Instagram and Apparel Retail:
Instagram is about to become the Expedia of the apparel industry. 20 years ago, the hotel industry was about to experience a massive shift. Travelocity and Expedia would start selling hotel rooms online directly to consumers. The business model seemed harmless since the commissions charged per booking was in line with other hotel partners. What the hotel industry missed was that since Travelocity and Expedia were selling direct to consumer, while other partners were sharing their commissions with travel agents, they were creating a monster.
What followed was a glut of Expedia competitors and then a massive consolidation into two dominant companies: Expedia and Booking.com. They used the billions of dollars that hotels paid to them for finding customers to compete against those same hotels by poaching their direct business. Both Expedia and Booking.com often bid on hotel names in Google and also acquired travel search websites like Kayak and Trivago, leaving hotels with virtually no control over the market and very little ownership of their own customers. Today, it is not unusual for Expedia to earn more profit from a hotel booking than the hotel itself.
Instagram’s Trojan Horse
I have dedicated my career thus far to the hotel industry and have witnessed this phenomenon through the eyes of hotels. I believe the retail apparel industry is in danger of sharing the same fate. It is quite clear that when it comes to fashion inspiration, Instagram has developed a massive following. It would be a logical next step for Instagram to devise a plan to monetize what they have built. In fact, it is rather surprising that they have not yet been able to do so.
Over the last year, Instagram has been beta testing a new technology called Checkout. It allows Instagram influencers to sell what they are promoting. More than 25 major brands have signed up to participate in this new initiative. It is unclear what the business model is. Meanwhile, major retail brands are announcing store closures at a record pace. Consumers are less willing to travel to a physical store to be inspired and purchase apparel.
The Enemy at the Gates
The most powerful companies have built and protected their empires with their physical footprint of retail stores. Now they are having difficulty competing in the new world. The shift to purchasing apparel online has opened the floodgates to new entrants. Alibaba’s Aliexpress and its vast network of drop-shippers (vanity websites that resell products sourced from Aliexpress under a different name) is a prime example.
The apparel industry (similar to the hotel industry) is fragmented. The various brands are too busy competing with each other and fighting for survival to recognize the Trojan Horse that has just been presented outside their gates. The apparel industry needs to start working more closely together to ensure that their future does not fall entirely into the hands of Facebook and Instagram.