Fruitless Sustainability in a Flooded Marketplace of Stuff

If we want to build a fashion industry that’s sustainably conscious, let’s start by producing a lot less goods. No amount of effort towards creating, sourcing, and using sustainable fabrics and production facilities will have a meaningful effect if the industry continues to over produce and retailers continue to overstock.

Sustainability + Overproduction Cannot Coexist

Think about these two things: First, the global garment industry produces more than 150 billion garments every year, yet there are roughly only 3 billion people who have the means to consume those goods. One billion people on the planet still have no access to drinkable water.

Second, most global brands and retailers carry more than 120 days of inventory in their stores, on their stockroom shelves, and in their warehouses. Meanwhile Walmart, which is about as big as all the other retailers combined, manages less than 45 days of inventory. The same is true of Amazon. Ford and GM keeps roughly 30 days worth of inventory.

Fashion should be a fast turning business. It currently turns about 2.7X a year. It should turn +6.0X a year. What would happen if the amount of inventory in stores and on-hand decreased from 120 days to less than 60? What would happen if the industry produced just 120 billion garments instead of well over 150 billion garments? You can be sure of these four things:

  1. Sales would improve
  2. Margins would expand
  3. Demand would increase
  4. Sustainability would be massively improved

Brands and retailers can do much, much more with far, far less. By aligning what is made with what can be consumed, the industry can make a giant dent towards sustainability. Plus the tremendously improved profits margins that will be gained can be put back into people, technology, and environments.

Merchandise Planning 101 is Fashion Industry Rule #1

If I were Dorthy and could click my heals together while saying “there’s no place like home, there’s no place like home” in order to get home from a terrible and tumultuous journey, I would say the following rule is exactly that scenario for ails of the fashion industry today. Fashion continues to struggle. Stores are closing. Brands are collapsing. No one is winning. And there’s certainly no yellow brick road.

As someone who deeply understands the benefits of what the science of fashion can do when combined with the art of what fashion should be, I fully understand and appreciate the efforts of what a capable merchandise planning MINDSET can do to help the industry today.

I say mindset because it is exactly that. Merchandise planning isn’t a people or a team so much as the mindset of a brand that wishes to build raving fans and succeed at making great product that consumers love. Merchandise planning is a mindset that a fashion business has throughout its organization, which is promoted and driven by a team of people with skills and ideas as necessary as the smartest CEO, the most gifted designer, the sharpest marketer, and the most capable of capable of all the tremendously talented and dedicated people necessary to make this industry thrive.

There are roughly 5 rules that I believe every merchandise planning team needs to embrace in order to be fully enabled and articulate. Brands and retailers that enable these 5 key rules are always high performers and outpace the industry sizably. I can think of only a few brands and one retailer that has a decent portion of these 5 ideals enabled at this time.

I will discuss the other ideals on later posts, but this first rule is critical. A brand or retailer’s departure from it has everything to do with how healthy or unhealthy that business is. This rule is to the fashion industry what calories are to your health. And while your body and health may require a different amount of calories than does your neighbor’s, if you consume more calories than are needed you will gain weight; if you consume fewer calories than necessary you will lose weight.

This rule is about calorie consumption and the fashion industry is morbidly obese. H&M alone has billions worth of unsold inventory according to this NYT article. While I think the article misrepresents the amount of unsellable merchandise for H&M, my own analysis of the fashion industry finds that there is easily $16 billion in excess, unsellable, unnecessary, and dead inventory in the industry right now. In fact the global apparel industry produces more than 150 billion garments each year for a consuming public that equals roughly 3 billion people. Do that math. It does not work. I wrote about this in 2016 in my post titled Wholesale Isn’t Broken, Just Poorly Managed.

Clearly the fashion industry consumes more calories than can be digested. Getting this first rule instilled in your mindset to be a merchandise planning organization is ground-zero to your path towards building a better business that out-paces, out-performs, and out-lasts all others.

Rule #1: SALES + MARKDOWNS = RECEIPTS

This is a pretty straightforward and simple rule that every fashion business fails miserably. It is without a doubt the first thing I look at when advising a brand and retailer. This rule is the single most important concept any business can understand in order to improve business immediately and materially. It is at the core of a merchandise planning mindset.

Let’s be clear about two things here. Firstly, sales are only related to what consumers buy. This is a critical piece of the formula. If you are a wholesaler, these sales are in no way related to what you sell to a retail partner; those are called orders and they are recognized as receipts for the retailer and herein. Secondly, and most importantly, receipts are the value of the goods you deliver and make available for sale to your consumers at their full retail value (MSRP). Kapish? Sales are what consumers consumer and receipts are what you deliver and make available to be consumed.

The amount of goods you make available for consumption less the amount goods consumed reasonably thereafter will absolutely equal the value of the reductions you took to have those goods consumed. If you don’t clear them, they pile up. If they pile up, you don’t have that cash to use elsewhere. It’s like steaks in the fridge. You can buy 20 steaks to eat in one week, but you won’t. You can put some of those steaks in the freezer, but they won’t taste as good; some will be discarded in the trash six months from now when you clean out said freezer. As importantly if not more so, because you paid for all those steaks today, you may not be able to buy the milk you need tomorrow. (The author of this article would like to point out that he is vegan and that steaks are not in his fridge or freezer.)

A better way to think about Rule #1 is: RECEIPTS – SALES = MARKDOWNS!!

Now don’t be fooled into thinking that this rule doesn’t apply to your business. Don’t start to rationalize little head games to drives sales that cannot be delivered. The merchandise planning mindset knows that you can do much more with far less.

If you are a retailer, don’t think you can return these unsold goods back to your wholesale brand and be whole; you won’t. Your valuable store personnel will spend way too much time doing paperwork and packing boxes then engaging with consumers and building fans. Likewise, if you’re a vertical retailer without a wholesaler to fall back on, don’t think you can transfer these goods to your outlet stores and be cleared of them; you can’t and they won’t. That’s lazy and ignorant thinking that is absolutely at odds with a merchandise planning mindset. What goes into a location, should go out of a location.

If you are a wholesaler, don’t think you can drive more goods into your retail partner to place on top of a consumption path that does not exist. Gross sales do not equal net sales. If you have to give your retail partner an allowance, net sales shrink. If your retail partner catches a cold, you get pneumonia. Furthermore, if you’re a wholesaler, don’t think you can bring back things that didn’t sell-thru at your retail partner. You might think you can sell it in then bring it back; that’s asinine. Even if you can bring it back then sell it to an off-price retailer, that’s really stupid. You paid to ship the goods to your retail partner; you bring it back; restock it in the warehouse; sell it again to a discount retail partner; then ship it at a huge discount to that retailer, which only clears excess stuff you created and then ultimately destroys your brand’s reputation.

Be smart and embrace a business mindset and acumen that is founded in utilizing the ideals of merchandise planning properly. Nothing about the conditions above makes sense and none of it is part of a mindset conducive to being properly merchandise planned.

HIGH MARKDOWNS = LOW PERCEIVED VALUE TO THE CONSUMER

HIGH MARKDOWNS = LOW GROSS MARGIN

LOW GROSS MARGIN = POOR INVESTMENT IN PEOPLE, PRODUCTS, ENVIRONMENTS, AND TECHNOLOGY

ALL OF THE ABOVE CONDITIONS ARE UNSUSTAINABLE

SUSTAINABILITY AND OVERPRODUCTION CANNOT COEXIST

The question the fashion industry needs to ask itself is “who’s fooling who?” The best thing any brand or retailer in the fashion industry can do to improve business significantly is to find the proper level of sales that can be reasonably generated without excessive markdowns and then set in stone the right amount of receipts necessary to drive those sales. This is your merchandise planner’s expertise. Use it judiciously.  

A Merchandise Planner is the fashion industry’s critical component in seeking clarity to an incredibly complex industry. Your brand has a lot of competition. Consumers have a lot of choices and other ways to spend their money. Fashion is a highly complex business. Your brand has to have a good assortment of goods available in a broad range of styles and colors, bought in many sizes, distributed with pin-point accuracy to many, many doors or locations, and flowed at times most conducive to generating sales to consumers who have many, many, many choices and opportunities to do otherwise.

Do much more with far less and incorporate a mindset that enables, encourages, and is conducive to your merchandise planning team members. Share your thoughts. If you have ideas, let’s hear them. If you know someone who could benefit from these discussions, send them this article and ask them to join the discussion. Likewise, if you find benefit from these posts, be sure to follow this blog.

What is Merchandise Planning

Merchandise planning has been a tool and resource for the fashion industry for many years. It was developed out of the need for wholesale brands to be able to the speak department store language, and for both of those parties to focus as much on the science of the business as much the art of the product. The idea was that if both wholesaler and retailer could begin to talk the same language of sales, markdowns, receipts, and turn; both could flourish from speaking about sell-thru instead of sell-in.

Essentially we wanted to turn the process of buyers buying and sellers selling inside out. Prior to merchandise planning, buyers from department stores would go to a brand or manufacturer’s showroom to look at product and buy it as they saw it. Buyers didn’t necessarily know if they’d spend $1 or $1 million until they saw the product. Sellers only knew they had to sell as much as possible so they could buy a new car. Merchandise planning, on the other hand, was created to determine the ideal flow and placement of products by month and store so we could deliver sales growth with minimal markdowns and promotions that erode gross margins. Instead of buyers going to market and writing orders later, orders were planned before going to market and completed therein. Science was matched with art.

Strong merchandise planning was behind the rise of the biggest, strongest, and most profitable brands since the 1990’s. Poor merchandise planning is behind much of the weak conditions in the fashion industry today.

Shifting consumer habits and fashion trends have been an issue for 1000’s of years. Consumers today have more choices and places to buy goods than ever. We don’t have to travel to malls or stores to get what we want. We have tools and technologies that show us whats in and what’s out quicker than ever. And consumers also have other priorities by which to spend their money. So what? These are exactly the things that “merchandise planning” seeks to solve for–and it absolutely does not involve a crystal ball. Good merchandise planning starts with producing the right amount of goods according to the appropriate amount of sales possible. 

Technology is a remarkable thing; minutia is a terrible thing. At a time when we have more information and knowledge available to us at our finger tips than at anytime other time during our existence as humans on this planet, the fashion industry is going backwards instead of forwards. The single best question the fashion industry can ask itself is what is merchandise planning and how can we enable it so our businesses can thrive again? Designers should design, marketers should market, CEO’s should plan. Most brands and retailers have a process or team of merchandise planners in place. None are using it properly.

So what is Merchandise Planning?

Merchandise planning is the effort to optimally plan the amount and placement of product so it is prepared to generate the highest level of full-priced sales possible. Strong merchandise planning ensures that a brand’s assortment and sensibility is fully realized everywhere a fan or consumer of the products may find those goods. It places products into channels, doors, and locations so they sell-thru quickly; with few markdowns and promotions, and without the need to redistribute those goods elsewhere at a later date. What goes in, goes through quickly.

Products are awesome when they sell-thru. They’re “off-trend” when they don’t. Both of those functions are the result of the amount and placement of products more so than the product itself. Good merchandise planning seeks to find and forecast “real” sales potential and then matches, as close as possible, the amount of goods necessary to generate those sales at full-price by style, size, door, and location at the right time. Inventory is expensive when it has to be marked down; it’s a calamity when it’s stored forever, and it’s a shame when it’s redistributed.

Here’s what merchandise planning is not: merchandise planning is not a sales assistant; it’s not a buyer’s assistant. Merchandise planning doesn’t report to sales, nor does it report to buyers. It also doesn’t report to finance or merchandising. Merchandise planning is just merchandise planning. It’s as important as a sales team; as critical as a buying team, and as vital as any design and merchandising team. Merchandise planning drives net sales and gross margins.

Merchandise planning orchestrates How Much, When, and Where. If sales are strong and gross margins are high, it’s because of solid merchandise planning. If sales are weak and gross margins are stunted, it’s because of poor merchandise planning. If inventory turns quickly, it’s because of thoughtful merchandise planning. If inventory turns slowly, it’s because of careless merchandise planning. If you are delivering the products today that consumers want tomorrow, it’s because of an aware merchandise planner. If you are delivering products today that consumers likely won’t buy until next month or thereafter, it’s because merchandise planning has not be enabled.

Merchandise planning seeks to simplify. It doesn’t look to complicate. Merchandise planning uses history to inform and foresight to drive. Most importantly merchandise planning isn’t a “people”. It’s not a “technology”. Merchandise planning is a MINDSET. It gets the right goods in the right locations at the right time.

So how do you know if a brand or retailer has enabled strong merchandise planning? It’s really quite simple; sales would be strong, gross margins would be high, inventory would turn fast, and fans would be raving.

Gross sales aren’t sales

price-discount-riskThere’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.

Customers matter, sales don’t.

Sometimes it’s good to step back and consider who’s fooling who. Brands that look to drive sales do themselves no good in the long run. It’s like saying I want to be rich. We all know that many who are rich are poor on happy.

A better way to think about building a brand is to build a base of fans who love your work. Dollars are merely a symptom of fans liking your products, message, conversation, and attentiveness.

Build fans and covet them greatly.

Amazon’s awareness dwarfs legacy retail competitors

ronburgundyI’ve been working to get my head around the future of the global retail. On one hand, we can always look to the number of stores or the revenue generated along with history and customer loyalty a particular retailer may have. On the other hand, it’s apparent to me that none of that matters. There are many, many brands and retailers that were once dominant yet no longer exist. Many more are ghosts of their formal selves. And fewer still are doing well.

The truth of the matter is that determining the path towards the future, along with who may or may not be successful in blazing along that path, has much more to do with who has mindshare and who is innovating than anything else. Luck has no place in the future. Complacency and mediocrity even less so. What we’re seeing is  a rapid shift from a store-based retail model to a digital retail model. Searching on the web allows us to find and consume practically anything at this point. It’s only a matter of time where there will be little need to go to a store. Why waste time going to a store when we can enjoy friends, family, life, and adventure.

This being the case, it’s apparent to me that one of the single most important things in terms of brand recognition is search interest. Do people go on Google and search for your brand, products, or services? Keyword search is vital, and all that information is trackable. So in understanding which brands or retailers have potential for future success, its necessary to understand search interest. Search interest is exactly as it sounds. What are people searching for? How are searches trending? Are they accelerating? Are they stable? Are the declining? In any of these cases we want to understand why because a big factor is that search is only temporary. As artificial intelligence advances, we won’t have to search because we can just ask.

Search interest is a powerful tool in understanding a brand’s future potential

Search interest is an incredible asset. In this post we’ll see how quickly something can go from no awareness to giant awareness in little time. We’ll also see how search interest can be migrated into other more solid forms of retained loyalty like native apps that become core to the user. And finally we’ll see how search interest among the 800 pound gorillas can be discordant and may show leading indicators of future success or failure.

Google is a pretty amazing technology to do exactly this since the vast majority of searches go through its engines. With Google, we can compare and contrast keyword searches over a period of time. This interest over time shows us a relative comparison how people searched for a keyword over a period of time.

Google’s formula for interest over time is the equivalent of the number of queries for a particular keyword that is searched divided by the number of total Google searches. Google’s own definition is “numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. Likewise a score of 0 means the term was less than 1% as popular as the peak.”

Let’s take a look at search interest for Amazon over a period of time. The chart below shows search interest during the 10-year period from February 2007 to February 2017. In this chart you can see that interest in Amazon has been growing steadily since February 2007. The peaks of interest you see are during the holiday selling season during the month of December each year. Clearly Amazon has significant peaks for Christmas selling and it likewise appears that those peaks are becoming somewhat greater.

interest-over-time-001

A key point here is that we can see that Amazon’s peak search period was during the most recent holiday selling period in December 2016. That’s represented by the peak value of 100. To contrast that, we can see that interest the year before was slightly less at about 93. Likewise holiday selling back in 2007 was significantly lower at 44.

Now here’s the tricky part, Google normalizes these results so they are all compared to the highest point in the entire range. So while that doesn’t tell us how much people searched for in a given period, it does tell us in relative value what each period is to the peak. Hence December 2007 was 44% of the peak value in December 2017, and December 2016 was 93% of December 2017. No matter how you look at it, interest in Amazon has grown significantly during the past decade and it appears to be continuing to grow.

I should also point out that we should expect that when a business launches a native app, search would expectedly decline relative to the success of the app. In Amazon’s case, it launched its native app for Android devices in March 2011. Over the years the app has been rolled out across iOS devices as well and it’s been very successful. While exact figures are not available, it’s been reported that more than 70% of Amazon’s shoppers were on mobile devices during the holiday selling season of 2015, and more than half of those shoppers were using the native app. Those searches would not be reported in these Google search results. That makes this chart showing acceleration of search interest for Amazon even more compelling.

To contrast this further, a good example of how a native app can dramatically effect search interest is Facebook. We can see in this next chart that peak search interest for Facebook was December 2012. We can also see that Facebook had relatively no interest in 2007 compared to the peak in 2012. interest-over-time-004Its rise from nothing to its current user base of almost 2 billion is extraordinary.

This chart shows what demand on steroids looks like. Since 2013 however, there appears to be a significant decrease in search interest for Facebook. Again let’s keep in mind that this data is related to Google search results so if someone is going directly to a native app, there is no search result. Some of Facebook’s decrease in interest could of course be due to a real decrease of interest, but that’s hard to gauge and imagine since its user base continues to grow, albeit slower as it approaches 2 billion.

What’s very important to understand in this case is that Facebook began focusing efforts on its mobile apps during the 2012 and 2013 period. Much of that traction didn’t happen immediately, and we can see that from 2014 onward a pretty steady decline in search interest occurred. It’s been reported that almost 60% of all Facebook users only login from a mobile device as of July 2016. That statistic is pretty much inline with the decrease in search interest activity since Facebook began focusing on its native app in 2013. On one hand, if I were management at Facebook and saw the above chart I would excuse myself and run for the hills. On the other hand knowing that we replaced those searches with direct login through a native app, I’d be celebrating the people and teams that made that happen.

Once again I think this makes a strong case that Amazon’s meteoric rise in search interest a remarkable feat given that they also have a solid native app presence. While Amazon doesn’t release its membership base, we can do some quick math from its recent 10-K report to learn that it has roughly 65 million Prime members. Amazon Prime members are its key users because they spend the most and more frequently over a given year than do non-prime members. Regardless of the number of total Amazon members, it remains dwarfed compared to Facebook’s 2 billion users. This can only mean that there is tremendous growth potential at Amazon.

Comparing Amazon’s awareness to Macy’s and others

We should expect that Amazon would have a tremendous amount of interest in terms of Google search. Over the years it has become the go-to place to purchase just about everything one needs, and while we enjoy social media like Facebook and Instagram, the dominant place for us all to purchase products we know we want or need is through Amazon. So the question becomes does a store-based business like Macy’s stand a chance competing with Amazon? I’m comparing Macy’s, but this question can be asked about any department store, hardware store, or mass retailer.

Let’s begin by taking a look at search interest for Macy’s during the past 10 years as we did with Amazon and Facebook previously. The first thing we’ll see is that interest in Macy’s is pretty flat. There is little overall growth in interest since 2007, and while we see that Macy’s has similar peak of interest around the Christmas and Holiday selling period in December, for the most part this is a flat line. interest-over-time-002While Amazon shows very impressive acceleration of interest since 2007, Macy’s for the most part hovers the 50% interest index.

This is not good news for Macy’s. In this digital age where more and more consumers are utilizing the web to find things, you would hope to see some improvement in search interest. If you can’t get modern consumers searching for your brand, or have done that and then lead them to an app they utilize as Facebook and Amazon have done, you can be sure that the writing is on the wall regarding your future. The first point therefore, is that a brand like Macy’s is at a tremendous disadvantage to an Amazon because it hasn’t garnered search interest. In due time it’s likely that Amazon, and perhaps Google, will lead consumer’s to it’s AI platform Alexa where what we seek is simply a matter of speaking, not searching. In this regard Amazon, and Google, are easily two steps in front of a legacy retailer like Macy’s. Some form of AI will certainly replace web search soon–why type a search when you can speak a wish?

Now let’s look at search interest overall for Amazon as it compares to a brand like Macy’s. Before we do this however, it’s important that we include a couple of other barometers in order for us to gain a more complete level of understanding. To do this, I have added search interest results on keywords Walmart and iPhone. The reason being is that while Macy’s is small compared to Walmart, Walmart is huge compared Amazon.

Walmart currently generates more than $480 billion annually. Macy’s, on the other hand, generates less than $30 billion. Amazon is in the middle in terms of revenue and generates roughly $136 billion annually. Furthermore, while Walmart generates it’s sales through almost 12,000 stores around the world and it’s website, Macy’s generates it’s sales through 880 stores currently and its website. Macy’s is aggressively reducing its store count and has announced that it will be closing roughly 100 stores this year. Amazon drives practically all its sales through its website and apps, as well as from its web services platform called AWS.

Something else of great importance is that Walmart and Amazon are global businesses while Macy’s is predominately a U.S. based retailer. Not being a global brand is a tremendous disadvantage for any business looking to compete with a digital business like Amazon. I had initially analyzed search interest for these keywords using only U.S. data given that Macy’s is chiefly a U.S. based business. After much thought I felt it vital to understand the significance of these businesses at global reach. With the advent of digital technologies, reaching a global audience is a necessity. Amazon has been using its profits to invest in additional technologies and facilities that it believes will help it be the dominant supplier of goods and services around the world. Rather than investing in physical store locations and inventory, Amazon has invested in technology and distribution capabilities so it can market and deliver globally. Being able to gain brand awareness around the world is of critical value to any brand or business looking to swim in the pools of our modern age.

From a shear volume standpoint, Walmart is clearly the 800 pound gorilla. Amazon, on the other hand, would likely be at least one of the 800 pound gorilla along with Walmart in terms of web search. Neither of those two facts should surprise us. But what happens when we compare the Amazon and Walmart in terms of digital mindshare and awareness? Are they similar given that they are both 800 pounds gorillas, albeit in different retrospectives? Or are they completely discordant? More importantly, how much more awareness power do these gorillas have compared to another significant retailer like Macy’s? From a volume relationship we’d expect Walmart to index at 100 while Amazon indexes at 28.  Likewise we would expect Macy’s to index at about 6 compared to Walmart. To add further contrast and perspective, how would we expect the search interest for iPhone to index compared to this group? The iPhone was launched in 2007 and has since then sold more than 1 billion units globally–surely the keyword iPhone should have tremendous awareness in terms of search interest during this 10 year period.

The results, I think, are startling. Let’s first level-set so we know what we’re about to look at and compare in this next chart. As in the others we will see a peak interest value over a period of time, in this case from February 2007 to February 2017. Since we are comparing different keyword searches over that time period, one of those keyword searches will post its peak value of 100 at its peak time. Our keyword searches are amazon.com, Macy’s, Walmart, and iPhone, and all of these are for global search results since being a global player has much to do with a retailer’s success in this field of comparison. Once the keyword search with the peak data is established over the entire period, all other keyword searches will index from that keyword search’s peak index. Kapish?

Are you ready? Here it is:

interest-over-time-007

The first thing we see in the chart above is the growth of search interest in Amazon.com. From 2007 until 2017 it has gained traction and grown stronger despite the fact that many of its member are utilizing the native app. At the other end of this extreme, we see that Macy’s has virtually no awareness compared to Amazon. While Amazon has grown exponentially since 2007, Macy’s has remained essentially unchanged and minuscule compared to the others. We also see that awareness of Walmart is significantly less than Amazon. In fact, Amazon’s peak search interest in December 2007 was 2X the peak interest of Walmart in 2007, but by 2017 Amazon’s peak search interest was 3X Walmart’s. Walmart has some work to especially if Amazon figures out how to bring AI to the home and stunt any need to visit a big box store in the future.

What’s highly interesting is that we can use iPhone search interest as a base for these comparisons. If any keyword search was emblematic of digital search for this timeframe, iPhone would be it. The iPhone was brand new in 2007. Despite that fact, it outperformed Macy’s! More remarkable is within a year, the awareness and interest of iPhone was greater than Walmart. That’s pretty astonishing for iPhone. It came out of no where and we can see the power of digital search in the reach it has to propel and brand or product forward in this digital age.

I’d like to also point out however, that we also see a flattening of search interest on iPhone since 2011. That, in and of itself, isn’t necessarily surprising, but recent press has noted that Apple’s stock is at it’s all-time high because investors believe in the iPhone. You can draw your own conclusion with this information. Buyer beware!

Is there hope for legacy retailers without search interest and innovation?

So how does a significant retailer like Macy’s hold it’s head above water when the tides are so strong? Peak search interest of Amazon was 8X greater than Macy’s in 2007. In 2017 it was 18X greater. If ever there were signs of a drowning victim, this would be it. So what does a significant legacy retailer like Macy’s do to remain afloat? This question can be asked of any significant legacy retailer currently dependent on stores, coupled with lackluster search interest, and little to no entrance into future AI technologies.

This is going to be a hard choice for many. Clearly this post has much more to discuss. Ultimately figuring out WHAT to do is a lot more simple than figuring out HOW to do it? It’s pretty clear what is going to take place in the next few years. The ramifications are significant for legacy retailers, as well as the many brands that have a wholesale business model with them. In fact the entire notion of being a brand will likely be considerably different than what it is today. What may have worked reasonably well a decade ago, will likely be the demise of a brand in the near future.

Until my next post, I’d love to hear thoughts and ideas. My hope is to stimulate deep thinking and ignite conversations that are actionable. As always, I’m looking forward to listening and learning from everyone and all sources.

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.