Are retailers more powerful when in partnerships?

It's not even half way through the year and we've already seen a handful of retailers form partnerships. Teaming up can be a win-win, and when done right, it can generate exposure as well as revenue. However, partnerships also face more scrutiny. We delved deeper to find out the positives and negatives of retail partnerships.

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When Marks & Spencer and Ocado announced their partnership earlier this month, news rooms and industry analysts around the country went into overdrive.

M&S, which is in the midst of a five-year turnaround strategy that has led to a series of store closures and job cuts, has long been criticised for lagging in ecommerce. The online capabilities were there for the bellwether retailer’s clothing and home division, but for its hugely popular food business, it was severely lacking.

M&S and Ocado’s joint venture came after months of speculation. It consists of M&S buying a 50 per cent share of Ocado’s UK retail business. The deal is worth £750 million, and would come into operation from September next year once Ocado’s current contract with Waitrose expires. The new joint venture will trade as Ocado.com but will stock M&S’s own-brand products, and benefit from access to a database of 12 million M&S food shoppers.

Also announced earlier this year, world-renowned department store Harrods selected Farfetch as its exclusive partner. This would lead to Harrods launching an online platform for customers as well as benefit from the use of Farfetch’s ecommerce management, operations support, international logistics support, and technical support.

David Buckingham, chief executive of data execution platform for retail Ecrebo, said partnerships can bring greater brand awareness, increased footfall, and additional revenue for retailers.

“Many retailers are broadening their offerings, through partnerships or including concessions in-store,” he told Retail Gazette.

“This provides them with the opportunity to extend their product ranges and attract a brand new segment of customers.

“Risks need to be weighed on the balance of the likelihood of success.”

“As rental costs continue to rise, including concessions within their sites can help retailers make the most out of their available space.”

Considering M&S does not stock enough food items on its official website, the partnership with Ocado aims to fill that void. It could also lead to potential cost savings of up to £70 million per year for M&S due to increased buying scale, conversion of customers and joint marketing.

However, it can be argued that M&S food shoppers traditionally shop from small baskets rather than Ocado’s target market of customers seeking to do their weekly big shop. This could potentially place the new joint venture at risk.

Phil Hails-Smith, corporate partner at law firm Joelson, warned that a partnership does not always guarantee success.

“Speculation and risk-taking is just that – risks need to be weighed on the balance of the likelihood of success,” he told Retail Gazette.

“But smart decisions, and the right partnerships, can reap dividends.

“It is a ferocious climate for retail so teaming up would seem a sensible option but the key is to ensure customers still have a choice.”

The partnerships between M&S and Ocado and Harrods and Farfetch are far from unique.

Last summer, the UK’s Tesco and France’s Carrefour announced a three-year “strategic alliance”. This entailed a global purchasing strategy that demands better terms from major suppliers and the joint purchasing of own-brand products and goods not for resale. The alliance ultimately aimed to cut costs for customers in an attempt to claw back market share in their respective countries.

And while it was more of a merger, 2018 also saw Co-op takeover Nisa in a £143 million deal, but the fact Nisa still retains its independence as a brand and business makes it seem like a partnership.

Hugh Fletcher, global head of innovation at ecommerce consultancy Wunderman Thompson, argues that the best partnerships are “clear and equal”. He said they work when parties enter into symbiotic relationships, with each providing skills and capabilities the other cannot. However, he warned that the two retailers can have different ambitions and different cultures.

“A successful partnership now has to see both parties benefiting each other.”

“These can make navigating partnerships very challenging,” he told Retail Gazette.

“Another huge challenge in general for business is ‘change’ and ‘change management’.

“Managing this with a partner can add to the complexities, even if the skills they bring are required.”

He added: “Of course, business success can often paper over these cracks.

“For instance, one can see M&S happy to sacrifice some control over its brand if Ocado helps it to drive digital food sales.”

The Harrods and Farfetch partnership is an example of two somewhat contrasting retailers attempting to capitalise from each others’ logistics.

Harrods has long been recognised as a traditional department store, lacking in ecommerce. Collaborating with an online platform like Farfetch not only benefits their customers but also allows the heritage retailer to benefit from the use of Farfetch’s technology capabilities.

And like Harrods, M&S is also notorious for lacking in ecommerce proficiency and its deal Ocado offers a certain logic as it pushes on with its turnaround scheme.

Michael Sheridan, chairman and founder of retail design agency Sheridan & Co, said a lot of partnerships are made up of a traditional retailer and an online retailer.

“Whilst they have previously seen each other as the enemy, the two can in fact answer each other’s biggest problems, creating a joint offering that will be more powerful than the two could have provided individually,” he told Retail Gazette.

“On their own, they both have weaknesses; traditional retail lacks 24 hour access from home and convenience that delivery offers, whereas trust in online retail is massively depleting due to an increase in false reviews and a lack of customer relationships.

“It’s the mixing of physical experience and digital data and analytics that will give both brand and retailer power in constantly adjusting their offering to become stronger.

“A successful partnership now has to see both parties benefiting each other. Particularly with smaller brands who may partner with bigger companies.

“Traditionally they would do this for ‘exposure’ but small brands should now be demanding more from their chosen partners, especially with the huge rise in successful direct-to-consumer brands.”

According to Ollie Killick, head of partnerships at entertainment discovery platform Fever, retailers are ultimately teaming up not only for power, but to connect with consumers and continue to shift with the ever-changing consumer behaviours.

“The retail environment is particularly tough at the moment, particularly with the generational shift in spend towards experiences, and targeted creativity is required to thrive in such a harsh environment,” he told Retail Gazette.

“This starts with partnerships – partnerships allow retailers to improve the experience for their customers by collaborating with businesses who have complementary strengths.

“This can come through the sharing of technologies and infrastructure, harnessing powerful data analytics tools and capabilities, or tapping into new audiences.”

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