M.Gemi campaign image | Source: Courtesy
M.Gemi campaign image | Source: Courtesy

NEW YORK, United States — Department stores are adopting a new tactic as they battle for younger customers with internet-born, direct-to-consumer brands: If you can’t beat them, join them.

Traditional retailers are carrying more direct-to-consumer brands in their stores and on their websites, sometimes agreeing to wholesale terms that would have been virtually unthinkable even a few years ago. This spring, Seattle-based department store chain Nordstrom agreed to sell apparel from Reformation and Sézane, adding to its growing slate of digital-native partners. In April, Bloomingdale’s included M. Gemi and Margaux in its New York flagship’s revamped shoe department, where they have dedicated floor space — an arrangement similar to mainstays like Gucci and Salvatore Ferragamo.

Until recently, such partnerships between digital brands and brick-and-mortar retailers were rare, or limited to pop-up installations. Department stores didn’t want to promote online competitors that were stealing their customers; e-commerce makes up 20 percent of US apparel and footwear sales, up from 9 percent in 2012, according to Euromonitor, while department store sales have declined every year since 2012, according to data compiled by the Federal Reserve Bank of St. Louis. Meanwhile, e-commerce companies were reluctant to accept the lower margins that come with wholesale deals and balked at ceding control over marketing and in-store displays.

But both sides are learning the value of compromise. Startups reaching the limits of their growth online are turning to department stores as shortcuts to the mass market, while retailers are betting that buzzy online labels will draw millennials and that a potential sales bump is worth accepting their terms: many e-commerce companies won’t accept returns of unsold clothes and ask to be excluded from seasonal discounts, two staples of wholesale agreements.

“What’s happening now is a convergence,” said Cowen analyst Oliver Chen. “The digitally native brands are understanding the need to go physical and the old guard of retail is looking to transition into newer avenues in order to compete.”

At Bloomingdale’s 59th Street flagship in Manhattan, M. Gemi and Margaux control their own space on the shoe floor, from merchandising to how salespeople are trained, a common arrangement with luxury brands. More unusual: both companies fulfil orders from their own warehouses, rather than stocking inventory at Bloomingdale’s, and customers receive in-store orders a few days later. Bloomingdale’s, however, has final approval on product displays.

M. Gemi operates its own “fit shop” in Soho, but signed on with Bloomingdale’s to put the brand in front of more potential customers, said M. Gemi president and co-founder Cheryl Kaplan. Maintaining control over how the shoes were presented was key, she said.

“We chose to work with someone who was willing to create the same environment and experience, and have that direct relationship with the customer,” she added.

Bloomingdale’s was in informal talks with Margaux for two years before the new shoe floor offered an opportunity to test the waters, said Erica Russo, the chain’s vice president of fashion direction for accessories and beauty. So far, sales for both brands have been strong, she added.

“The success of direct-to-consumer brands has changed the landscape and I think it’s smart for retailers to be always on the lookout and embracing new ways of doing…