There’s a seismic difference between gross sales and net sales for a wholesale brand. It’s called discounts and allowances.
Gross sales are fake sales. They’re not real. They don’t go into your pocket. They don’t pay bills, and they’re irrelevant. Gross sales are just shipments to retail partners who aren’t going to pay you the full value of those shipments, ever. Yet many brands continue to get this dead wrong. It’s destroying a lot of businesses.
What doesn’t sell-thru, eventually comes back. Sales teams at the brand are constantly pushed to sell more stuff to more retail partners. It’s done in an effort to drive more goods into more retail stores to ultimately try to hit what are almost always unrealistic wholesale revenue targets. Buyers at the retail partners, on the other hand, don’t mind taking the goods. Why should they? If the goods don’t sell-thru or the margins don’t meet plan, the brand picks of the tab regardless–as they should. So who’s fooling who? Does anyone really think this is a good process? If a customer doesn’t buy the product, it doesn’t become a sale. If a tree falls in a forest, and we’re not there, we won’t hear it.
Net sales are real sales. They are the dollars that go into your pocket. They pay for the products you made, the talent you pay, the marketing you do, the technology you should have, and the experiences you must create. When net sales are aligned with what’s sold-thru, gross margins skyrocket. Gross margin is the money left after the goods you made are paid for. The more crap you make, the more $$ you pay. And the more $$ you pay for the goods you made to do the sales you didn’t do, the less you keep to use for those valued employees, that useful technology you could have, and those experiences you should create.
You don’t need $100 worth of goods to do $10 worth of sales. Nothing about that is reasonable. Wholesalers need to manage their channels RADICALLY better if they want to be successful. Incremental change to this effort is useless. Lower gross sales does not mean less net sales. That’s a complete and total fallacy for 99% of the wholesale brands in the fashion industry today. Quite the contrary–lower gross sales translates into higher net sales with stronger gross margins.
Focusing on net sales with high gross margins is the HABIT of high-impact brands. Driving gross sales is at odds with that effort.
Managers enable fear. In some cases it’s intentional, but more often than not it’s completely unintentional. Enabling fear is often a condition that happens when people and teams are focused on extrinsic values like targets, bonuses, and promotions. Focusing on things that are often out of our control creates bad habits and frustrating work conditions. Worse of all, fear is what keeps people from growing and learning. It’s fear that prevents us from sticking our necks out and doing big things. Its fear that keeps us from walking down untrodden paths to find new destinations or opportunities. I’m a lot more comfortable walking the streets of NYC then the deep trails of Colorado. But fear doesn’t stop me from loading my backpack and hitting the those trails–usually.
Leaders instill fun. They do intentionally and consciously the opposite of what managers do unintentionally and unconsciously. Leaders create environments for growth and experimentation by focusing on intrinsic values like purpose, mastery, and autonomy. Daniel Pink discusses this in his book called Drive, which I encourage you to read. Fun allows people do and try things that may or may not be normal. It’s what helps people get out of their boxes and try new things. It’s what makes people look at the unknown and try it. And it’s what bonds us into community and a culture rather than enemy and foe. Fun is a good thing. Have some.
Fun doesn’t mean you’re always laughing though–let’s be clear about that. I have fun doing CrossFit, but believe me there’s not much laughing going on when you’re pushing through a WOD (workout of the day). I bet many of the people working with Elon Musk at Tesla and SpaceX would consider what they’re doing fun despite the fact that Mr Musk is extremely difficult and highly demanding. In fact if you go on Quora.com and ask “what’s it like working with Elon Musk,” you’ll find roughly that answer. People working with Elon feel a sense of purpose. They are doing things to change the world for the better. They certainly have mastery because Elon is known for seeking out the best and brightest across trades, craft, and skills. I’d also bet they feel a strong sense of autonomy. If Elon were driven by targets, he would have given up after the third failed rocket attempt at SpaceX.
What is autonomy? Autonomy means you’re self-governed and self-determined. It doesn’t mean you have flex-time–that’s not autonomous. It also doesn’t mean you don’t have to show up–in fact it’s the quite the contrary. Autonomy means that when you show up you’re there, you’re into it, and you’re all in. It means you “show up” a lot. Autonomy means you’re driven by results and you’re excited to make shit happen. People who have autonomy don’t fill seats or waste time for the sake of being at work and getting paid. The truth is you can get a lot more done showing up for 4 hours a day 4 times a week then by wasting time 12 hours a day 5 days a week.
Have fun. Be fun. And more importantly–be a leader, not a manager.
Understand who your customer is and what they want from you. If you’re a brand and sell your products to other retailers, you need to know what their customers bought of your products. It’s completely irrelevant what you sold to the retailer. Likewise forward bookings, or orders from your retail partners, are useless. Just because you sold it to them, doesn’t mean you’ll sell it to me. If you want to build a brand that customers love, look only at what they’ve bought from you. If they didn’t buy it, they didn’t want it. That could be a function of the right product at the wrong time, or the wrong product at anytime. Your job is to figure out what your customers wanted and then make sure they can get more LIKE it at the right time in the future.
It was announced today that Walmart is acquiring Jet.com. Jet set out to become an Amazon killer. The purchase of Jet by Walmart is an effort by both companies to do just that.
What intrigues me the most about this is that it leads me closer to the belief that Amazon will likely acquire Macy’s in due time. Walmart needed Jet to get deeper into the E-commerce space. Amazon needs Macy’s to get deeper into the store space.
The question I think other retailers and especially brands need to ask themselves is how do you compete or manage into this new retail model. It’s sort of like LinkedIn selling itself to MicroSoft. LinkedIn, as big and successful as it was, didn’t have the resources to advance itself and compete against Facebook and Google. As a brand or retailer of fashion goods, or any consumer good for that matter, you need to ask yourself what this really means.
It’s no longer about product, it’s about marketing and inventory. As a brand you need to market a lifestyle concept that people really freakin want. And if you have any hopes of being successful you’ll need to crowdsource those product to make sure you manage inventory. There will be no room for mistakes when you have what amounts to two behemoths controlling the entire marketplace.