ABC Retailing pt. 3

It seems that the spark ignited by Kathleen’s post on ABC retailing (links at close) has created an interesting debate. In the comments, Allison Cummins responded:

Finally, I think Miracle’s point about the interests of DEs and reatailers diverging is potentially very generative and deserves a blog entry of its own.

And so here it is.

I’ve written on this blog before that retail is a cash flow game. In addition to being a retailer, I have friends who are retailers, and the over-generalized evolution of a retailer goes a little something like this:

A woman (let’s just keep it there because most independent boutiques are owned by women or have women as buyers) wants to open a retail business that specializes in a certain perspective or style. She usually carefully researches her opening brands and tries to have a really good mix of new and innovative style and gotta have it staples. Her inventory is fun, refreshing, it’s exactly the type of thing she felt that the local retail scene was missing.

Maybe a few months (if she’s smart) or a few years into the business, she starts to analyze her sales data because she has this markdown rack. And she’s seeing the same types of brands being marked down. So she figures out what sells and what isn’t selling and tries to get a handle on why. Was it fit? Style? Construction? Color? Price point? What was it?


She might even ask customers what they don’t like about an item and make notes. Too many similar issues with the same brand and that line becomes the one with the pants that are so long only tall women can wear them and most of my female customers are not 5 foot 10. Or it becomes that brand that has the price point that’s about $15 more than my customers are willing to pay and since I don’t want to cut my profit margin, I will replace it with a brand with a more competitive price point. And so on. Because at the end of the day, retail is all about moving merchandise.

So that retailer may even drop some innovative, but poor selling, brands in favor of an item of the moment. After all, bills have to get paid and idealism is not tangible currency.

One thing DEs don’t like to admit is that most products are not unique. I’m not trying to be insulting, but there is more merchandise being offered than a retailer can ever hope to buy. For every innovative thing that you sell, there are 2, 3 or more DEs offering suitable replacements . All the top apparel industry trade shows routinely fill their booth space and turn away applicants. It really doesn’t matter if your fabric is woven from the same gold thread that Rumplestilskin spins, there is probably somebody else, somewhere, doing it too. And the line that sells in the store, it is the one that gets the dollars.

What makes DEs successful is a strategic understanding of sales and consumer marketing because not only do you need to market to the retailer, you need to market to the consumer as well. Big retailers are known for demanding that you either pony up the money for them to do the marketing and advertising, or keep up a certain amount of press or else they drop your line. Now the DE can say that it isn’t fair, but what are you going to do? There’s always something else the retailer can buy.

What I admire about celebrity and media based product promotion was that it was one of those rare opportunities that allowed the small independent brand to level the playing field and get on par with the big boys. So now an unknown could get the same product placement as Nike but without the fees, the budget, but rather by working strategically and building connections. This is how you, as the independent DE, can get placement just like the big companies.

Now we can argue that it’s a retailers job to sell, and to some extent it is, but most retailers, whether small or large, do not have the resources and staff to individually pitch each line, and most consumers do not like to be bothered by sales clerks when they’re shopping. When it comes down to it, they will pick the “boring” (in your words, not theirs, and not the consumer’s) brand that sells over the interesting brand that doesn’t.

No longer are creativity and good fashion design skills sufficient for a designer to make it. Fashion is a business and it’s being dominated by those with the marketing and sales strategy to move merchandise. Now you have a plethora of hot brands being started, grown and run by people with product development, marketing, sales, public relations, stylist and strategic business development backgrounds. Because the truth is good design is only worth something when the cash register is ringing.

Related:
ABC Retailing pt.1
ABC Retailing pt.2
ABC Retailing pt.3
ABC Retailing pt.4

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12 comments

  1. Kathleen says:

    Miracle and I talked about this post before it was published. She thought I’d be mad because -for those who don’t know- we don’t agree on a lot of things. This is one of those things.

    I think this is absolutely accurate if you’re doing something that is -be honest- run of the mill and you have goals to become a very large enterprise. However, not all DEs are doing that or want that. I wouldn’t. I’d be happy selling my blouses to a bunch of small boutiques. I’d be happy if I never had a department store customer, not with the way they’re servicing their payables lately.

    That’s not to say I couldn’t become of an appreciable size but if one has all their ducks in a row, their pricing is right, their quality and delivery is consistent and they’re doing things right, I don’t see why someone couldn’t do advertising at that point. However, I don’t think you need to heavily promote the line and go real ‘commercial’ in order to make a success of yourself at the outset! That just raises another barrier to getting started.

    If you make good stuff, you’ll make enough to advertise to get you to that next level of growth. If you’re not getting enough sales to spring for some advertising, you’re not ready to grow or maybe shouldn’t be growing at all. You have some problems, fix them. You can’t grow too quickly. Sure, you can borrow the money but why finance your way into bankruptcy? You can do it yourself for less.

    Still, Miracle is right when she reminds me that women are the ones who start 97% of these companies but somehow, men end up owning 98% of them. To their detriment, women have the tendency to be stubborn about the wrong things. Maybe I’m stubborn too but I don’t think you need an advertising budget til you have some deliveries under your belt.

  2. Miracle says:

    Kathleen, I’m glad you commented. You bring up a valid point that I will address in my next blog entry.

    The market I follow isn’t really limited to large, department store, brands. Many of them aren’t sold in a single department store. They may be in popular, larger boutiques, but not Macy’s. Some are in department stores, but did not start that way, and started as boutique brands.

    Big and large are relative terms, and I am not sure what dollar amount in annual revenues we are all talking about. Some of the DEs I know range from $100,000 to 20 million in annual revenues. And a lot are at the six figure end.

    I don’t think that DEs, who have not yet tried to sell their line, realize just how competitive it can be at that part of the process. I don’t think there is enough appreciation of how hard it is for some DEs to open store accounts. Even with a good product, there are still tons of other brands that are being peddled, what makes you stand out, most of them have good, quality product?

    I’m not talking about buying a full page ad in a magazine, what I am talking about is trying to get editorial (free, not paid) placement in a publication, trying to get your product into the hands of someone who is considered an “influencer” in your market. For some, this may be a celebrity, for some, it could be a prominent local business woman.

    I’ve seen publicists give numbers, and many times, they got a brand $10,000 worth of exposure (based on the average cost of running an ad of that size in that publication), without paying the magazine (but of course, you pay the publicist). Retailers *and* consumers read those magazine, and it opens doors for the brand.

    I don’t want to make it seem like I’m trying to give a lecture on how to make fifty million dollars, because I’m not. I’m really talking about effective strategies to get to the low to mid six figures.

  3. andrea says:

    I partially agree with both Kathleen and Miracle…in coming from an advertising and retailing background…the bottom line is always cash flow. In every business. The sales cycle for manufacturing is longer from inception to dollar, but it’s still the same game.

    Garnering free press is difficult at best…it’s not something you can just go do. There are a million DE’s and only a few notable publications that carry the clout that matters to consumers.As an aside, those pubs won’t look at you sideways unless you have a publicist or happen to be at an event that they cover. That being said, there are creative free ways to market your line to get the attention of the retailers you want to attract. Invent your own events, learn how to write fabulous press releases, give away as much of your merchandise as possible and make great strategic relationships with people who are at least 1 degree away from the people you need to do business with. The great thing about doing business with women is that they are relational. they will remember you forever if you are kind, down to earth and easy to do business with…but beware, they will also remember you forever if you are a prima dona, and are demanding and inflexible.

    Marketing any company is always like radiating rings with you being the center. Start with the customers closest to you and move out. No one starts with a national campaign.

    It is incredibly important to make marketing your brand a priority. Not only for the benefit of your retailers, but because the market moves faster than the speed of the newest episode of survivor. Longevity is the key, not innovation (in my not so humble opinion), although it does count. Betsy Johnson is the perfect example of a great DE. Personally, I don’t really like her designs, but as an entrepenuer, she rocks… she still owns her own company after 25 years and is named one of INC.com’s favorite entrepenuers. She did this by marketing her product, sticking to her guns and growing slowly.

  4. Esther says:

    I know that most of this post focuses on start-up DE’s selling wholesale. I think that the business is changing, at least for small DE’s. More and more, small DE’s not only design and manufacture, but retail themselves. The internet plays a large part in that. I work part-time for a smaller DE that dropped all of her wholesale clients and went straight to the customer. The changeover had some rough spots, but their sales are about the same. The benefit, you get immediate feedback from the customer, no dealing with sales reps (or paying), no more dealing with difficult retaileres, no more traveling to several trade shows.

    Having seen both sides of the business (retail vs wholesale), I have to say the direct to retail approach appealed to me more.

  5. Jeff says:

    Esther

    Isn’t the most significant benefit in online retail, besides having the direct relationship to the consumer, the garnering of the retail price point?

    I would assume this makes a huge impact on the bottom line, no matter the volume.

    And… How are you driving new traffic to the site? Can you share the numbers regarding daily visits/ daily sales? (or weekly, or monthly)

    I am so very curious about how smaller DE’s do directly on-line as I am about to start these efforts.

  6. christy fisher says:

    I understand how a retailer’s frustration can play out when their opening plan did not pan out. (I have owned brick and mortar stores before). I agree with a retailer re-evaluating their merchandise mix- it is necessary- and it also necessary for designers to re-evaluate their own mix and edit on a continual basis. If I was that retailer you sampled, I would probably keep about 20% of the mix in unique items and 80% in “safe” merchandise..then after a customer base is built with you stable of repeat customers, it will be easier to sell more of the wonderful unique items- by putting on trunk shows, featuring the unique items along with the “basics” in you store advertising, etc. This is one way a store owner can work WITH designers to build up both the store and the designer. It makes for great relationships- and lots of profit.It also gets FREE press for both the store and the designer. Fashion editors love to write about stores who carry unique mixes..and designers love to talk about the stores that feature them.

    What I hear from my wholesale accounts is that there is a ton of merchandise out there- and it all is starting to look alike.
    (I am not making this up)
    My buyers attend major markets..and many attend the regionals. They are seeing more and more manufacturers doing “trend driven items”..(we can use the boho skirt as an example- or the tweedy cropped Chanel-like jacket from a couple of seasons ago- and- yes- the overembellishment and “bling” ..and I won’t mention the “C, T, H, J” thing…
    When manufacturers are all jumping on a trend, it makes the entire game start to become pretty much a “price war”…
    Which is why I find it way easier for a new designer to make a splash by NOT doing what the “big guys” are doing..

    My more “upscale” stores shop not only the majors, but they also shop “off the loop”- and from what they tell me- some of their best merchandise comes from there.
    They shop shows like Atelier, Coterie, Designers Collective, Brighte, Pool, Designers and Agents, the Train, etc.
    Many also shop The Buyers Market of America Crafts, the Contemporary Crafts Market, or the American Craft Council shows for smaller designer lines (and yes, some of them also carry deisgner brand jeans in their stores- they aren’t just “art galleries”)
    All of the above mentioned shows are within reach of a DEs budget..(I am with Kathleen on my opinion of advertising).
    The “six figure amount” is quite do-able in sales over the course of a year if you have a well made unique product and are in the *right* shows.
    If you are in a show like MAGIC or a major market showroom waiting to be found amongst the “big guys” then you can have a very hard time.

    Just as there are a multitude of manufacturers, there is also a multitude of various types of stores who need merchandise.
    There really is a market for everything.
    The key is to find the right market.

    The tactic that has worked for me is the smaller show route. The buyers that attend those shows are (for the most part) independent boutiques who do not demand markdown or advertising monies. They do not demand chargeback budgets.
    Many of them do in store shows and promotions, etc.
    They are (for the most part) fun and easy to work with. They love a personal touch with a designer. They will give you input as to what their customers are requesting. They will keep you in business for years. You will get to know them and their staff and their families. You will not just be a SKU number jammed onto a rail.
    And money? Many of them have been in business for decades and have 2 or 3 stores that are doing well. They do very well financially.
    You can too.

  7. Mike C says:

    Isn’t the most significant benefit in online retail, besides having the direct relationship to the consumer, the garnering of the retail price point?

    I would assume this makes a huge impact on the bottom line, no matter the volume.

    And… How are you driving new traffic to the site? Can you share the numbers regarding daily visits/ daily sales? (or weekly, or monthly)

    I am so very curious about how smaller DE’s do directly on-line as I am about to start these efforts.

    The higher margins are nice, but they don’t come unencumbered. As soon as you deal direct with the customer, you need to allocate a certain percentage of revenue to cover the cost of returns and exchanges. You also have larger inventory carrying costs and you have to pay for the advertising to direct qualified traffic to your site. The advertising costs, especially, can get awfully expensive. And, they are still rising. We pay something like 35-40% more per visitor this year than we did same time last year. The only way to compensate is to bring in more dollars per visitors which is done via a combination of seller a larger percentage of them and selling more to those that buy.

  8. Miracle says:

    When manufacturers are all jumping on a trend, it makes the entire game start to become pretty much a “price war”…

    Maybe. But in the “luxury casual” market they have actually either been maintaining or increasing the price. It’s the Gaps and Targets and mall stores knocking them off that are involved in a fight for the best price point. Everytime you see a new entrant, many times they are actually more expensive. IOW, this market is fascinating because it’s not particularly price driven, but seems to thrive off what’s different or unique from what everyone else is wearing.

    There are a million DE’s and only a few notable publications that carry the clout that matters to consumers.As an aside, those pubs won’t look at you sideways unless you have a publicist or happen to be at an event that they cover.

    That’s actually really a matter of perspective, I have quite a few friends and business assocaiates who were able to get editorial placement without either. But you must have the product that fits with their reader, fits with their story, tenacity and a strategy to go about it.

    What often happens is that, while wearing so many hats, DEs don’t have the time to devote to pursuing it.

  9. Kathleen says:

    I have quite a few friends and business assocaiates who were able to get editorial placement without either. But you must have the product that fits with their reader, fits with their story, tenacity and a strategy to go about it.

    What often happens is that, while wearing so many hats, DEs don’t have the time to devote to pursuing it.

    I think time can be an issue, don’t get me wrong but I also think they may not know how to go about it. I think this:

    I have quite a few friends and business assocaiates who were able to get editorial placement without either.

    would make a dandy post for the blog.

  10. Esther says:

    I don’t feel at liberty to post my traffic stats here. I will say that growth can be slow or fast depending on the type and amount of money you spend on advertising. I am a skinny shoestring start-up, so my growth is slow. Any growth is better that nothing and I am willing to wait it out.

    Also, Mike C stated that you needed a large inventory. Not true. I only sell what I have. If I get 3 pieces of one item, that is all that is available. I don’t oversell or take pre-orders (at this point), because I don’t want to deal with it.

    Mike C also mentioned online advertising costs. It is true it is getting more expensive. But there are still a lot of low-cost and free advertising available. It just takes creative thinking. Many online ventures also forget about traditional advertising. IMO, pay-per-click advertising is expensive and ineffective, and on its way out. And that is a subject for another blog entry.

  11. Mike C says:

    Also, Mike C stated that you needed a large inventory. Not true. I only sell what I have. If I get 3 pieces of one item, that is all that is available. I don’t oversell or take pre-orders (at this point), because I don’t want to deal with it.

    Well, sure, you don’t *have* to have inventory. If you don’t, you end up turning down orders, which is what having inventory allows you to avoid.

    Mike C also mentioned online advertising costs. It is true it is getting more expensive. But there are still a lot of low-cost and free advertising available. It just takes creative thinking. Many online ventures also forget about traditional advertising. IMO, pay-per-click advertising is expensive and ineffective, and on its way out. And that is a subject for another blog entry.

    PPC has been *very* effective for us. I am curious as to your thoughts on why you think its on its way out.

  12. Miracle says:

    PPC has been *very* effective for us.

    PPC can be a very effective, high ROI, stragegy for those with the right product, the right market, targeted keywords, and effective landing pages.

    Companies will continue using it until the costs get too high, and the small fries are pushed out. Even now, the scene is morphing with every web portal scrambling to offer shopping based PPC for ecommerce website (MSN’s AdCenter is a recent entrant to the market).

    If PPC were to fall by the wayside (which will take years), there will be another form of monetized marketing to take its place.

    Many online ventures also forget about traditional advertising.

    You are absolutely dead on with this one. I’m amazed at how many ecommerce sites scoff at the idea of offline advertising when many have business models and products that could use that format effectively.

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