
Goodbye Wholesale Brands - jamiequint
http://jamiequint.com/goodbye-wholesale-brands
======
VLM
One hidden assumption is the high growth of internet retail implies a high
growth of fashion clothing growth. Not sure why that applies. Sounds good,
just not backed up by numbers.

Its hard to think of a commodity with more of a conspicuous consumption
purpose than expensive fashion clothes, other than perhaps cars. The act of
shopping for them, being seen shopping for them, the whole trying them on and
looking a mirror, seems to reach or exceed the enjoyment of eventually wearing
them in public.

I would imagine sizing is a complicated issue impacting possible 10% annual
growth rates and all that. Tee shirt sizes are simple so online tee shirt
sellers do well. I have bought my last four pairs of shoes on line because
they're identical mfgr, model, size, width. I'm thinking high fashion clothing
sizing might be somewhat more complicated. "do these stripes make my butt look
fat" is hard to answer if you don't try the clothing on. As if thats ever an
easy question to answer.

Finally you can increase annual sales of $300 fashion brand jeans by 10% per
year for quite a few years, but eventually you bounce off declining median
adjusted incomes, permanent decrease in economic activity, long term
demographic decline stuff like that. It is very much like growing the 50+ foot
sailing yacht market by 10% per year, you can do that for awhile, but
eventually you run out of people capable of paying $300 for a pair of jeans,
err, buying 50+ foot sailing yachts... The fashion market may not be big
enough to make the subset of internet sales large enough to be viable. Perhaps
walmart has more to fear from amazon than the major fashion brands... there's
a lot more people buying $25 walmart jeans wanting to save $5 at amazon than
people buying $300 jeans hoping to save $200.

(edited to add that if you agree with the assumptions of the article, its a
well written and well analyzed article with no obvious mistakes. I just happen
to disagree with several core assumptions which has quite an effect on my
opinion of the conclusion.)

~~~
jamiequint
Apparel has actually been the driving force in e-commerce over the last few
years: [http://www.emarketer.com/newsroom/index.php/apparel-
drives-r...](http://www.emarketer.com/newsroom/index.php/apparel-drives-
retail-ecommerce-sales-growth/)

~~~
VLM
That's a good, general, factual article you've linked to.

Superficially I saw mostly general sector wide results in the article. However
I have bought a lot more tee shirts and cafepress-type products and cheap
identical non-designer shoes than $200 scottevest products.

My impression of the article is it was focusing solely on high end whereas I'm
arguing the bigger action is probably at the low end.

~~~
jamiequint
You are correct, I was mostly talking about wholesale designer brands which
are mid-to-high end (priced at the cost of someone like J. Crew or Gap or
above).

It's actually interesting though, at the mid-to-low end similar disruption is
happening in a different way. There are 'designer' brands that exist at these
price points, but they are being disrupted by the department stores that
previously purchased them shifting to private label production (brands the
stores produce themselves and label with their own brand), and shifting fast.
In 1970, 25% of department store retail was private-label brands, in 2005,
50%, in 2010, 60%. [1]

[1]: The New Rules of Retail -
[http://www.amazon.com/gp/product/B004AP9TQM](http://www.amazon.com/gp/product/B004AP9TQM)

------
cm2012
I run e-commerce for a fairly large apparel manufacturer and wholesaler on the
low end and have worked for other manufacturers. All manufacturers are looking
to cut out the middleman, or at least replace it with a cheaper middleman like
Amazon.

~~~
prbuckley
Don't you think higher end brands have an aversion to selling on Amazon?
Having tried to sell a brand product on Amazon I have found that the Amazon
customer is very price sensitive.

------
digitailor
(Forgive me for the length of this post, I didn't have time to make it
shorter.)

TL;DR: The author's thesis is that wholesale apparel designer brands can
recoup margins by selling direct online. The way this will be accomplished is
by the brand itself holding inventory.

Here's 100 years of experience condensed into four words, so if you're
considering disruptive ideas in the apparel industry (like this one) please
consider that:

INVENTORY IS THE ENEMY.

I am part owner of a 100-year old vertical apparel outfit in midtown
Manhattan, and was there on hand every day for 12 years. We make custom men's
suits and sell direct to the consumer, but that's only been the main revenue
stream for a little more than a decade.

My great-grandfather started the business as a wholesale manufacturer in
Brooklyn circa 1913, and my grandfather grew it into a national wholesale
men's clothing line, supplying many of the nation's stores with their private-
branded tailored clothing lines.

My father took the big move of selling direct to the customer in the late 70s,
from the factory and warehouse on 5th ave in Manhattan. By the early 80s,
especially as the result of clever marketing and other market factors, the
retail business exploded. The consumers LOVED that the clothing was made in
NYC, that they could see it being made, and that it was less expensive because
middleman margins had been cut out.

So, my father bought a huge former department store on Broadway in the
mid-80s, with a three-floor factory above, and was pumping out suits in record
quantities (for our business). Also, our suits were wholesaled to Japan,
Germany, etc, under our name.

Then the market shifted. Suddenly my father was stuck holding quantities he
couldn't move. (The same thing had happened to my grandfather numerous times.)
Overseas manufacturing hit full swing, and even with the cut margins, it was
getting impossible to compete. We nearly went bankrupt by the time the "casual
trend" hit during the tech boom of the late nineties.

In 1999, I came in to help shift the factory back to purely custom-made
tailored clothing. NO INVENTORY. MADE TO ORDER ONLY. It was a huge retooling
process, and since I was in my early 20s and there are no baby boomers who
learned custom tailoring, I had to fill in the generation gap by learning the
craft completely, and computerizing the whole pattern-making process. (Doing
this custom is a near-impossible task that few do, and I eventually wrote my
own software for it.)

We _had_ to stop _stocking inventory_ or we never would have made it to 100
(this year) if we had hung on to the idea that a small brand can hold its own
inventory.

Here's an old Jewish garmento joke from the 70s, it's caustic but we say it
often: "Inventory killed more Jews than Hitler."

There are very few brands out there that can handle vertical operations like
this, and fewer people to manage it. Trust me, we've been hiring candidates
for ages.

Brands will incur all that additional personnel overhead and the _incredible
risk of stocking inventory_ , and need the huge marketing budget to sell
purely online with no retail locations to build awareness (or at least be
reliant on their existing, pissed off accounts for that). The author
recognizes this, but glosses over it, and that's why I told this long story.

The real disruption of the apparel industry is technologically enabled mass
customization. This has been talked about for ages but the operational skill
to pull it off at scale is not there. I was granted a patent on using
bodyscanners to make custom clothing years ago, in anticipation of this
disruption, and I'm still waiting for it to happen, but it seems faaaar off.

The author says that a brand holding its own inventory is the "new" industry
model. It is actually one of the oldest and most dysfunctional, and fraught
with risk.

~~~
jamiequint
Hey! Thanks for the long and detailed reply. (On a side note I enjoyed the
Pascal reference:
[http://en.wikipedia.org/wiki/Lettres_provinciales#Other](http://en.wikipedia.org/wiki/Lettres_provinciales#Other)
:) I definitely agree with your main point, inventory is the enemy. I'm not
trying to claim that this is an entirely new idea, however, it is a fact that
brands are moving online and doing so quickly in a way that has not happened
en masse before. I cover in the article that many brands will probably mis-
manage this transition and go out of business.

My own TL;DR of the article would be something more like this:

Brands are moving online rapidly, this will mean they have to hold inventory.
This is a new risk they have not taken before and some may fail because of it.
They will take this risk because there is margin benefit as well as threats
from direct-to-consumer online retailers taking their business. Going forward,
direct-to-consumer with higher value to the consumer will be the 'new normal'.

~~~
digitailor
I understand what you mean. And your bottom line that online retailing is
growing and will cause a shift in the apparel industry, as it has in most
others, is certainly valid. I'm just not sure the shift you're describing is
likely.

I think this strategy is untenable for almost all of the designer brands in
the market you're addressing, because the assumption of all the risk is not a
good business model in any industry.

Let's look at VC for a moment. Having been involved in it, there is an
obsession with risk analysis and reduction, and with good reason. A model that
says "Let's take 100% of the risk and capture the margins!" probably can't
support a whole market shift, and would probably be difficult to fund. And
funding of some kind would be necessary for most brands to be able to stock
goods.

You're very knowledgeable about the back-end of the apparel business, it was
cool to see a story like this on the front page of HN.

~~~
prbuckley
First off congratulations on having a business that has lasted 100 years! That
is a rare accomplishment these days.

I think you both have an interesting perspective on the future of apparel and
e-commerce. The one thing that I think deserves mentioning is that it has been
getting easier and cheaper to own the means of production so you can convert
raw materials into finished goods with out holding lots of inventory. You also
need the manufacturing capabilities if you want to do mass customization.

My limited experience with this has come over the past 3.5 years building
DODOcase.com. We ended up building all of our own manufacturing and hold less
than 2 weeks of inventory, while over 30% of our online sales are one off
custom built products.

My hope is that the future is brands built online that actually make their own
stuff. I agree with Jamie that the brands of tomorrow will have to be more
hands on but just holding inventory and shipping D2C is not enough, I think
they will have to own and master the manufacture of their own products.

~~~
prbuckley
Also as a side note I just started reading (yesterday) "LL Bean: The Making of
an American Icon" by Leon Gorman grandson of LL Bean and former president of
the company. It is a fascinating read on the ups and downs of a 100 year 4th
generation family run business. It sounds like something you might find
relevant to your business.

~~~
digitailor
I will check this out, thanks.

------
mbesto
This is pretty spot on.[1] A company like YOOX is doing "E-commerce as a
service" for fashion brands stuck in this position:
[http://www.yooxgroup.com/en/company_profile/the_group.asp](http://www.yooxgroup.com/en/company_profile/the_group.asp)
(warning - autoplaying video!)

[1]Source - I work directly with a wholesaler who matches almost every
description in the article.

------
LiweiZ
How about have a crowdfunding system to bridge designers and consumers
directly? Well, I'd say it could be like Kickstarter in fashion. Granted,
there will be many aspects to make adaptions, but the core is almost the same.

~~~
bqe
Brands like Stock Mfg. Co. are already doing this:
[https://www.stockmfg.co](https://www.stockmfg.co)

------
ChuckMcM
This is a really important insight. The chunk of GDP that is dedicated to
ferrying money from consumers to producers in the 'fashion' space is going to
be hugely disrupted. The level will be no less disruptive than music or
literature.

We can predict then that aggregators and re-sellers of fashionable clothes
will go out of business, and discovery marketplaces like Kickstarter, Ebay,
Etc, will create the channels between consumers and their products.

I would guess that small run clothing factories will be a growth industry,
more so if they are highly automated.

------
bsimpson
Given all the presumptions you've made in your article, it seems like many of
these brands would be well-served to let Amazon handle the fulfillment. The
brand would still control pricing, marketing, and manufacturing, but
warehousing/shipping/returns could be handled by Amazon. This removes risk to
both the brand and consumer, as well as spreads the high fixed costs of
warehousing over a large pool of businesses.

~~~
lsc
> as well as spreads the high fixed costs of warehousing over a large pool of
> businesses.

(Note, I'm speaking from some experience here, but it's total amateur-hour
experience. I wrote a system for tracking and selling books via half.com and
later amazon.com, back when half.com was a thing. At one point I had well over
ten thousand books in my inventory to 'test' the program. hah. It actually
wasn't so bad; there just isn't any money in it. I might go back to it if I
retire; it was fun to have all those books around. I've also worked around
several junk dealers, who used the 'have employees who know where shit is'
method, and my SO has written an inventory system for our personal stuff,
which works, except that barcoding and describing all our stuff is a...
daunting amount of work.)

eh, shipping in a timely manner, yeah, if you don't have enough work for a
full-time person, you probably wanna outsource. It's a pain in the ass to make
a trip to the post office for what amounts to five bucks in profit.

But the cost of warehousing? I think is actually pretty low. Even here in
silicon valley you can still get santa clara warehouse space for around a buck
a squarefoot/month, in thousand-dollar increments.

Even here, you can get folks capable of operating a simple label printer and
mailing stuff out for something like $12-$15/hr, if you have more than 20
hours a week. Especially if you only have a few SKUs, I think it's pretty
simple.

now, if you have a thousand SKUs, either you need people who know your
inventory really well, and you will be in serious pain when anyone quits...
/or/ you need a very good computer system for handling what is where... and
setting that up and maintaining all your SKUs is skilled labor. On top of
that, the computer system is only as good as the employees scanning the items
and locations (or putting the items in the right location; but I personally
think the approach of barcoded bins and barcoded items is right; the user
barcodes the item, then barcodes the bin, then puts the item in the bin. )

But /that/ is a whole lot more work than it looks like. So yeah; For a few
SKUs? a couple grand a month, even in a very high cost of living area and
without using your garage, and you can move a lot of product. For many SKUs?
yeah. that's where your trouble starts.

I really think that once you have enough work to keep a kid busy mostly-full
time, your costs are probably going to be lower doing it yourself.

On the other hand, you do have a good point about the consumer trust of
amazon; For me, buying something through amazon (something sold by amazon, not
something sold /through/ amazon; that's completely different.) is very easy;
very little friction, and I know it will get here the next day. I'll pay a few
bucks extra to get a thing from amazon vs. somewhere I've never bought from.
(My /feeling/ \- and I don't have anything to back this up, is that amazon is
picking up on this, and their prices are slowly floating up vs. everyone
else.)

------
grogenaut
You have to assume people care about fashion. I don't but I guess since my
wife works at Tommy Bahama and I get cheap nice stuff I shouldn't make any
statements. But generally I dressed like slob before then. Its just now I
dress like a slob in fancy slob clothes. :)

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croisillon
So 370$ is more than double than 231$? Thanks for the nice graph!

