Discovery3 ThumbTransition has been the name of the game for the commerce division of Discovery Communications for a while. In the past year, the division went through a strategy shift that started in mid-2007 with the decision to close the Discovery retail stores down and focus more on the company’s licensing and home video businesses. 

Kelly Day, COO of Discovery Commerce and digital media, said the change was less about being in the business of owning inventory and storefronts and more in the business of what is the best way to merchandise the company’s brands. “We looked at how to get into as many storefronts as possible, and now we have merchandise placement at almost every retailer out there,” she said. 

E-commerce has played a major role in the transition. Discovery Commerce had originally operated Discovery’s e-commerce Web sites as one prong of a multi-channel strategy, so when the division was operating the stores, it also in control of the catalogue and the DiscoveryStore.com Web site. 

When the stores closed down, Discovery Commerce also shifted its focus toward direct-to-consumer, maintaining the print catalogues and continuing to invest in and grow the e-commerce business. Earlier this year, the company made another strategic move in outsourcing its e-commerce business to a third-party company called Delivery Agent, which operates a number of storefronts for media companies. 

When the changeover occurred, the company’s brands, including TLC, Animal Planet, Military, and Science Channel, followed suit with DiscoveryStore.com’s platform.

“The relationship with Delivery Agent is more of a licensing model,” said Day. “Delivery Agent operates the storefronts on our behalf, but I have a team of five that works closely with Delivery Agent. We’re still very much involved in the business. We’ve just taken away a lot of the risk.”

Partnership particulars

Outsourcing the e-commerce business enabled Discovery Commerce to focus more on strategy rather than operations, making sure Delivery Agent moves in the right direction and represents the brands in an appropriate way. Day said it’s also freed up she and her team up to spend more time on licensing each of Discovery’s brands and expanding brand presence at major retailers. 

For example, Discovery Commerce entered into a partnership with GAP (Great Adventure People) Adventures to launch a new Web site, DiscoveryAdventures.com. In addition to launching the travel site, the two companies will partner to create Discovery-branded adventure trips. 

“We’ve got a lot of new Discovery Kids products going into retail this year as well,” said Day. “During the fourth quarter of this year, you’ll see Discovery Kids at Walmart, Toys R Us, and other major retailers. We’re also working with companies like Target and Walmart to expand our home video presence.”

When looking for a licensing partner, Discovery Commerce judges a good fit based on the category in question. The Gap partnership, for example, worked because the company wanted to get into travel, talked to a number of companies, and narrowed its focus to Gap as a partner. 

Discovery Commerce is now venturing into video gaming and has talked to a number of companies about developing product for the Animal Planet, Discovery Kids, and Discovery Channel brands. “There are certain categories we feel make a lot of sense for the various brands,” said Day. “The first step is working with our licensing agent and looking at which categories we’re interested in pursuing.”

Day said the second step is ensuring potential partners have the same objectives as Discovery Commerce, which is to always put quality first. Because Discovery is one of the most trusted brands for both media and product, any merchandise that is developed must always hold up to one standard question: will people believe Discovery feels good about this product? 

“People think Discovery shows are high-quality entertainment and content,” said Day. “We want the products to be the embodiment of those shows and meet those same standards.”

On the retail side of the business, when looking for a distribution partner, Discovery Commerce looks for an extensive but solid footprint. The company’s focus is on mass retailers and moving volume, but because it represents a number of brands, it also looks at the demographic and customer base of each retailer to create a perfect partnership. 

“We found that TLC does extremely well at Target while Discovery Channel and some of the more male-oriented show brands do better at Walmart,” said Day. “We try to work with retailers, show them the brands, and tell them which ones we think will work best for their customers. In some cases, we also provide on-air and media support for retailers.”

Smart moves

Discovery Commerce has faced its fair share of challenges through its recent transitions, one of the greatest being dealing with employees. As the company went through the transition of closing retail stores, shifting to e-commerce and licensing, and outsourcing its e-commerce functionalities to Delivery Agent, many jobs were phased out. 

Rather than surprising employees with an overnight change, the company over-communicated its strategy and gave employees many months notice on when their stores would be closing and when they would lose their jobs. Although it was still difficult to lose many talented employees, Day said it helped keep morale high both for those leaving and those staying with Discovery Commerce. 

“The challenge on the business side is that we completely changed our business model,” said Day. “Although we believe it was the right thing to do, there is always that certain point where you wonder if it will work. We’ve been really pleased with the results.”

With the downturn in the economy and its impact on the retail industry as a whole, Day said the company’s decision to focus on the bottom line was a good one. In the period leading up to Discovery’s move to a public company, management focused on what was needed to deliver positive results to shareholders and investors. That bottom-line focus has since remained. 

“Our e-commerce strategy was a reflection of that,” she said. “The division is far more profitable now than it was when we were operating the stores. Financially, it has been a very smart move for the company.” 

Although the current retail world is challenging, Discovery Commerce’s brands continue to grow. Day said retailers call the company to find out how they can carry its products, a sign that retailers are optimistic the economy is soon to turn around. “They’re still investing in good brands and good merchandise because that’s what they’re going to need to compete in the long term and bring people into the stores,” she concluded.

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