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

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

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and retailers continue to use and promote a business acumen that is poorly managed, weakly aligned, and severely outdated.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

Wholesale isn’t broken, just poorly managed — Intro

 

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I’m going to embark on a lengthy series of posts about the wholesale business as it relates to fashion apparel, accessories, and footwear. It’s a big deal because the fashion industry is in dire straights at the moment and many brands are blaming the wholesale business as a key contributor.

Brands like Diane Von Furstenberg, Ralph Lauren (NYSE:RL), Nike (NYSE:NKE), Michael Kors (NYSE:KORS), Coach (NYSE:COH), Rag and Bone, and many, many others sell products to department stores like Macy’s (NYSE:M), Nordstrom (NYSE:JWN), and Bloomingdales, as well as Amazon.com (NASDAQ:AMZN) for that matter. The process of brands designing and producing products that are then sold in large quantities to retailers, including department stores and specialty stores, and whether online or through bricks and mortar, is called wholesale. Many, if not most brands are wholesalers and pretty much every wholesaler will tell you that the model is broken. Many including the 800 pound gorillas like Michael Kors and Coach are slowly exiting vast parts of their wholesale business from big retailers like Bloomingdales and Nordstrom. The reason? Doing business with department stores is killing them.

Naturally I have a somewhat different point of view. After being in the industry for many years and working on both sides of the wholesale/retail spectrum for some of the largest and most successful brands and retailers, I know first hand the tactics and strategies both sides of the industry use to conduct business with each other. My position is that wholesale isn’t broken, it’s just poorly managed. A hammer isn’t broken because you don’t know how to use it. Hammers are not defective because you continue to bash your fingers and pound holes in a wall. Don’t blame the tool, blame the focus.

The key to any optimal path of performance is knowing how to use your tools and technologies well along with logic and instinct. What is broken in the wholesale industry is its acumen. Both wholesalers and retailers continue to use and promote a business acumen that is poorly managed, weakly aligned, and severely outdated. So yes while department stores have indeed been killing business at many wholesalers, virtually all wholesalers have enabled the crime. Wholesalers and retailers are in a co-dependent relationship.

Something to keep in mind is that the fashion industry is an extremely complicated business. Many people think fashion is as simple as designing some great products, developing a cute marketing campaign, and then selling it to people in stores and online. It’s much more complicated than that. Think about what it takes to sell one shoe. More likely than not that shoe comes in several colors–black, brown, red, navy, etc. That shoe may also have several iterations of treatment—hardware, patterns, embellishments, and so on. Next factor in that in order to sell 1 shoe, you have to have 12 different sizes (multiple that by 2 or 3 if you include widths). So the complexity of fashion is this: take one style in multiple colors, with different treatments across many sizes, and then distribute it to hundreds if not thousands of stores, as well as across digital platforms, and what do you get? A big freaking headache if not well managed.

1 STYLE * 3 COLORS * 12 SIZES * 1200 DOORS = 43,200 UNIT INVESTMENT

But wait, it’s still not that simple. Some colors sell much better than others. There’s a vast difference in sales volumes generated in all the different stores. Climatic zones affect selling. Seasons affect sales. Demographics affect sales. Competition affects selling. And of course let’s not forget that trends affect selling. The bottomline is that the complexity of the fashion industry is immense. It’s why I’ve been drawn to it my entire career. If you think about it, fashion is as complicated as the capital markets. Trading stocks or commodities requires a broad set of skills and insights in order to know what to trade, how much to trade, when to trade it, and when to dispose of it in order to maximize upside and minimize downside. A good portfolio manager manages inventory (cash) in order to perform better than the market. If he or she does that well, a lot of money is made. If he or she does that poorly, a lot of money is lost. A merchant in the fashion industry likewise has to know how to allocate and managed a swiftly moving torrent of investments in a broad range of categories, styles, channels, and doors in order to maximize her returns while minimizing her risks.

The wholesale channel has a great purpose. Regardless of decreases in traffic to stores, there are millions and millions of people who shop in malls and at stores. Department and specialty stores offer a broad range of products and brands to consumers and that’s important. Furthermore, department and specialty stores are not the only option for wholesale. Amazon is a wholesale model, and they have quickly grown to be an 800 lbs gorilla in the industry. So walking away or moving away from the wholesale business is a lot like the statement Henry Ford said about advertising when he said “a man who stops advertising to save money is like a man who stops a clock to save time.” Brands should not walk away from wholesale, it has to be re-imagined and it needs to be utilized more effectively.

I’ll try to make these prolific posts as entertaining as possible. There is a great deal of complexity to fashion beyond the fashion. A lot of smart and well intentioned people work hard day in and day out trying to right this ship. My hope is that the industry begins to spend more time using data and technology to make fashion fashionable once again. The way business is done between brands and retailers has to be approached from a different angle. Less combative, more collaborative. Training and technology are a must. We need an industry that has the creative powers of New York City, Paris, and Milan combined with the marketing brilliance of Madison Avenue and the business acumen of Silicon Valley.

Ultimately we need an industry that trusts data more than opinion, and minimizes emotion in favor of logic. James Barksdale, former President and CEO of Netscape, said it best when he said, “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” Furthermore data needs to be complemented with logic. In 2010 the global apparel industry produced 150 billion garments. Yet there are less than 3 billion people on the planet that have the means to consume those goods. Nothing about producing 150 billion garments for fewer than 3 billion people is logical. The fashion industry’s greatest challenge is not under-consumption, but rather over-production. Less goods produced does not mean less sales obtained. Conversely it mean more full-price sales generated at higher gross margins and with less waste to the landfills.

Getting all of this right doesn’t have to be as hard as many have made it out to be. In fact the hardest thing to do is to make something simple, and simple works better than complicated things. The way to make something simple is to break critical steps into small, digestible parts with a focus on the handful of key signals that are critical to the operation. Even the best brain surgeons will tell you their work isn’t complicated when it’s broken down into little steps. That’s my goal. My goal is to identify and outline the handful of key signals, steps, and procedures a brand or retailers needs in order to become nimble, proactive, healthy and successful with a modern consumer.

Some, if not all, of these posts will be a lot of my ramblings. That’s the point of a blog and it does have my name on it so I apologize to you now. I’ll do my best to edit excess verbiage and focus the points around cohesive ideas. But one thing I’ve learned is that there is no easy path to success or brilliance. There’s a bunch of great ways to lose weight fast, but few ways to stay healthy forever unless it becomes part of who you are. Don’t look for easy answers, but there will be many quick-fixes. There are some fundamental things that brands and retailers can do quickly to find immediate results. Look for them and you’ll find them in the coming posts. But ultimately nothing happens without execution and that’s up to you in all cases.

All this being said, I hope and expect to learn from my readers. Be sure to pass this on to people you think would have something to gain from reading it, people you think would have much to add to it, and people you think would be pissed off that I wrote it. It’s all good. I do this to grow and hope you do as well.

 

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

Make people want your products this holiday season

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The holiday selling season is right around the corner. What happens between now and December 25th can either make or break a brand because this period often represents more than 20% of the entire year’s selling.

Want to know how to be successful as a brand or retail of fashion products? Do this…

MAKE PEOPLE WANT YOU PRODUCTS. It’s your choice, it’s in your control, and you do that by setting your stores and channels up to TURN INVENTORY FAST. The faster you turn, the more consumers WANT your products. Forget about sales and margins–see how fast you can make your doors and channels turn.

Getting the right goods in the right locations at the right time is a brand’s ultimate endgame. Executives and leaders focusing their efforts on marketing and promotions, and not spending 2x that time using data to figure out how much of which products need to be set up and ready to go in every door across your distribution network, are going to suffer greatly. It’s what we mean by the shit hitting the fan.

It’s like this: working out in the gym and eating healthy food is awesome, but it means little if you eat too many calories. It’s also important to fuel your body with the right calories at the right time. You have to have your calories under control if you want to be healthy and active. Likewise, you have to have inventory under control and deliver it in the right amounts to the right locations at the right time.

Doing this means knowing exactly how much and which products are being distributed to what doors through your own retail stores, as well as your wholesale partners. Just because you sold a bunch of goods to a wholesale partner, doesn’t mean they know what they’re doing with it. If product doesn’t stick, it comes back and kicks you in the head. A successful brand makes sure the right amount of the right goods are going to every door and location in its entire network. Do the work.

Getting involved in marketing campaigns and product conversations are fun. Traveling around the country to see how products are displayed is important. I get it. Everybody enjoys doing that. But getting your inventory right is what’s going to make you successful or not. Fast sell-thru’s ensure high gross margins, which mean you are fit, lean, healthy, athletic and highly competitive.

 

 

The 1 trait high-impact people and brands do that others don’t

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There’s a lot of conversation about the things successful people or businesses do that other may not do as well. Just spend some time perusing the business leadership section or self-help books on amazon.com and you’ll find plenty of books about the subject as well. The classic traits are being innovate, authentic, creative, a leader, curious, driven, and so on. Those are all important, but I find one trait rolls all of them into one.

This is a trait I clearly remember being driven into us as a small team helping to build the Tommy Hilfiger brand in the 1990’s from $70 million to $1.5 billion. It’s something I certainly think Steve Jobs did. And if you look at Google, Facebook, and other Earth-shaking brands out there today you’ll see they do this as well. But sadly it’s a missing character from many businesses today. It clearly sets the leaders apart from the followers.

I’ve found that many brands are innovative and create products or campaigns that are interesting. I’ve met many strong leaders and I’ve certainly met a lot of driven people, but the clearest sign to me as to whether or not a person or business will be successful is one simple trait–RESPONSIVENESS. People and businesses that are responsive do really well. Those that don’t, struggle at best and fail more frequently than not.

In the simplest of terms, being responsive means you’re on top of things. You and your teams call people back immediately. Emails and texts are returned instantly. You follow-up vigorously. You seek out ideas, new talent, and opportunities. You make shit happen. Responding is numero uno!

That doesn’t mean you respond to everything from everybody. It would be maddening to filter through all the junk emails and phone solicitations. It was Steve Jobs that said “deciding what not to do is as important as knowing what to do.” But you can’t make that decision if you don’t respond to what’s out there. How would you know what’s possible?

Being responsive means that if an intriguing idea comes your way, you jump on it. If your boss, colleague, friend, or other trusted source tells you to call someone or do something, you do it. Not later. Not tomorrow. Not sometime next week when you catch your breath. Don’t put it on your to-do list. Do it right freaking now. That’s what movers and shakers do. Being responsive is a guarantee you’ll be successful.

More to the point: if you roll up all the classic traits of a successful person or business like being innovative, curious, driven, and creative, none of that can be achieved if you’re not enthusiastically responsive.

Nothing ventured, nothing gained. You have nothing to lose and everything to gain by being responsive to people, ideas, and change.

 

Consultants vs. Advisors

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There seems to be a negative connotation with consultants in the fashion industry.  Many fashion brands seems to think that they’ve got everything figured out just fine.  Truth is that’s probably a good sign that they don’t.

Thinking you have everything figured out is sort of like talking about an economic bubble. As a rule of thumb, if no one is talking about a bubble, then there’s likely a bubble.  On the other hand, if a lot of people are talking about a bubble, then there probably isn’t.  Like many things in life if you’re aware of something, then you’re likely being proactive and thereby preventing that thing from doing you more harm than necessary.

One of the largest challenges any business has is becoming inward-thinking and internally biased.  Teams get stuck thinking about what they “need to do” as opposed to “what can be done”.  This is why an outside view is often beneficial at times–to gain fresh perspective from an objective party that hasn’t been sucked into the inward-thinking that happens at even the best of companies.  There’s a lot of politics involved in what and how employees are motivated to think and to act.  An outside perspective is a good way to make sure you see all the options available to helping your business and teams succeed.

A strong consultant or advisor is someone or some group that has expertise a company may not have access to or needs to rethink.  Consultants typically come into companies to fix problems that are already broken.  An advisor, on the other hand, is typically an ongoing advocate to help prevent bad things from happening in the first place.  One is reactive. The other is proactive.  It is often the case that a proven consultant becomes a trusted advisor.

Innovative businesses and people always seek broad perspective.  If we only relied upon the insight and knowledge of our direct circle of friends and colleagues,  we’d miss the opportunity to learn and grow from new ideas and perspectives.  Worse yet, because we would never have gained that knowledge, we’d not be able to teach and give that knowledge to others.