Why HENRY loves DAVID, and It’s Sure to be a Long-Term Romance

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\"\"An interesting piece of research recently crossed my desk from business development firm Marvin Traub Associates. The firm works with companies in the retail, consumer, fashion and luxury industries to optimize their businesses across channels, borders and classifications of product. Entitled the “New Davids,” the report examines cutting-edge e-commerce-driven businesses that are challenging traditional retail. What exactly is the New Davids? According to Marvin Traub Associates:

“Since the great recession, the influx of new e-commerce-driven businesses, competing across fashion, beauty, accessories and home goods is more impactful than many realize. We call these brands the New Davids. The common thread the New Davids share is that they deliver exceptional service, quality and value to consumers through direct channels.”

As I studied the extensive list of 200 New Davids brands, I realized these are all companies that are laser-focused on young HENRYs – the high-earners, not-rich-yet consumers. We both are looking at the same phenomenon, but from different perspectives: me from the viewpoint of customers, compared with Traub’s business view. Both of us are trying to connect with this growing group of consumers.

We both concluded that HENRYs love the New Davids and it’s not just a fling, but a long-term romance. I sat down with Mortimer Singer, CEO of Traub, to discuss the research. Morty credits the launch of Bonobos in 2007 with triggering the New Davids trend. “Bonobos was a seminal moment in this shift into a new era of the ‘I-brand.’ It’s about the consumer owning a brand. The customer becomes part of an extended tribe of people bound together by the brand. The New Davids brands are forging the future of retail in this HENRY millennial world.”

His allusion to the almost religious fervor that HENRYs feel for the New Davids reflects today’s young affluents who are searching for deeper meaning in their lives. That includes how they express themselves as consumers. “It’s the notion that in the world the younger generation lives in, they are more connected through technology, not the physical world,” Morty explains. “They have a deep need for spirituality, yet are largely renouncing organized religion. But when you look at it, organized religion is a lot like a brand. Religion pushes a schema, like brands.

“The young HENRYs are finding spirituality through spending, through the blessing or ‘laying on of hands’ to brands that resonate with their values, like how they treat the environment, their employees, and the animals they source their products from on a 360° basis of sustainability,” Morty says.

That said, as these New David businesses grow, will they lose their religion? “The studies would suggest that these young, values-focused companies may lose some of those founding ideals as they mature,” Morty says. “Most of these brands are quite small individually, although if you put all 200 companies together, they are doing about $1 billion in America.

Many of them would be happy to build a $100 million business that is profitable and self-sustaining. But other entrepreneurs will feel the need to chase revenue and so will turn to venture capital, which will demand growth. That is why many of these companies are now putting down brick-and-mortar roots to deliver new experiences.” After all, he continues, “You can’t eat online.” That’s a reference to the spread of exciting new food concepts used to activate retail pointing to such groundbreaking complementary retail-food pairings as the Time Warner Center, Le District and Brookfield Place New York.

New Davids Adopt Omnichannel Strategies to Make It Personal

The New Davids are adopting omnichannel strategies because of profound shifts in how HENRYs are spending their money and their time. HENRYs crave personal experiences with the brands they endorse, so person-to-person retail is next. New Davids are setting up shops in cities across the country to literally shake hands with their customers. Digital research firm L2 noted that trait in a report entitled “Death of PurePlay Retail,” which finds that more than two-thirds of e-tailers’ venture-backed capital is used to help build stores.

From Morty’s vantage point, men’s bespoke suiting company Knot Standard is a testament to how the New Davids are taking an omnichannel strategy to the people. It started as an online e-tailer and has since expanded to include nine brick-and-mortar retail showrooms on two continents. Recently, Knot Standard entered the wholesale channel through a partnership with Bloomingdale’s.

“Knot Standard figured out how to offer fully bespoke suiting online, using videos to guide customers through the process, including how to do fittings, take measurements and select fabrics, buttons, and all design details like lapels and button holes,” Morty says. “If you don’t want to do it yourself, you can schedule a visit in a showroom. The New York City flagship store looks and feels like the finest boutique hotel, with a bar and couches to make the guest feel comfortable, stay longer and actually hang out with the stylists. Back in the day, Marvin Traub would talk about retail theater. Today, it’s a fusion of retail and hospitality.”

The new Knot Standard-Bloomingdale’s partnership extends the brand’s personal touch to an even wider audience. “Department stores have an incredible asset in controlling some of the best real estate in U.S. cities,” Morty says. “To launch a brand in this country, I’d want to lease space in a department store. It makes great good sense.” The company’s strongest claim is understanding how to offer beautiful quality garments starting in the $500 to $800 range, at least 40 percent more affordable than what the big brands offer, thanks to technology that streamlines the manufacturing process.

The New Davids Create Meaning Through Vertical Integration

Morty is impressed with another noteworthy New David, Naadam, a brand devoted to offering fine quality cashmere at an affordable price. It’s tag line: Ethical luxury for the way we want to live. “Naadam means celebration in Mongolian,” Morty says. “The company founders, Matt Scanlan and Diederik Rijsemus, got tired of their day jobs (Matt in venture capital and Diederik in econometrics). Setting out on a motorcycle trip through the Gobi Desert, they bought up as much of the best cashmere they could find from the herders that they met. They brought it back to a 140-year old family-run mill in the Italian Alps to be spun into yarn. Today they are doing an incredible business, based on the idea you don’t have to spend $500 for great quality cashmere.”

Naadam represents a new kind of 21st-century vertically-integrated business model because the company is putting money back into creating a sustainable cashmere ecosystem. The company is a “privately funded, non-profit that provides veterinary programs, livestock insurance and breeding development. In return Naadam is granted first access to the herders’ fleece,” according to the company website.

This business model stretches from the slopes of Mongolia to American HENRYs’ closets, and that breeds a connection with the customer.\”Naadam tells the story to consumers so they feel like they are on a Mongolian farm,” Morty says. “It transports the customers on a journey. Naadam sells $250 sweaters along with a yarn business, and has recently launched a line into department stores called Naadam Studios. They have learned from the 20th-century business playbook, but apply the topspin of 21st-century rules. These young entrepreneurs are respectful of those who have gone before them, but they are not scared to challenge the playbook. It’s a fully integrated business model that goes from farm to closet to complete the circle.”

Advice for Goliaths to Think Like, Act Like New Davids

The companies that the Traub study identifies have modest revenues today, yet the retail Goliaths still have much to learn from the New Davids.“The New Davids are the smoke of where the fire is,” Morty says. “They reflect the shift in how consumers are spending their money on experiences, dining, travel, electronics, video, technology. Much that is outside the traditional boundaries of retail.

“The problem is, people tend to think the New Davids are too small and not really worth investing in or acquiring until they are profitable or bigger. But if some big companies would acquire one of these companies, it could make them profitable the next day because of the huge back office support they could offer,” Morty says. He points to Nordstrom as being a pioneer in investing in New David companies, having recently acquired Trunk Club and fueled Bonobos and direct-to-consumer shoe company Sole Society, as well as partnering with BaubleBar to sell fashion jewelry in its stores. “It’s a smart thing to do in order to get to know this customer better,” Morty says.

“The notion that the internet is going to kill full-price retail is misguided and just plain wrong,” he says. “The New Davids are showing how to create deep connections with the younger generation. Through them, the Goliath department stores can learn how to get better and more powerful. The Goliaths need to embrace new ways to activate shoppers in the stores. The New Davids shook the cage and we needed it. And the millennial HENRYs, after the recession, fueled it. It means established companies have to align themselves differently and shift focus to give the retail industry renewed vigor. There is a huge opportunity waiting for them if they do.”



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