Winners in the Specialty Retail Industry: “Thrival” of the Fittest

This article is focused on specialty brands that we define as producers of design-focused, high-quality, manufactured gift and décor products that cater to consumers seeking premier or luxury products.


The American retail market has been shifting online with 16.0% e-commerce permeation1 in 2019 up from 6.4% in 2010. In the last three years alone, e-commerce has grown 30% from $450+ billion in 2016 to $600+ billion in 2019.2

In everyday terms, we buy more online, know that brick-n-mortar retailers struggle, and see shopping malls shutter. The COVID-19-related lockdown has further accelerated, or perhaps simply limelighted the shift online, and has enabled the fittest of e-commerce retailers to thrive. 

The last five years have seen e-commerce-focused retailers strengthen their positions, traditional retailers adapt to paradigm shifts, and breeds of retailers sprout on new platforms.

Rank 1: Big E-Commerce-Only Retailers

Big e-commerce-only retailers have figured out the formula: they maximize levers with both brands and consumers.

These retailers position themselves as a “go to” shopping source with a wide category range and large product assortment. Some of these retailers operate multiple websites, each with unique products, to granularly segment and market to end-consumers. These retailers have figured out a working digital strategy and constantly manage marketing medium with shifts in relevancy. 

These e-commerce-only retailers find the need to augment brand name recognition with catalog mailings, traditional advertisements, or seasonal pop-up shops.

Most work on wholesale economics, and brands have grudgingly accepted this; it is to be seen if brands will delist and move to the growing segment of retailers that offer marketplace economics.

Singular focus on e-commerce and low-inventory hold coupled with dropship has been the winning model.

Rank 2: Specialty E-Commerce-Only Marketplaces

With niche products that cater to specific market segments such as Play or Home or Fashion, these marketplace retailers are creating rich content and establishing themselves as a credible source to shop from. Currently, these retailers lag behind Department Stores that have an “online also” strategy, but the pack is large, and such marketplaces as a segment will come out ahead.

These retailers attract the right target customer and work on marketplace economics, all of which incentivizes specialty brands to list more products. 

Rank 3: Department Stores “Online-Also”

Department Stores with  “online-also” strategy need to transform quickly to harness advantages. These retailers are handicapped given inventory they carry for their stores, store rents that translate to debt on their books, and their overall perceived, or perhaps real, credit risk.

However, they have the highest brand name recognition and most impetus to widen category breadth. These stores each have a thousand or so dropship brands—a relatively small number in the universe of brands—and need to expand range as they transform to an online destination.

Rank 4: Specialty Big Retailer Marketplaces

Specialty Big Retailers that have committed to online marketplace as a primary channel have the right formula in many ways. These are traditionally multi-door retailers that offer premier, niche products. They use brand name recognition to their advantage by targeting customers with a curated set of products. They need to push boundaries to list more categories and products without compromising the offering. These retailers work on marketplace economics which is more attractive to brands.

Some have yet to adopt full integration to vendors and brands and some have the same handicaps as that of Department Stores. 

Specialty Big Retailers with focused category of products have the best shot at being a formidable competitor to Amazon.

Rank 5: Brick-and-Mortar Retailers “Online-Also”

Brick-n-Mortar retailers have enough of the middle ground covered to economically serve themselves.

This segment of retailers has been jolted into new awakening in the COVID era. Small brick-n-mortar retailers are augmenting their presence online by cross-selling to their community of shoppers. They are embracing the dropship model even if not fully technologically adopted.

Rank 6: Multi-Door Retailers with Limited E-commerce

These are multi-door retailers with high brand recognition; many are known leaders and brand owners in specific categories. Some sell third-party brands and place purchase orders to complete or compliment offerings in their stores. Third-party brands cannot count on such retailers for evergreen sales.

These retailers are testing dropship with brands but are not fully committed yet on the technology front. Multi-Door Retailers that are focused on self-branded specialty products need to commit and carry third party brands to expand their offering and to grow.


Amazon

It would be remiss to not talk about Amazon while we discuss “winners in retail.” Amazon stands apart from the types of retailers we have discussed here given that it is a marketplace offering consumables, and not specialty brands.

The tested Amazon formula works well for many types of brands and products. However, since Amazon is not a destination for specialty products, it ranks low on specialty attributes: brand name recognition, category breadth, and target market.


In conclusion, as the above illustrations show, while constrained by parameters within which they operate, retailers have to cover as much ground as possible to take the lead in the industry. Retailers with greater coverage have adapted to the changing environment, and have to continue their stretch to reach efficient frontiers.


1 Online sales as a % of total retail spend which only includes products than can be purchased online.

2 Source: U.S. Department of Commerce data.

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