DON’T SELL, SOLVE — Part 2 of Wholesale isn’t broken series

problem_solving_algo

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and retailers continue to use and promote a business acumen that is poorly managed, weakly aligned, and severely outdated.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.

It’s Not Science, It’s Fashion. 3 Things to Improve Biz

Wierd-AlThere’s three things I think brands and retailers need to start getting better at if they want to improve business right now. We know you have to create great product and you have to have an awesome marketing campaign, but you also have to manage the amount of product you produce and create a sense of demand.

I cannot even begin to tell you how many times I’ve listened to people say that this product didn’t sell well or that item was a bomb. Team after team, brand after brand, and retailer after retailer continue to over develop, over assort, and under perform. It’s not because of uncooperative weather or bad product or new trends or whatever excuse is made at the time; it’s because too much product was made and bad bets were placed against the wrong styles within that inventory. Too much, too often, not focused…

Here’s an important fact: no brand or retailer has ever gone out of business because they had too little inventory–it’s the opposite.

Here are three things to get serious about if you want to be a player and have a product, brand, or business that consumers want with passion.

 

#1 GET REAL ABOUT YOUR SALES ESTIMATES. First things first, sales are the amount of products consumers buy of the things you make. It doesn’t matter if it’s consumed online or in store. It also doesn’t matter if you’re a wholesaler or retailer. You have to know how much goods you sell to consumers. If you don’t, figure it out fast.

Now that that’s out of the way, let’s recall Sir Isaac Newton’s first law of motion, which is a body in motion tends to remain in motion unless acted upon by an outside force. If you need further insight on this matter, I’d recommend reading the amazing book by Neal Stephensen called Seveneves. In it you can read all about orbital paths and the forces necessary to disrupt those paths and cause meteors or other bodies to behave like a good pet and do as you say. It’s a book recommended by Bill Gates for crying out loud so you know it’s awesome–and geeky.

Anyhow back to reality, like the first law of motion, the same is effectively true with sales. Something big had to happen to go from selling nothing to selling something. You had to create or disrupt another force. Trends fade due to other trends gaining momentum. Think of trends like friction–it just is and you have to account for it.

Now don’t be fooled, sales are highly predictable especially when you have an existing business with data. They are like orbital paths. I’ve worked with teams and we have consistently projected sales 18 to 24 months into the future that have actuated at plus or minus 2% (that’s freaking amazing) barring any major events like 9/11. In all the years of estimating forward sales, we have found that unless something significant and meaningful happens, those sales continue along a very predictable path much like a body in motion against the normal forces of gravity and friction–economics and trends.

Another point here is that the larger the body, or sales volume in our case, the more of an outside force or action is needed to change its course. For physics buffs, this is Newton’s second law of inertia–big stuff needs a greater force to move it than does little stuff. You should be able to quantify any meaningful effort to change the path of your business—new shops, stores, distribution, market reach, etc. More inventory and more iterations of the same products does little to affect change. It’s just more mass. In order for change to happen, the disruption has to be material and it has to be an investment in time, money, and resources.

As the saying goes, “hope is not a strategy”. You cannot “will” your way into gaining more sales anymore than you can use your mind to move a stone.

Get real about your estimates and know that hope is not a strategy.

 

#2 CUT INVENTORY IN HALF. Yes you heard me and no I’m not kidding. The global apparel industry produces more than 150 billion garments every year and there’s only around 2 billion people with the means to consume those goods! The ratio of what you produce to what you actually sell at margin probably isn’t much better. Take a look and see how many units you make in a year compared to how many units CONSUMERS purchase at viable margin in a year. I promise it will be staggering.

If you took the time and figured out how much you honestly expect to be able to sell in a year or period, why would you buy 2 or 3 times the inventory you need to generate those sales? It’s a waste of money and resources plus it stunts demand. When we buy too much inventory, we flood the marketplace with goods and destroy any sense of demand. Don’t be afraid to let your consumers WANT your products.

As a rule of thumb, what you plan to sell plus how much you can responsibly take in markdowns, equals the amount of receipts you need to deliver. It’s just math. Don’t make it complicated. If you expect to do sales of $100 and want a markdown rate of 30%, buy $130 worth of product. Why would you buy $500 worth of stuff to sell $100 worth of products?

Hear’s a cheat sheet: if the product you produce has a lot of sizes, e.g., footwear and apparel, you should buy no more than 1.4x sales. If your products don’t have sizes, e.g., handbags and jewelry, receipts should be no more than 1.2x sales.

This shouldn’t be looked at as tough medicine. It should be viewed as religion. It should be CORE to your business acumen. You can do sales with a lot less goods. And guess what? Doing that only creates demand, it generates a lot more gross margin, let’s more people keep their jobs, and it’s the right thing to do for our environment.

Stop being afraid and do more with less.

 

#3 PLACE MEANINGFUL BETS. A lot of brands and retailers hedge their buys. Instead of taking big bets, they buy a little bit of everything–and a little bit of everything results in a whole lot of nothing.

After you’ve completed step 2 above and buy a lot less goods in general, now you have to buy more of the right stuff and less of the wrong stuff. If you have data and if you’re engaging your customers, this is easy. Don’t make it more complicated than it is.

Here’s the point, you have to figure out what is going to drive sales and buy a lot of those products. You also have to figure out what is going to excite your audience and splash those products around. Don’t buy all your SKU’s equal. Don’t even let them get close. Pareto’s principle states that 80% of effects come from 20% of causes, which in our case means 20% of your SKU’s will likely generate 80% of your sales. Don’t fight it. It works. The beauty of this also is that it doesn’t mean you can’t or shouldn’t have breadth of an assortment. Go at it. Have a broad assortment of goods. Just make sure that a small portion of those SKU’s account for most of your inventory. What consumers see and what you have in the stockroom should be two completely different things–an optical illusion. That’s what inventory management is all about.

If you’re not buying your top SKU’s exponentially deeper than your bottom SKU’s, you’re destroying your business and it’s your fault. It’s not the weather. It’s not the economy’s. It’s not the design team’s fault. And it’s not trends. It’s you, and I mean that if you’re a planner who figures out how much to buy for when, an allocator that distributes the product, a merchandiser that figures out what to buy, a marketer that looks at what to promote, or a leader that looks to build a healthy business that people want to be a part of. If you were a portfolio manager at an investment company, which essentially we all are in some manner or another, your success would depend on how well you place your bets and beat the market or your competition.

 

HERE’S THE GUARANTEE. If you are realistic and honest about how much consumers are likely to buy of your products, buy just enough inventory to generate those sales, and place big bets inside that inventory, I guarantee you will drive significantly more sales, capture more gross margin than you know what to do with, and your consumers will want your products more than ever before.

Final food for thought: if we produced 10% fewer garments each year, that would equal 15 BILLION fewer garments going to landfill. That’s 15 billion less in materials production, which results in waste, pollution and toxins. Furthermore, none of that would be lost sales. All of it would be an increase of profit in terms of margin, our environment, demand from consumers, and strength of our industry.

Fashion Needs a Compass

The consumer goods industry needs a modern GPS. But more importantly, it needs to trust and follow the directions provided by a good GPS.

First let’s make sure everyone knows what a GPS is. There are likely at least a few people under the age of 30 who aren’t familiar with the term. GPS stands for Global Positioning System, and it was to 1995 what Google Maps is to today. Enough said about that…

When GPS was gaining traction in the 90’s, we created a merchandise planning system for Tommy Hilfiger called MPS, which stood for Market Planning System. Notice how crafty we were for creating a name for our system! We did try other names including Compass, Pilot, and Navigator, but they weren’t available and it didn’t matter. Building the process to help Tommy be one of the most successful brands in the world at the time was more important than a name for our system. The MPS was built to be our guidance system through our market process when we met with department store buyers to place orders for future goods. If we followed our MPS, we did well. If we didn’t, we almost always got lost or into a pretty bad accident.

For the most part, the original GPS was useful only when you had no idea where you were going. It was the rough evolution of a paper map or a printout of step-by-step instructions downloaded from AOL. There were no ways of tracking traffic or road construction other than by listening to the radio (I trust most people are somewhat familiar with a radio). Sometimes roads were gone or not available, but overall using a GPS was much better than getting directions from a friend or someone on the street, which was essentially equal to “go down here, look for this, turn left, keep driving until you see this thing, then go turn this way and you should be close–if not, you probably made a wrong turn.”

Our Market Planning System did essentially the same thing as a good GPS at the time. It worked great with a store-based business. We knew how many stores we had, how much product each of those stores needed at different times of the year to be successful, then assorted those products according to how they sold in the past by color and size. We were remarkably accurate getting the right goods in the right doors at the right time. But it only happened because we made sure we put good information into the system, and then followed its directions. We entered a known address in our MPS and followed its step-by-step instructions to getting our partners and ourselves to that destination most efficiently.

Well a few a big things have changed or gone terribly wrong since then. First and foremost, most brands and businesses are entering bad addresses into their GPS—they’re targeting “someplace on the westcoast” when they should going to San Francisco. Two, they’re not following the instructions—they’re taking a lot of detours and diversions from the path. And three, there are much better technologies available that aren’t being used that can help brands avoid all sorts of problems that were unavoidable in the past, e.g., the bridge is out ahead.

It’s sort of like this; if you use a paper map to get from 100 Wall Street to JFK Airport, I will almost certainly arrive there quicker and with less hassle by using Google Maps. Likewise, if a friend of ours uses Waze, she would likely get there even sooner because Waze tracks traffic and speed from other social users.

A bigger point is we need to realize why we need to get to JFK (or LGA/EWR) if our destination is 1 Market Street in San Francisco. In this case, 100 Wall Street to JFK to SFO to 1 Market Street does the trick nicely. You can also drive from 100 Wall Street to Boston Logan then fly to LAX and hire an Uber to drive you the long distance to someplace in San Francisco. I suppose you’ll get close, but you’ll take twice as long, pay three times as much, and not get exactly where it is you intended to go had you planned and taken an efficient route to the destination.

Kapish? Get my point? There are a lot of very bad ways to get to where you think you ought to be going.

Spend the time to know where you’re going, then build and trust technology to get you there most efficiently. Don’t plan a destination to someplace out west, if you need to be in San Francisco. If you need to be at 1 Market Street in San Francisco, go there. That’s the first step in getting where you need to go. The next is using and trusting technology that can get you there quickly and comfortably most effectively and efficiently.

I’d like to see the day when brands have access to and use diligently a consumer and inventory management system equivalent to Waze. A technology that is social, accurate, live, and intuitive. A technology that knows all the routes, but uses intelligence and real-time information from actual users as to how to get where you need to be.

That technology is available. It’s the focus at PreeLine and the potential is huge for an industry desperately in need of a good guidance system. I love the potential of a social navigation system for consumers. We should be able to answer what do I want, where should I go, who’s been there, what should I do, how do I get there, who wants to join me? Like Waze was built by a small group of entrepreneurs, we will build this technology.

The question is who will be the early adopters? The fashion and branded apparel industry is built on innovation, yet it is one of the slowest industries to respond to the newest technologies available. Like entrepreneur and author Gary Vaynerchuk says however, “I spend ZERO % of my time convincing people.” It does no good. You’re either a charitable person, or not. You’re either a leader, or not. You either get it, or don’t.

I’ve long held the belief that it’s not about the product, but about the inventory–likewise it’s not the destination, but the journey.