A brand “bromance” is brewing in the luxury market between new e-commerce-driven companies that Marvin Traub Associates has called the “New Davids” and the affluent young HENRYs (high-earners-not-rich-yet).
In a new report from TRAUB, the “New Davids” are defined as:
Over 200 brands across five key categories: fashion, accessories, beauty, wellness and home. By definition, our Davids were founded, launched and nurtured online and our curation is centered on those which we believe are ones to watch.
These curated 200 are the brands to watch because they attract the attention and loyalty of the next generation of luxury consumers, the young HENRYs. These customers have high income now, but even higher incomes to come as they develop in their careers. This gives them discretion and willingness to spend on brands that talk their language and meet their lifestyle needs. HENRYs love the “New Davids,” and it’s sure to be a long term romance.
To learn more about the Davids, I sat down with Mortimer Singer, Chief Executive Officer of TRAUB. Singer 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,'” Singer says. “It’s about the consumer ‘laying on of hands’ to 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, but not necessarily in the physical world,” Singer explains. “They have a deep need for spirituality, yet they aren’t necessarily turning to organized religion to fulfill that need.”
“The young HENRYs are finding spirituality through spending, or the ‘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,” Singer affirms.
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,” Singer predicts. “Most of these brands are quite small individually, though 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,” referring to the proliferation of exciting new food concepts being used to activate retail pointing to such groundbreaking complementary retail-food pairings as Eataly, Dover Street Market, Le District and Brookfield Place New York.
How Naadam connects with HENRYs’ lifestyle aspirations
Singer is impressed with one noteworthy “New David” called Naadam, a brand devoted to offering the finest quality cashmere at an affordable price. It’s tag line: Ethical Luxury For The Way We Want To Live. Its story connects with the HENRYs’ lifestyle aspirations offering products that fit their fashion profile but at prices they can afford today.
“Naadam means celebration in Mongolian,” Singer explains. “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 has established 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 deep connection with the customer: “Naadam tells the story to consumers so they feel like they are on a Mongolian farm,” Singer 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.”
“Naadam has learned from the 20th-century business playbook but applies the top spin 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,” Singer explains.
Advice for “Goliaths” to Think Like, Act Like “New Davids”
Even though the companies that the TRAUB study identified have modest revenues today, the retail “Goliaths” still have much to learn from the “New Davids.” “The ‘New Davids’ are the smoke of where the fire is,” Singer shares. “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,” he says.
“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 emerging companies, it could make them profitable the next day because of the huge back office support they could offer,” Singer explains.
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. Why? “It’s a smart thing to do in order to get to know this customer better,” Singer says.
“The notion that the internet is going to kill full price retail is misguided and just plain wrong,” Singer notes. “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,” Singer concludes. “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.”