Where is wholesale and retail going in soft goods?

imgresSoft goods is what people in the business use to describe garments or shoes.  Items that are manufactured and then worn.

Thirty years ago shoes were on consignment.  The store did not buy the shoes to sell to the consumer with the hopes that they chose the right inventory and were responsible for profit and loss.  Shoes were bought on consignment based on what the buyer believed was right for their customer. The store never had to put out cash, they just got a percentage of what was sold.  What did not sell was returned back to the vendor.  That is a tough way to run a business.  It is great for the store but is financially difficult to gauge for a shoe manufacturer.

In order for the shoe manufacturer to make it work, they calculated what they believed would sell that season because the goods were all made in advance.  The lead times were mostly months not days.  So if they did not sell their shoe inventory through the retailer (there wasn’t an ecommerce shop then) they had to figure out other ways to make back their cash.  They would discount them and sell them to discount retailers.  Sometimes they would just mark them to nothing and ship them overseas like Goodwill.  Bad long tail there for those countries but that is another post.

Consignment was tough, the model changed a few years later because some heavy in the shoe world decided this model wasn’t working and renegotiated the deal.  The shoe makers began to sell the products to the department stores and it was up to them to figure out their end of the business.  Let’s move thirty years in to the future. The consumer is smarter than everyone thinks.  We have also trained the consumer over the past 30 years to buy nothing at full price.

Ecommerce has allowed us to buy 8 sweaters 4 pair of shoes, a pair of pants shipped directly to our home with the hope the consumer keeps one thing.  How do you figure out your inventories when a customer does that and the store doesn’t get it back into their inventory for 15 days or maybe longer.  Good news is manufacturing has changed.  Now you can actually make a dress for a customer in a few days and eventually in one day.  You do not have to make 600 units to get the right margin.  You can just make one dress or 600 and it doesn’t change the cost.  So are department stores going to buy less inventory?  Are they going to change the way they service their customer?  What is the long tail for brands who manufacturer boat loads every season to sell to the retailers?

Discounters like Loehmann’s started out buying merchandise that had a late delivery to the department stores or the manufacturer made too many items and then they would buy them at a fraction of the cost and sell them as discounted clothing to their customer.  Such a deal!  Over time people got better at their inventories and Loehmann’s grew.  The manufacturers continued to sell to Loehmann’s but instead of selling them what was left in inventory they began to make the clothes for them.  They had to because everyone had to grow their business annually and there weren’t enough extras hanging around.  So the manufacturer would make the same clothes for Loehmann’s as they made for Saks but just in a lesser quality fabrics.  The customer figured it out.  That is why flash sales are only short term businesses and can’t really work at scale.  Where stores like Ross who sell moderate priced clothing all day work because they are true to their customer.

Bottom line is this industry is in the depths of how technology is forcing the change of business models.  This is happening in different ways but conceptually the same in grocery stores and eventually big box stores.   Where is this going?  There is an investment opportunity here….