How Retail has Changed
There was a time, in the early 80’s, when there was a clearer division between high-end retailers and retailers for the masses. Stores like Barney’s cultivated young designers carrying small capsules of their designs. The big-box retailers like Macy’s carried mass manufactured goods that were created by designers but designers who understood who to cater to that customer. Gap zeroed in on their customer who came to them for basics. It was a very different place. It all worked until it didn’t.
Right now we are seeing something very similar to the shift in retail that happened in the early 2000’s. Big box retailers, like the department stores under the Federated umbrella, tried to go upscale and lost their core customer to the rise of single chains such as the stores under the Gap umbrella or Zara who spots trends and capitalizes on them. They corrected themselves. Each of them figured out their niche, a large niche but still a niche.
And then the internet came and a new generation grew with different spending habits. The management of the large companies didn’t see it coming. I refer to this as “golden handcuffs”. When things are working, it is hard to make those changes until they start to affect the bottom line for a few years and then it is like turning around a cruise ship. Millennials consume differently. The biggest consumers are still the baby boomers but the products in the stores are geared towards the youth.
Millennials have grown up in a time of rapid change. They really don’t like the burden of owning too much, they are happy to share and spend their capital on experiences. Their needs are different and although the majority of purchases are still happening in the brick and mortar world, they prefer e-commerce. Walking into a store must be an instagrammable moment, an experience.
I believe the next shift, that we are beginning to witness now, is the rise of young designers and smaller brands that will connect directly with their customer. Because of technology, manufacturing for a few products costs are no different than manufacturing thousands, and it can be done quickly, aka fast fashion. Brands like Noah, who drop a new product every week has built a loyal audience. They know who their customer is. They will never be a billion dollar brand but a profitable 20 million dollar brand (or maybe more) as they reach out their customer around the globe which will become easier and easier as cryptocurrencies rise.
The big brands such as J. Crew, the Gap and more are in need of a massive change and a serious look into the future as well as the mindset of Department Stores that expect brands to pay to play. It will take time but the future is now. Millennials want to be individuals and that does not fair well for mass-manufacturing of fashion. Where will the next billion dollars brands be for institutional investors? I don’t believe it will be in clothing brands unless they understand how to do what small brands are doing at scale and that is a very different way of doing business.