Brands Wanted to Cut Out Stores. Not Anymore.

Those brands that Checketts spoke to built themselves on the belief that traditional retailers were relics of a bygone era. Now, they and their peers are becoming fixtures in the very stores that they had left for dead.

What changed? These companies—and other, more-established brands that followed them—found that cutting out the middleman was harder than they anticipated. 

“Wholesale is profitable from day one,” Checketts said, referring to the practice of selling goods through a third party such as a department store or mall chain. “E-commerce takes longer. Some digital brands never reach profitability because they spend so much money on marketing to acquire customers.”

The low interest-rate environment that existed after the 2008 financial crisis spurred venture capitalists to funnel money into digital startups and give priority to growth over profits. Investors bought into the idea that brands such as mattress-seller Casper and razor-maker Harry’s understood their customers better than retailers did and would make more money over the long term, investors and industry executives said.

The miscalculation was the rising expense of acquiring customers online, they said. A flood of startups all buying Facebook ads and other digital marketing initially pushed up costs. Advertising online got more expensive after privacy changes by tech companies restricted how people are tracked as they move around the web. 

“Beating customers over the head with marketing is far less efficient than shipping a crate of shoes to , ” said Tom Nikic, an analyst with Wedbush Securities.

“The cost of acquiring customers has been the big whoops,” Nikic added. “All these brands kept selling more stuff and losing more money.” 

And with interest rates rising, investors became less forgiving, the investors and executives said.

One solution was to open physical stores. Everlane, Allbirds and other online startups raced to build bricks-and-mortar footprints. But that is expensive too.

Those brands and others have since turned to an even more old-school way of selling—displaying their wares in department stores and other traditional retailers—which executives say carries fewer costs and instantly exposes the brands to thousands of new potential customers.

“We get maybe 1,000 eyeballs on a pair of shoes in one of our marquee partners for every one pair that we sell through that channel,” Allbirds co-founder

Sunday Citizen started as an online-only brand in 2019. Now, it sells its blankets at Nordstrom and Bloomingdale’s. Co-founder Mike Abadi said he eventually expects wholesale to account for as much as 40% of sales, up from 10% now.

One of Sunday Citizen’s selling points is the softness of its blankets—something hard to convey from a computer screen or mobile phone, Abadi said. “A picture can only go so far,” he said. “People need to feel it.”

Even some established brands are having a change of heart.

Nike in October will resume selling its apparel and other gear through , reversing its 2021 decision to pull most Nike products from the chain’s stores to focus on selling through its own retail locations and website. 

Macy’s Chief Executive Jeff Gennette said that in conversations with Nike’s management, they discussed how some of Macy’s more than 40 million customers looked to the department-store chain for Nike products and were disappointed when they couldn’t find them.

Not all brands are making the move. , which sells online and through roughly 200 of its own stores, says it has no current plans to make its eyeglasses available in other retailers.

There are downsides to wholesale. The department store or other traditional retailer—not the brand—owns the data on what people are buying. The limited information makes it harder for brands to react to hits and duds, the executives said. 

Under some arrangements, stores can require brands to make up for any shortfall in expected sales. If department stores discount brands, it can make it harder for the brands to sell items at full price through their own stores and websites. Moreover, brands can lose control of how their products are displayed when they are sold by other retailers, which often buy only a few items, not the whole collection. 

Still, some executives at digital startups said their assumption that brands could make more money without the traditional retailers doesn’t always prove true.

Let’s say it costs a brand $25 to produce a shirt that it sells to a department store for $50, netting it a $25 profit. The department store will mark up the shirt and sell it for $100. Digital brands figured that if they could sell the shirt directly to consumers for $100, or even a little less, they would make more money. But once marketing, shipping and other costs were factored in, many brands wound up losing money, or making less than they expected, the executives said.

Checketts said some department stores are now more willing to share purchase data, which helps him deliver more relevant products. To combat discounting, he requires stores to sell his goods at full price for eight weeks before marking them down, he said.

“We share insights not just about their own products, but about cross-shopping behavior in terms of what styles and prices are working in their categories,” said Ken Worzel, Nordstrom’s chief customer officer. “It’s more true than ever that brands value that.”

“To scale a business, you have to meet customers where they want to shop,” Worzel said. “In a lot of cases, customers still want to shop at department stores that carry multiple brands.”

Write to Suzanne Kapner at [email protected]