
The right question is not whether or not you should be niche. The right question is – what’s my purpose?
It’s not about who owns you but the clarity of your vision and tenacity with which you hold onto that to ensure that you do not drift.
My advice to retailers is –
- Be bloody minded about the purpose of your brand. Consumers want heart-felt experiences and connections and will pay more to get them . It’s not just about luxury goods either. We will pay more for a household items if it has a story around it, Wool Mix for example.
- You should have a global marketplace lens. Whether you’re big or small, your market is no longer bound by geography. Think global, connect individuals into communities.
- Be open to doing things differently. Creativity is everywhere in an organisation. Ideas don’t come out of a functional silo, even if the execution of the creativity does.
That’s what I am thinking about at the moment.