One of the key and exciting opportunities for a wholesale brand to consider in order to avoid continued deterioration of its business with department and specialty stores is to move away from a sales and planning organization towards a more proactive partnership that solves the business needs of itself and its wholesale partners.
In my first post in this series, I spoke about how both wholesalers and retailers continue to use and promote a business acumen that is poorly managed, weakly aligned, and severely outdated. A large part of that is the way wholesale brands approach business with their retail partners. If you haven’t read the first series, I encourage you to read it now.
The challenge is, in my opinion, that most wholesalers continue to use sales teams to sell-in product and planning teams to analyze to current selling performance rather than forecasting forward placements. The best brands work to have planning and sales teams in sync in order to most effectively find opportunities that will drive more sales while also ensuring markdowns and margins perform as strong as possible. Wholesale brands that have done this well in the past include Coach, Nike, and Michael Kors. These business worked to manage the presentations, sell-thru, and success of their products through the wholesale channel. They had strong sales and gross margins as did the retailers they sold products through. We did this at Tommy Hilfiger in the 1990’s and likewise had incredible success.
This proactive effort worked well for the industry, but many conditions, including channel disruptions, excessive promotions, and fast-fashion retailers, make these efforts far more complex today. Even the best proactive efforts are falling short from the performance that’s possible through an effective and disciplined wholesale strategy. Worse yet many brands haven’t created these teams to be proactive–they operate reactively by reviewing current selling and respond to internal calls to sell more goods. These knee-jerk reactions ultimately weaken results further. Driving sell-in promotes high gross sales–but markdowns, returns and other promotions to move those goods through the retailers often results in soft net sales and weak gross margins. Product is then blamed for bad performance, people lose their jobs, and brands can’t invest to find innovative ways to grow their businesses.
Critical path 1 = DON’T SELL–SOLVE.
The brand of the future needs to be a problem-solver, not a sales organization. This is true regardless of its distribution through wholesale partners or DTC. Doing business with department stores requires that a brand perform to certain sales and margin expectations. If you can’t make the wholesale partner perform, you won’t get the forward investment you want. On top of this, department stores are eager to take inventory and promote it. There’s little risk to them since the brand needs to ensure margins and sell-through’s are adequate. The question is who is fooling who?
Brands have to solve this problem by developing their teams to work with their wholesale partners as a portfolio manager does with her capital. Thinking that inventory grows on trees is an incredibly bad idea. Inventory is the biggest investments a wholesale brand makes with its capital. Businesses get strapped for cash when they have too much inventory invested that doesn’t move. No brand has gone bankrupt because they had too little inventory. Probably the worst effect of too much goods in too many places is that it destroys any sense of consumer demand. Why buy at full-price when clearly this shit has to be marked down to move out the door? Consumers are smart and they’ve been well trained. This problem however, can be solved by business managers or account partners that think through the problems.
I should clarify that this doesn’t mean changing the titles of your sales team. That won’t work. Having business managers means training and coaching, as well as finding new talent that has this acumen. It also requires time and discipline. The process is highly trainable. Existing sales teams are often very good at managing relationships with wholesale partners, and planning teams often have the quantitative skill set necessary to execute a proactive forecasting efforts. This is a mindset effort that needs to be addressed by leadership, and innovative leaders will quickly see the benefits to developing teams that problem-solve their businesses to execute with certainty and clarity and drive sales while expanding gross margins by vigorously managing inventory cycles.
Brands of the future will be margin-makers, not cost-cutters.
Critical path 2 = PLAN BY CYCLE, NOT BY CATEGORY.
On a long tail business like fashion, where goods are committed into production many months before they’re available for purchase, planning by classification and category was the norm. Many brands currently have planning and allocations teams that buy future products in bulk then distribute those goods to stores and channels once they are getting closer to being delivered to the warehouse for distribution.
The thinking of planning and allocating is that teams can review current selling trends and flow products accordingly to stores and channels that “need” the inventory. The challenge is that this effort often results in a mishmosh of products delivered to stores at various times and inventory control becomes highly reactive. In my experience, these businesses typically have the worst inventory management in place.
Planning and allocating goods is the equivalent of day trading. The best planning teams act more like portfolio managers. These teams do extensive research and analysis to determine how to best place and distribute products across various doors and channels while protecting an assortment that enhances the brand’s sensibility. Once that path is set, only minor adjustments are done and usually only to offset production changes.
Meanwhile fast-fashion brands like Zara have taken the industry by storm because they react to trends quickly and can get production to stores in a handful of weeks. Zara is a vertical operator and has the technologies to do what few other brands can do. For almost all other brands, especially those distributing through wholesale partners, trying to accelerate the time to market is an unlikely, and frankly an unnecessary endeavor. The fact is that just because you can drive faster, it doesn’t mean you can drive better.
Cycle-centric planning in a methodology that plans products according to lifecycle rather than category or classification. Some products live year-round, others need to live only a few weeks, and still others can live for a season. Being able to plan those businesses accordingly allows a brand to focus its efforts on ensuring maximized sales of replenish-able products over an extended period of time. The best brands will work to minimize inventory in the stores and at their retailers and focus on just-in-time delivery across all product categories.
The effort essentially works to utilize a wholesale partner’s stores and digital presence as a model stock of inventory, and then replenishing long-tail products as necessary. Short-tail products, which are fast-fashion and directional, should be planned and placed to sell-through quickly and be gone. The ability to incorporate this methodology to planning a business is significant. Cycle-centric planning is designed to accelerate turns, greatly reduce markdowns, and allow greater focus on how a brand articulates newness and seasonal assortments through retail partners.
Executing a cycle-centric process requires training, but more importantly it requires critical thinking and buy-in from management. One of the hardest things for management teams to do is work towards a proactive acumen as opposed to reactive jumble. The results of enabling a cycle-centric process would provide management much greater visibility into forward sales and margin potential while also enabling much greater control of promotional activities and cadence.
While marketing teams focus on omni-channel efforts to ensure a seamless shopping experience across multiple channels of business for a brand’s consumers, brands likewise need to focus on turning sales teams into account partners and giving planning teams the ability to develop cycle-centric methods that will certainly enhance the entire omni-channel experience.