Netflix (NASDAQ:NFLX) recently launched Netflix.shop, an online store for apparel and lifestyle products, in a surprising leap into the retail sector.
Its initial products include streetwear and action figures based on the anime series Yasuke and Eden, as well as limited-edition apparel, and products inspired by Lupin and produced in collaboration with the Louvre. It's also selling anime-inspired collectibles from up-and-coming designers like Nathalie Nguyen, Kristopher Kites, and Jordan Bentley.
Netflix.shop will also eventually sell exclusive tie-in products for popular series like The Witcher and Stranger Things, as well as Netflix-branded apparel from the Japanese fashion house BEAMS. It will initially launch the marketplace in the U.S. before expanding into other countries.
This doesn't represent Netflix's first attempt at selling tie-in products for its streaming franchises. Target, for example, already carries a wide range of Yasuke products. However, Netflix.shop marks Netflix's first attempt to sell all those tie-in products through its own online marketplace.
Could Netflix be responding to Disney and Amazon?
Netflix's online store is much smaller than Disney's (NYSE:DIS) sprawling retail business. At the end of 2020, Disney owned and operated about 200 stores across North America, 60 stores in Europe, 45 stores in Japan, and two stores in China. It also sells its products online and licenses its brands to third-party companies.
Netflix competes against Disney in the streaming market, but I doubt it will follow Disney's example and open hundreds of brick-and-mortar stores, for three simple reasons.
First, brick-and-mortar stores are more capital-intensive than online stores. It would be absurd for Netflix, which already plans to spend $17 billion on new streaming content this year, to set aside fresh cash for new physical stores instead of expanding its streaming library.
Second, physical stores are highly exposed to online competition and the decline of offline shopping. Lastly, Netflix doesn't own as many popular franchises as Disney, which can easily fill its shelves with merchandise from its namesake properties as well as Pixar, Marvel, and Star Wars products.
Netflix.shop also might seem like an attempt to counter Amazon, which leveraged the strength of its Prime e-commerce ecosystem to tether more viewers to its Prime Video service.
That strategy would represent a reversal of Amazon's strategy since Netflix would be leveraging its strength in streaming video to expand into the retail market. But I also doubt Netflix plans to pour billions of dollars into challenging Amazon in the cutthroat e-commerce market.
So what's Netflix's game plan?
Instead of comparing Netflix.shop to Disney or Amazon, investors should look at a Chinese tech company called Bilibili (NASDAQ:BILI) to understand Netflix's angle.
Bilibili operates a popular streaming-video platform for anime, comics, and gaming (ACG) content in China. It served 223 million monthly active users and 60 million daily active users last quarter.
Bilibili also operates an e-commerce site that sells tie-in products for its ACG franchises. The site is integrated with Alibaba's (NYSE:BABA) Taobao marketplace and accounts for most of Bilibili's "e-commerce and others" revenue.
Bilibili's "e-commerce and others" revenue more than doubled last year and accounted for nearly 13% of its top line, which indicates a streaming-video platform that specializes in anime can operate a successful online marketplace for tie-in content.
That's probably why Netflix repeatedly mentioned "anime" in its press release for Netflix.shop.
Netflix has added a lot of anime and gaming-related content to its streaming library in recent years, including Yasuke, Voltron, Castlevania, The Witcher, and its upcoming Assassin's Creed show. All that niche content could support the expansion of its marketplace for tie-in products, which would possibly lock in more viewers and generate additional revenue.
Netflix could also offer exclusive discounts for its subscribers, which might convince more of its 208 million subscribers to become regular shoppers. That growth could also convince more companies to license its franchises for third-party products.
The bottom line
Netflix's retail expansion is surprising but not unprecedented. Instead of comparing Netflix.shop to Disney or Amazon, investors would do well to study Bilibili to gauge Netflix's true growth potential.
This effort won't move the needle for Netflix anytime soon, but it shows the company is thinking out of the box to promote its franchises and enter new markets. These strategies could help Netflix remain competitive as Disney, Amazon, and other challengers all ramp up their streaming investments.