Where is wholesale and retail going in soft goods?
Soft 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….
Comments (Archived):
What I would love in clothing is to be able to put my size measurements into a database along with my preferences for fabric, color, styles, patterns. There are some things that I really like and I know look good on me, and some things that I will simply never wear. Then—once all that information was *somewhere*, I’d love if a variety of clothing retailers could send me an email once a month that had a selection of clothing that fit my wish list.Once the database got big enough, where you had this information for millions of people, designing clothes might get easier and more creative.What retailer wouldn’t want that information? And…certain retailers could just target people who liked XYZ. Or….retailers could show me a prototype of something they were thinking of manufacturing, and ask me if they would pre-order it.I would feel like manufacturers and retailers were listening to what I really wanted, and those in the clothing business would get a much higher chance of a sale, from me at least.Thanks for the great historical look at how the business has worked in the past, Joanne, eye-opening!
Gathering up that data would be very powerful!
I didn’t know the finer points of the retail business. Thanks for blogging about them, and I hope you blog a lot more about them.I am not sure where it goes-but I wonder about integrating Bitcoin/Blockchain into the supply chain. I wonder if it’s possible to get more transparent transfer prices, and wrench out a little more variability. Are their frictions in the payment system that might be changed (net 30, FOB etc)?
It would take that industry awhile to get on that bandwagon.
Thanks–I was raised on selling computer goods through traditional channels so while not shoes, I damn well know what the financials looks like for computer goods.if you margins are thin to start you die. Game over.I do think that once you move this to a perishable supply and distribution chain the game changes dramatically and in the states at least, you can’t really address this without both Whole Foods and the big box stores in the model.Shop talk to me and loving it.
I know that area too. Insanely slim margins.
I’ve learned that one in recent years.But–and this is what still drives me-when you actually do build a real brand grounded in something with the potential of more, there is real value. Actually huge value.Someone like Suga you just have to give them a huge amount of credit.
Couldn’t agree more. This is exactly what we’re tackling at ThursdayFinest.com, using a 3D-knitting machine to manufacture products on-demand in Brooklyn and in less than an hour. This doesn’t just solve the ‘how many do we make’ problem you spoke of, but also enables customers to have more and better options…items made based on their style and color preferences and in more granular sizes. We’re extremely bullish on this new form of manufacturing. It’s the future.
it is the future.
Nice set of questions today: Where is wholesale and retail going in soft goods?The Stanford-based “Zara Gap” gets at the economics of this issue, quantifying speed and flexibility. We have had a few exchanges on that topic. Industry reception is high and high level, so I will present at a NYC event in March, “The Zara Gap and Disruptive Innovation.” There is much more in the works.Overall, “Zara Gap” is an industry metric and cultural roadmap for process innovation. Zara, yes, is a factor and benchmark, but so, too, is Amazon with its distributed inventory to limit risk. Given 2016 customer imperatives, industry performance will transform based on supplier speed and flexibility. What is poorly understood is where profit leverage resides in the supply chain. Our unique experience and research capture it, and it is taught at Stanford in our case study.I think you are amplifying great questions as well as untapped areas of innovation.Thanks.
thanks John.
It is interesting to see how the issue of made-for-outlets has come to the forefront – it was known for a while but now many companies like Saks, Nordstrom, Neiman Marcus, etc are actually facing related lawsuits on deceptive pricing (with some as class-action).I think an investment opportunity exists when/where the pricing and logistics process for 3D measurements is flattened – implementations I see now are still pricy. E.g. what if my webcam could just take and save my measurements to my desktop at no cost? Then I can upload to my favourite apparel stores when ordering a suit. At their end, their pattern cutting machines use it to cut, sew, pack the suit into a pre-addressed shipping envelope (printed when order was processed), then combined with other items bought or to shipping dock. Same could happen for shoes (especially boots). This would resolves issues around accurate demand, inventory and cash flow.Ultimately, I think such technology also pushes consumers closer to manufacturers, i.e. with the example above, a textiles factory could capture more of the value chain by deciding to also make suits itself and gain associated benefits like end-user input early in the fabric creation process. On a wider scale, this could diminish the role of meta-tastemakers. E.g. who would need Pantone to tell us what colours of the year are if customers already made the decision with designers at textiles firm X?
Edited scrapes the back end of ecommerce platforms and does an incredible job of forecasting trends for retailers/wholesalers.
Interesting, just checked them out. Seems quite comprehensive coverage that fast fashion brands (with efficient just-in-time/turnaround) can benefit a lot from.
The data flywheel as they get more customers is super interesting..
Totally
What rich insight here! I hadn’t thought about how all these things play into our current environment. I’m a big believer that tech solutions only mirror the non-tech solutions that came before them. Seeing the non-tech history of retail will help explain its tech-enabled future.Still, ecomm is not a game I’m excited to play at the moment. Too messy / hard. Let someone else figure it out, lol.
Lots of innovation in this industry. Ross / Zara / H&M are showing the volume / low price way. You can build volume and layer in smaller margins with more predictable sell-through.But the other way is thru niche brands that sell to a select audience, thats loyal, steady and growing in industry terms but not in “VC” terms. Combine 100 of those brands under 1 umbrella, streamline operational costs and you have the profitability of niche brands (>50-60%) at scale.
they had to figure out other ways to make back their cash. They would discount them and sell them to discount retailers.A friend of mine’s father in law was in the garment business “a garmento”. When things didn’t sell the saying he used was “sell it to the dogs”. The merchandise was mainly cheap ladies shirts imported from whatever country made them the cheapest. They didn’t like to get the inventory wrong obviously (your point) however their cost per unit was cheap relative to what they sold them for. Also wasn’t unusual to do markdowns multiple times so the store would close out the merchandise. JC Pennys and Mervins were two accounts that I knew about.Unrelated: Back in the day my father was a giftware wholesaler. He would get returns from stores that claimed the merchandise was broken on receipt but the goods they returned had clearly been on the shelf as they contained sometimes a years worth of dust or some other telltale sign (label etc..)
How can you make one dress for the same price as 600? My friend’s daughter is a dress designer. Her problem is if she makes her dresses here, it cost so much more than in China. China wants to charge more for smaller quantities and the lead time is long. She would love to make smaller quantities for the same as larger ones. She is finding it to be a creative but difficult path, since her background was in finance and derivatives trading.
Other products that were/are sold on consignment include:- Books- Jewelry [1]- Magazines [2][1] For example my brother in law is a jewelry wholesaler and would put merchandise out at other jewelers but particularly in department stores. The high margins of jewelry is what made this possible.[2] You know there used to be stores that sold magazines which were missing the covers. The reason is stores would be given credit for unsold magazines and the manufacturer didn’t want them shipped back so they just told them to ship back the covers and destroy the magazines (or I guess it was ok for them to cash out of them in some way or they looked the other way as the saying goes).
Huge win for discounters. Branded retail is being massacred while discount houses are living off the blood and thriving. Comparing the 10 year returns of Macy’s, Nordstrom, Ross Stores and TJX, the numbers are staggering.In 10 years, Macy’s has lost 43% of its value. Nordstrom is up a total of 16%. The discount houses? Ross Stores is up 691%, TJX is up 461%. Those are Venture Capital returns in a ten year period. Smart model, smart money.Love retail but it needs a pivot and hard to see what that is unless it’s within an VR/AR experience in a few years. I’m thinking Woody Allen’s Sleeper.
Interesting stats. Ross and TJX are true to their customer.
as labour costs in China rise local production returns home
Garment has devolved further into throwaway sportwear, which includes office wear and weekend. Cheaply made, worn a season or two, and into the thrift pile it goes – this may keep life affordable for millennials, it will choke the planet if we don’t recycle the fabrics.Custom clothing is awesome for many reasons, and the new biz around this is great, and since it has less waste, a greener footprint, and hopefully longer use time and value to the customer.I’d like to see garment offer more value and convenience to the customer in a way which results in people buying less in general. Perhaps this gets tied to the industry needing to be accountable for the downcycling costs of their goods. Just sending clothes to goodwill, or to poor nations can’t be the only options for that shirt you wore 20 times.Do you see this as a possibility?
Take a look at Evrnu.
Fabulous. Cotton needs this, especially indian cotton.