What Neiman Marcus Has to Do with Pinot Noir

My wines are personal. By the time I am ready to release them, they have taken on distinct personalities, so it is not uncommon that my tasting notes compare wines to fashion brands. Yet a deeper parallel is emerging at this moment. 

In the past 9 months, we have read bankruptcy filing announcements from a litany of clothing retailers including Neiman Marcus, J. Crew, Lord and Taylor, Brooks Brothers, and JC Penney. Some of these companies were in financial distress for years, but lost revenue from shuttered stores during COVID tipped some into infeasible operating models. While some call these bankruptcies a sign that this is the “end of retail,” it is not the whole story. Fashion’s model had fallen victim to its own pressure for faster inventory turns, earlier season releases, and charging retail prices that could hold up steep discounts to the necessary retailers, deep discounts on current season to make way for next season, and high levels of returns for unsold lines. This led to inefficiencies up and down the fashion supply chain.

This is where we are with wine now. Wine is governed by antiquated laws that require a winery wishing to sell its wine to a business, such as a restaurant or store, to sell it to a licensed distributor in that state who typically commands a 30% margin above their transportation and tax costs. Distributors sell to a restaurant or store that commands a 40%-300% margin (the lower end for retail and the higher end for restaurant). That means that in order to purchase my Willamette Valley Pinot Noir for $28, I would sell it to a distributor for $14, who would then sell it to a retailer or restaurant for $20, who would then sell it to you for $29-$30 in a store or likely $50-$60 in a restaurant. This has been further complicated by a boom in the number of wineries in the US and consolidation in the number of distributors. In 1996, there were 2600 wineries selling to 3000 distributors in the US. By 2019, there were 10,742 US wineries selling to 958 distributors in the US (Wines Vines Analytics). Part of the reason is that distributors have been under intense consolidation pressure to generate economies of both scale and scope. In fact, the top two distributors represent over 40% of the market and the top 10 represent over 75% of the market (Wines Vines Analytics), which means that you may not be presented with many small producers in larger outlets. Along with this consolidation has come pressure for wineries to release their wines not when they are ready, but as fast as possible so they can be compared against the competitive set. Accompanying this is the desire for reviews to be written in advance of consumer releases, such that we sometimes now get calls for review requests when the wines are still in barrel. Even before COVID, this was not the most efficient model, nor did it lead to wine lovers finding the best selection at the best prices.

What is the path forward? One emerging model in fashion has been direct to consumer (DTC), in which new venture backed entities market directly to individuals with no middleperson to be paid or expecting inventory turns on a specific timetable (think Warby Parker, All Birds, Away, Harry’s Shave Company). Individuals can purchase what they want when they want as opposed to when it is presented to them. Presumably, there is a cost efficiency as the model does not need to account for margin to middlepersons or their required marketing promotions.

This also creates an opportunity for wine lovers to buy directly from wineries and receive better selection, transparency, and value. By buying direct, wine lovers can find the wines they want without reliance on what their local grocer is stocking. Wineries often sell their higher volume wines to distributors, but maintain some of the more limited production releases for their wine clubs, tastings rooms, and online guests. Purchasing directly allows wine lovers increased selection and often have a winery’s whole line up to consider rather than 1-2 brands. Wine lovers with a direct relationship with a winery has greater transparency into a winery’s owners and values akin to buying from local farms at farmer’s markets. It allows an opportunity to more intimately know and support wineries that share their values, whether they are about sustainable farming, treatment of agricultural workers, commitment to diversity and equity, or supporting the community. Additionally, purchasing directly supports a supply chain that does not need to account for margin for middlepersons, which potentially provides greater value to wine lovers and wineries alike.

This is not to say that we should buy all of our wine directly- the value of discovering new wines through tips from an educated wine steward who understands our palate or a recommendation from a sommelier for a perfect pairing cannot be overstated. But for the foreseeable future, we are likely to be more frequently filling our wine coffers on our own without the sommelier at our side. The good news is that we have all recently become adept at online delivery of our foods and household goods. In this way, perhaps we can learn from fashion and find and support the brands we love directly, rather than selecting only from what Neiman-Marcus presented to us.