MICRO BRANDS- THE NEXT BIG COMPETITION?

In just ten minutes or so scrolling on Instagram, I counted over a dozen brands I had never heard of selling a product that caught my eye. There are so many direct-to-consumer brands we’ve never heard of these days, and I’ve patronized more than I care to admit.

For the past decade, we’ve invested in and celebrated companies through the lens of network effects, Amazon’s power in retail, and measuring the potential of a brand by its scale and path to category dominance. We assumed that antiquated monolithic brands would be attacked by new modern brands that take over consumer consciousness. But instead, old and big brands are fighting against thousands of tiny brands with low overhead, high on design merchandise, and supremely efficient customer acquisition tactics. Many of us failed to recognize the collective impact of the long-tail of microbrands.

Of course, small brands are nothing new, but they typically remained small companies. Now I’m hearing about more and more of these brands with tiny teams generating over $10M in sales, with higher-than-normal-retail profit margins. What is driving this new wave of commerce, and what are the implications?

Designing & Launching Brands Without Inventory Risk

A little digging unearthed a few realizations. For starters, many of these brands carry no inventory — they are designed with tightly constructed and managed supply chains that can manufacture and ship product in small batches on demand, often in coordination with a partner in China. I heard about a few of these brands that launched and sold merchandise essentially as a design test, and then informed customers that shipping may take a couple of months as the first round of inventory was made. In such a world, a new company that makes socks or bathrobes could conceivably launch three brands at once and then only develop the brand that performs the best. These brands can be spun up and wound down quickly, and they are managed with an eye on the cost of customer acquisition and the achievable spread on Instagram.

Implications Of The Micro Brands

So who wins in the world of microbrands? Social networks that are truly social (as opposed to news-oriented) and enable lifestyle discovery are perfect for this world, and nobody does this better than Instagram. But I do think there are opportunities for platforms such as Pinterest among others to facilitate the discovery of microbrands. And the issue of data privacy may mix up the landscape. On the seller side, the winners are clearly designers (who can rapidly develop brands and iterate design at the top of the funnel), companies like Shopify (that integrate with social networks and empower anyone to be a merchant), key suppliers to microbrands like Lumi (that develop distinguishing packaging and support the just-in-time needs to microbrands) and streamlined fulfillment services like Shipwire among others (that manage all the logistics of fulfillment).