Wisdom from Phil Knight, creator of Nike

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“Supply and demand is always the root problem in business. It’s been true since Phoenician traders raced to bring Rome the coveted purple dye that colored the clothing of royals and rich people; there was never enough purple to go around. It’s hard enough to invent and manufacture and market a product, but then the logistics, the mechanics, the hydraulics of getting it to the people who want it, when they want it—this is how companies die, how ulcers are born.”

— from Phil Knight, “Shoe Dog: A Memoir by the Creator of Nike”

Be sure to read this memoir by Phil Knight of Nike. It’s a great look into what it takes to create and build a world-class brand like Nike. Anyone interested in starting a business will quickly appreciate that luck, drive, grit, and determination all played a major role in the birth and growth of Nike. You’ll need all of those to build your business too. And for anyone in the fashion or consumer industry, the above quote is gold. The “HOW MUCH, WHEN, AND WHERE” is equally as important as the “WHAT”. It’s doesn’t matter how much data you read, it’s what you do with it that counts.

photo: Simon & Schuster

Omni-channel conundrum

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One of the key priorities I hear when talking to or advising brands and retailers is what to consider and how to approach building an omni-channel strategy. It’s a telling sign that many are struggling to connect with modern consumers.

Inventory is an expensive investment and it’s incredibly challenging to know what to produce and where to put that inventory. If a brand does that right, sales and margins are strong. If a brand or retailer does that wrong, sales suffer and margins tank.

I’ll go out on a limb and say that virtually no brand or retailer is getting this right in the fashion apparel and footwear industry right now. Let’s face it–everyone is suffering, and this always leads into a conversation about what is omni-channel? How is it different from Direct-To-Consumer (DTC)? What is DTC? Is it retail stores and online? What about mobile? Social media? And what do we do with the wholesale channel? How do we exit it or manage it since in many cases it was or could be a significant contributor of sales and profits?

Why are so many brands and retailers struggling with these efforts and business in general? Maybe none of the above questions really matter. After all if you’re the leader of a brand or retailer, your main concern is likely “why am I having such a hard time driving growth?” Typically the answer lies in that fact that you cannot have growth without innovation–they go hand in hand. A CEO’s chief priority is focusing on growth and innovation. After all, if you want to be better than everyone else, you have to do things everyone else is not already doing.

So how should brands and retailers be approaching strategies to improve business through omni-channel efforts? Often the best advice is to look at a brand that has done an excellent job. A brand that is the best-in-class. Naturally the brand that comes to mind instantly is Apple. They’ve done an excellent job to date. Apple has had great products and amazing execution all around.

But let’s think about what Apple has really done. In my opinion, I think that what they’ve done really well is to figure out the complete life-cycle of its consumer. Apple understands that a consumer’s journey starts with buzz. They want to know what’s going on. From there Apple does amazing little things to begin crowd-sourcing new products. Months before the delivery of the Apple Watch, iPhone users got an app on their phones for the Apple Watch. That was a form of crowd-sourcing. On that app, Apple could tag and track everything its early adopters looked at, spent time on, and shared with peers. That insight is tremendous. It’s a powerful tool for a brand to have when deciding how much, when, and where products should go.

Think of it like this: buzz generates conversation, conversation creates products, products engage consumers, consumers give insights, insights deliver success. Apple used buzz and engagement with fans to execute one of the greatest product launches ever. The Apple Watch didn’t just show up in stores one day. It was in the making for years and part of the consumer’s journey for many, many months.

From the early insights gained, the teams at Apple could effectively market, produce, distribute, plan, place, support, and reinforce repurchase throughout the entire consumer journey. Fashion businesses have a much higher SKU count than Apple does, but that journey to purchase still holds true. A brand’s success is completely dependent upon how well it executes along the entire consumer path to purchase. Miss one step, and you’re stunting your potential and frustrating your audience.

My suggestion to brands and retailers struggling to find footing with the modern consumers is to ask themselves if they’ve innovated into the consumer’s journey. It’s important to think about what “could” be done rather than what “should” be done. No omni-channel strategy will work if you can’t connect with your audience much earlier in the process. We built PreeLine to be that little tool at the beginning of the journey, like the Apple Watch app, to let fans engage with products before they are bought, produced, shipped, and sold.

Innovative brands will do innovative things. A sense of curiosity and desire to experiment are critical to building any great business. Ultimately, without engagement and insight from your consumers, there is no omni-channel strategy. No growth with no innovation.

Like Apple did with the Apple Watch, the answer to finding your omni-channel path is engaging much earlier with your fans and building longer-lasting relationships that resonate with modern consumers. The current process many brands and retailers use is essentially this: design it, produce it, deliver it, and then pray that it sells. Think about that. Is that what your brand is essentially doing? Best to get out of that box if it is.

We know that this process of “make and pray” doesn’t work. There’s much better technology available. We should be using data to inform our decisions. And most importantly, modern consumers are smart and they want to be engaged in the experience.

So let’s get innovative and think about how to engage with consumers. And yes you should be using PreeLine, but if not, go build your own crowd-engagement platform. Just do it and do it well. It’s a big step towards driving growth and innovation.

Image from TotalRetail

Adding Fuel to the Fire

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Many brands and retailers are adding fuel to the fire that is decimating much of the industry. Suffice it to say many business leaders are literally in a state of panic. Mall traffic is down double-digits, comp-store sales are weak, promotions are rampant, coupons are common, and fashion has no clear directional trend. The forest is on fire.

Oxygen fuels fire. Blow some air on a good hot fire and see what happens. Fires love oxygen and they need fuel like dead trees, grass, and brush to grow. To control a forest fire you clear surrounding areas of fuel, dowse the fire with water, keep it under control, and wait for rain.

INVENTORY IS OXYGEN. As much as you need oxygen to breath, you need inventory to generate sales. But like oxygen ignites flames that destroy a landscape, so does inventory to ignite markdowns, obliterate margins, and devastate a brand.

When the forest is on fire, you have to contain the burn by managing fuel and oxygen.

Do more with a less inventory and your forest will thrive. Drive your planning teams to constrict the flow of oxygen and charge your buying teams to identify only the best sources of fuel.

 

Photo: National Geographic

 

Walmart buys Jet.com

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.

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.