Dive Brief:

• Less selection and higher quality are emerging as differentiators for smaller brands entering a crowded retail market that has many consumers seeking a curated product offering that cuts through the "paradox of choice," according to research from Canadian retail tech firm Hubba, which connects retailers with brands. Hubba's findings are based on interviews with 595 U.S. small businesses.
• Hubba’s researchers, in their report, “The Curated Future: Why less selection, not more, will be the defining retail trend in 2018,” split consumers into “savers” (those who seek out the lowest prices on commodity products) and “selectionists” (those who seek “unique and higher quality products”), and conclude that this year will be a period of smaller brands working to appeal to the choosier shoppers.
• From 2011-2015, smaller brands already shifted some $18 billion from their larger, more established competitors. For example, small brands account for almost 50% of all retail grocery dollars spent in food and beverage alone today, according to the report. It’s not just grocery. Small brands with annual sales of less than $1 billion are outperforming their competition in 18 of the top 25 categories, Hubba said.

Dive Insight:

U.S. shoppers are trying to cut through a lot of marketing clutter to find high quality products, often from smaller direct-to-consumer players, according to Hubba.

The price-and-convenience play, which attracts the “savers” buying commodity goods with little differentiation, is being won by retailers with huge economies of scale, notably Walmart and Amazon, according to the report. But, while direct-to-consumer upstarts are gaining an edge against their rivals, the market remains a highly competitive and increasingly saturated playing field with no clear winners yet.

Retailers are hobbled in the current scenario by a lack of ability to find such goods to offer their customers, but that could be addressed by better technology, according to the Hubba researchers. Three quarters of the methods that buyers use to source new products at this point involve no digital technology at all, yet over 40% of the small businesses that Hubba interviewed expressed interest in a B2B rating system and digital solution to identify appropriate merchandise for their customers. It’s a massive market segment that will gain importance this year, Hubba said.

“90% of brands surveyed are actively trying to grow distribution and the next generation of successful retailers will rely on the ability to curate a relevant assortment of products for their consumers,” Hubba CEO-Founder Ben Zifkin said in a statement. “Retailers will begin to demand better tools to facilitate B2B buying, a trillion dollar market currently divided between 1.2 million retailers.”

Some smaller businesses, including service-led companies such as yoga studios and restaurants, will make selling products to their captive audiences key to their business model, Hubba said. In other cases, direct-to-consumer companies can partner with bigger retailers to achieve scale.

The scenario outlined in Hubba's report is evident in the mattress business. Unlike legacy companies, online startups like Casper, Leesa, Yogabed and Tuft & Needle offer small assortments of "mattress-fits-most" in basic bed sizes at a single price, paired with long try-out times and free returns. A few are turning to established partners for marketing and distribution to reach more consumers — vividly exemplified in startup Casper’s tie-up with Target and rival Leesa’s partnership with Williams-Sonoma brand Pottery Barn.

It’s a highly competitive situation that is leaving legacy players like Mattress Firm struggling to hold on to market share. That retailer doesn't seem to be getting much help from new owner Steinhoff, which acquired it last year. Before being acquired, Mattress Firm in 2014 had bought rival The Sleep Train, which operated 310 stores, for $425 million, a move that increased its costs over sales. But at the end of the year, the company said it would shutter some 200 stores as it tries to regroup.