Goodbye Wholesale Brands

http://jamiequint.com/goodbye-wholesale-brands

by jamiequint • 13 years ago

73 29 13 years ago

VLM2• 13 years ago

One hidden assumption is the high growth of internet retail implies a high growth of fashion clothing growth. Not sure why that applies. Sounds good, just not backed up by numbers.

Its hard to think of a commodity with more of a conspicuous consumption purpose than expensive fashion clothes, other than perhaps cars. The act of shopping for them, being seen shopping for them, the whole trying them on and looking a mirror, seems to reach or exceed the enjoyment of eventually wearing them in public.

I would imagine sizing is a complicated issue impacting possible 10% annual growth rates and all that. Tee shirt sizes are simple so online tee shirt sellers do well. I have bought my last four pairs of shoes on line because they're identical mfgr, model, size, width. I'm thinking high fashion clothing sizing might be somewhat more complicated. "do these stripes make my butt look fat" is hard to answer if you don't try the clothing on. As if thats ever an easy question to answer.

Finally you can increase annual sales of $300 fashion brand jeans by 10% per year for quite a few years, but eventually you bounce off declining median adjusted incomes, permanent decrease in economic activity, long term demographic decline stuff like that. It is very much like growing the 50+ foot sailing yacht market by 10% per year, you can do that for awhile, but eventually you run out of people capable of paying $300 for a pair of jeans, err, buying 50+ foot sailing yachts... The fashion market may not be big enough to make the subset of internet sales large enough to be viable. Perhaps walmart has more to fear from amazon than the major fashion brands... there's a lot more people buying $25 walmart jeans wanting to save $5 at amazon than people buying $300 jeans hoping to save $200.

(edited to add that if you agree with the assumptions of the article, its a well written and well analyzed article with no obvious mistakes. I just happen to disagree with several core assumptions which has quite an effect on my opinion of the conclusion.)

jamiequint5• 13 years ago

Apparel has actually been the driving force in e-commerce over the last few years: http://www.emarketer.com/newsroom/index.php/apparel-drives-r...

VLM2• 13 years ago

That's a good, general, factual article you've linked to.

Superficially I saw mostly general sector wide results in the article. However I have bought a lot more tee shirts and cafepress-type products and cheap identical non-designer shoes than $200 scottevest products.

My impression of the article is it was focusing solely on high end whereas I'm arguing the bigger action is probably at the low end.

bsimpson• 13 years ago

Given all the presumptions you've made in your article, it seems like many of these brands would be well-served to let Amazon handle the fulfillment. The brand would still control pricing, marketing, and manufacturing, but warehousing/shipping/returns could be handled by Amazon. This removes risk to both the brand and consumer, as well as spreads the high fixed costs of warehousing over a large pool of businesses.

jamiequint5• 13 years ago

Yes! There is also Shipwire (http://shipwire.com) that has done very well recently. I do think that it is possible the brands will cobble together a solution using Amazon/Shipwire and 3rd party tech, but a better opportunity seems to be providing full service e-commerce for brands. However, given that the shipping layer is the hardest part I would think hard about what that meant for such a business if I did not control that layer. Sneekpeeq, an e-commerce company that grew and crashed off the back of Facebook platform, recently raised around $5m additional capital to pivot to this model, renaming themselves Symphony Commerce (http://http://symphonycommerce.com/)

cm20122• 13 years ago

I have about 20,000 units in Amazon at any given time. The only disadvantage is that the cost is pretty high for non-Amazon fulfillment and shipping - $7 for non branded boxes to start with.

lsc• 13 years ago

as well as spreads the high fixed costs of warehousing over a large pool of businesses.

(Note, I'm speaking from some experience here, but it's total amateur-hour experience. I wrote a system for tracking and selling books via half.com and later amazon.com, back when half.com was a thing. At one point I had well over ten thousand books in my inventory to 'test' the program. hah. It actually wasn't so bad; there just isn't any money in it. I might go back to it if I retire; it was fun to have all those books around. I've also worked around several junk dealers, who used the 'have employees who know where shit is' method, and my SO has written an inventory system for our personal stuff, which works, except that barcoding and describing all our stuff is a... daunting amount of work.)

eh, shipping in a timely manner, yeah, if you don't have enough work for a full-time person, you probably wanna outsource. It's a pain in the ass to make a trip to the post office for what amounts to five bucks in profit.

But the cost of warehousing? I think is actually pretty low. Even here in silicon valley you can still get santa clara warehouse space for around a buck a squarefoot/month, in thousand-dollar increments.

Even here, you can get folks capable of operating a simple label printer and mailing stuff out for something like $12-$15/hr, if you have more than 20 hours a week. Especially if you only have a few SKUs, I think it's pretty simple.

now, if you have a thousand SKUs, either you need people who know your inventory really well, and you will be in serious pain when anyone quits... /or/ you need a very good computer system for handling what is where... and setting that up and maintaining all your SKUs is skilled labor. On top of that, the computer system is only as good as the employees scanning the items and locations (or putting the items in the right location; but I personally think the approach of barcoded bins and barcoded items is right; the user barcodes the item, then barcodes the bin, then puts the item in the bin. )

But /that/ is a whole lot more work than it looks like. So yeah; For a few SKUs? a couple grand a month, even in a very high cost of living area and without using your garage, and you can move a lot of product. For many SKUs? yeah. that's where your trouble starts.

I really think that once you have enough work to keep a kid busy mostly-full time, your costs are probably going to be lower doing it yourself.

On the other hand, you do have a good point about the consumer trust of amazon; For me, buying something through amazon (something sold by amazon, not something sold /through/ amazon; that's completely different.) is very easy; very little friction, and I know it will get here the next day. I'll pay a few bucks extra to get a thing from amazon vs. somewhere I've never bought from. (My /feeling/ - and I don't have anything to back this up, is that amazon is picking up on this, and their prices are slowly floating up vs. everyone else.)

cm20122• 13 years ago

I run e-commerce for a fairly large apparel manufacturer and wholesaler on the low end and have worked for other manufacturers. All manufacturers are looking to cut out the middleman, or at least replace it with a cheaper middleman like Amazon.

prbuckley3• 13 years ago

Don't you think higher end brands have an aversion to selling on Amazon? Having tried to sell a brand product on Amazon I have found that the Amazon customer is very price sensitive.

mbesto• 13 years ago

This is pretty spot on.[1] A company like YOOX is doing "E-commerce as a service" for fashion brands stuck in this position: http://www.yooxgroup.com/en/company_profile/the_group.asp (warning - autoplaying video!)

[1]Source - I work directly with a wholesaler who matches almost every description in the article.

LiweiZ• 13 years ago

How about have a crowdfunding system to bridge designers and consumers directly? Well, I'd say it could be like Kickstarter in fashion. Granted, there will be many aspects to make adaptions, but the core is almost the same.

bqe• 13 years ago

Brands like Stock Mfg. Co. are already doing this: https://www.stockmfg.co

ChuckMcM• 13 years ago

This is a really important insight. The chunk of GDP that is dedicated to ferrying money from consumers to producers in the 'fashion' space is going to be hugely disrupted. The level will be no less disruptive than music or literature.

We can predict then that aggregators and re-sellers of fashionable clothes will go out of business, and discovery marketplaces like Kickstarter, Ebay, Etc, will create the channels between consumers and their products.

I would guess that small run clothing factories will be a growth industry, more so if they are highly automated.

digitailor5• 13 years ago

(Forgive me for the length of this post, I didn't have time to make it shorter.)

TL;DR: The author's thesis is that wholesale apparel designer brands can recoup margins by selling direct online. The way this will be accomplished is by the brand itself holding inventory.

Here's 100 years of experience condensed into four words, so if you're considering disruptive ideas in the apparel industry (like this one) please consider that:

INVENTORY IS THE ENEMY.

I am part owner of a 100-year old vertical apparel outfit in midtown Manhattan, and was there on hand every day for 12 years. We make custom men's suits and sell direct to the consumer, but that's only been the main revenue stream for a little more than a decade.

My great-grandfather started the business as a wholesale manufacturer in Brooklyn circa 1913, and my grandfather grew it into a national wholesale men's clothing line, supplying many of the nation's stores with their private-branded tailored clothing lines.

My father took the big move of selling direct to the customer in the late 70s, from the factory and warehouse on 5th ave in Manhattan. By the early 80s, especially as the result of clever marketing and other market factors, the retail business exploded. The consumers LOVED that the clothing was made in NYC, that they could see it being made, and that it was less expensive because middleman margins had been cut out.

So, my father bought a huge former department store on Broadway in the mid-80s, with a three-floor factory above, and was pumping out suits in record quantities (for our business). Also, our suits were wholesaled to Japan, Germany, etc, under our name.

Then the market shifted. Suddenly my father was stuck holding quantities he couldn't move. (The same thing had happened to my grandfather numerous times.) Overseas manufacturing hit full swing, and even with the cut margins, it was getting impossible to compete. We nearly went bankrupt by the time the "casual trend" hit during the tech boom of the late nineties.

In 1999, I came in to help shift the factory back to purely custom-made tailored clothing. NO INVENTORY. MADE TO ORDER ONLY. It was a huge retooling process, and since I was in my early 20s and there are no baby boomers who learned custom tailoring, I had to fill in the generation gap by learning the craft completely, and computerizing the whole pattern-making process. (Doing this custom is a near-impossible task that few do, and I eventually wrote my own software for it.)

We had to stop stocking inventory or we never would have made it to 100 (this year) if we had hung on to the idea that a small brand can hold its own inventory.

Here's an old Jewish garmento joke from the 70s, it's caustic but we say it often: "Inventory killed more Jews than Hitler."

There are very few brands out there that can handle vertical operations like this, and fewer people to manage it. Trust me, we've been hiring candidates for ages.

Brands will incur all that additional personnel overhead and the incredible risk of stocking inventory, and need the huge marketing budget to sell purely online with no retail locations to build awareness (or at least be reliant on their existing, pissed off accounts for that). The author recognizes this, but glosses over it, and that's why I told this long story.

The real disruption of the apparel industry is technologically enabled mass customization. This has been talked about for ages but the operational skill to pull it off at scale is not there. I was granted a patent on using bodyscanners to make custom clothing years ago, in anticipation of this disruption, and I'm still waiting for it to happen, but it seems faaaar off.

The author says that a brand holding its own inventory is the "new" industry model. It is actually one of the oldest and most dysfunctional, and fraught with risk.

jamiequint5• 13 years ago

Hey! Thanks for the long and detailed reply. (On a side note I enjoyed the Pascal reference: http://en.wikipedia.org/wiki/Lettres_provinciales#Other :) I definitely agree with your main point, inventory is the enemy. I'm not trying to claim that this is an entirely new idea, however, it is a fact that brands are moving online and doing so quickly in a way that has not happened en masse before. I cover in the article that many brands will probably mis-manage this transition and go out of business.

My own TL;DR of the article would be something more like this:

Brands are moving online rapidly, this will mean they have to hold inventory. This is a new risk they have not taken before and some may fail because of it. They will take this risk because there is margin benefit as well as threats from direct-to-consumer online retailers taking their business. Going forward, direct-to-consumer with higher value to the consumer will be the 'new normal'.

digitailor5• 13 years ago

I understand what you mean. And your bottom line that online retailing is growing and will cause a shift in the apparel industry, as it has in most others, is certainly valid. I'm just not sure the shift you're describing is likely.

I think this strategy is untenable for almost all of the designer brands in the market you're addressing, because the assumption of all the risk is not a good business model in any industry.

Let's look at VC for a moment. Having been involved in it, there is an obsession with risk analysis and reduction, and with good reason. A model that says "Let's take 100% of the risk and capture the margins!" probably can't support a whole market shift, and would probably be difficult to fund. And funding of some kind would be necessary for most brands to be able to stock goods.

You're very knowledgeable about the back-end of the apparel business, it was cool to see a story like this on the front page of HN.

larrys• 13 years ago

"Then the market shifted. Suddenly my father was stuck holding quantities he couldn't move. "

Excellent story. The above statement shows why people who have only been in business for a short time, and specifically only in tech, have no long term view of how quickly someone can be on top and then "poof". I have heard over the years many stories like that spanning many different businesses.

I have a friend whose father in law is a "garmento". Runs a big factory and imports things from the Dominican Republic, Asia, China etc. Lately he told me of the problems they are having just as a result of there being less department stores than there were 5 years ago. This was a business that did really well for many many years. All the sudden a formula that worked doesn't work anymore. And these people were on the top of the world for so many years.

NellWatson• 13 years ago

Great post! I'm founder of a company called Poikos, which enables body scanning just using the camera on a PC, tablet or smartphone. I created it to enable just such a mass customisation revolution as is discussed here. Maybe we should swap notes!

digitailor5• 13 years ago

I checked out your site briefly, it's very cool. I've been hearing about this tech but haven't seen anyone pull it off yet! I will be in touch.

croisillon• 13 years ago

So 370$ is more than double than 231$? Thanks for the nice graph!

grogenaut• 13 years ago

You have to assume people care about fashion. I don't but I guess since my wife works at Tommy Bahama and I get cheap nice stuff I shouldn't make any statements. But generally I dressed like slob before then. Its just now I dress like a slob in fancy slob clothes. :)

Goodbye Wholesale Brands

Related Stories