In push to become retailers, fashion brands undergoing internal overhauls
Fashion brands can’t just be brands; they have to be retailers. Brands up and down the fashion ladder, from Michael Kors to Milly, from Alice + Olivia to Theory, from Acne to Vince, from Burberry to Gucci, are focusing business efforts not on their wholesale partners but on direct retail channels. On their e-commerce sites and in their own stores, they control the product arrangement, the merchandising, the pace of inventory drops, the shipping times and fees, the return policies, the product recommendations and the look and feel.
It’s not a vanity exercise. With wholesale channels tapped out, it’s where there’s still room for growth.
“The reason why we’ve developed a bigger direct-to-consumer business is because it’s critical today to have a customer understand you, inside and out,” said Theory CEO Andrew Rosen. “We’re putting a lot more focus on our customer now, because to understand them means to serve them better, which needs to grow. We simply can’t do that in the same way with outside retailers, whether it’s Saks or Neiman or Bergdorf.”
When it comes to marketing, it’s not even enough for brands to act like retailers.
“Brands today are like media companies,” said Alice + Olivia CEO and creative director Stacey Bendet. “Ten or 15 years ago it was really just about making great clothes. Today it is about telling a story, reaching your customer and engaging that customer in more dynamic ways.”
The shift to DTC isn’t just about the Warby Parkers, Everlanes and Caspers of the world. To survive, brands seeing the majority of their revenue driven from wholesale retail need to go direct. According to a February IAB report, industry growth is being fueled by direct sales: In 1992, physical retailers accounted for 96 percent of sales for the $2 trillion retail industry. Today, non-store retailers (so, direct sellers and e-commerce brands) account for 9.4 percent of the $5.3 trillion retail industry.
“You can no longer avoid direct communication and touch points with your customers, and if you’re a native wholesale brand, that often means rebuilding your enterprise from the ground up,” said Jeremy Bergstein, CEO and president at The Science Project, a retail agency working with brands like Nike, Veronica Beard and 7 For All Mankind on their direct selling strategies.
Re-righting a business to prioritize a direct customer relationship — not one filtered by the eye of department store buyers — doesn’t happen overnight. Far from it: To maneuver the shift, these brands are overhauling internal organizations, hiring new positions and making up titles, building data sets, and doing more marketing legwork on the same budgets.
A lot is happening under the hood.
Brands have been building up retail logistics for years, but DTC brands have lit a fire under the transition.
“This is now growing quickly for brands, because it has to. But it’s a pretty transformative effort,” said Steve Dennis, analyst at SageBerry Consulting. “They have to build out the capabilities that the retailers they’re now competing with have: Pick, pack and ship fulfillments, data tracking, supply chain logistics. It’s a big effort, and culturally, it’s a different business.”
At Milly, a 19-year-old fashion brand led by creative director Michelle Smith and CEO Andy Oshrin, it’s been an ongoing effort to strike a more equal balance between sales generated from wholesale partners and from direct channels. Historically, sales have been mostly through wholesale, at 80 percent, while 20 percent came from e-commerce and in-store sales.
The goal is, over the next few years, to shift that to a 50-50 split or, at least, 60-40. To do so, Milly has added a collection within its runway line that is targeting millennials with a lower price point and isn’t sold through any retailers.
“It’s not easy. From an organizational perspective, it causes a bit of an upheaval,” said Oshrin. “But we don’t really have a choice. It’s a reaction to who’s shopping where. If you’re not growing, you’re dying.”
Oshrin said it’s not about giving up on department stores, but introducing a new product tier with a new customer in mind that isn’t filtered through the lens of the buyer. To do that, the brand’s design and marketing teams have had to follow alongside customer data trends to stay focused on the different vision. The brand hasn’t hired more people to take on specialized jobs; rather, everyone’s work has become more diversified.
Milly’s not the only brand reworking internal departments and their functions in order to develop its direct-to-consumer business. At Theory, its DTC Theory 2.0 line was conceived, designed and marketed by a team of Theory employees across departments including e-commerce, IT and audience development. “The world moves at a much faster pace, and we have the ability now unlike any other time in our history to communicate directly to our customers. But that can only happen if our company isn’t siloed,” said Rosen.
Still, Rosen said the DTC brand is made more powerful thanks to his ability to unite the team by sharing his vision. At Vince, creative director Caroline Belhumeur has done a similar unification across e-commerce, wholesale and in-store channels, by bringing all of those departments under her and connecting them with the brand’s unified message so it’s more cohesive to the consumer.
The new middlemen
Democratic unification is often easier said than done.
“The persistent problem here is attribution,” said Richie Siegel, the founder of consumer advisory firm Loose Threads. “Departments that need to be working together find themselves competing against each other to own a sale. But if a customer sees something in Nordstrom, goes online, puts it in their shopping cart, but then stops in the store to buy it, who owns that sale?”
Oftentimes, as brands transition from wholesale-dependent to partially direct companies, intermediary roles arise. Chief digital officers and chief information officers become momentary middlemen, shuttled in to smoothe over relationships between tech team’s data sets and marketers, wholesale and e-commerce. Ralph Lauren hired a chief digital officer earlier this year to increase all digital sales, both owned and third-party, as well as rethink digital marketing strategies.
“The title can change, but really, this person becomes the facilitator between the art and science of the business,” said Bergstein. “The CTO has the data and doesn’t know what to do with it. The CMO is in touch with the gut feeling behind a brand, but they can no longer work in a way that hovers over the customer. They have to be responsive. But marrying those two gets difficult.”
But a chief digital officer is more like a symbol. Ultimately, sparking a strategic overhaul falls under the job description of a CEO.
“We don’t have pockets of politics, we’re working toward the same goal,” said Oshrin, who added that as long as the data is supporting the trend the brand is working toward — like the fact that e-commerce is up 80 percent year-over-year — that’s enough.
The end goal — unless you’re Gucci — isn’t to cut off wholesale partners at the knees. For brands moving direct, the idea is that an overall stronger brand with loyal customers will result in a lift for everyone.
“This isn’t the death of wholesale. That’s an exaggeration,” said Siegel. “This is just retail getting better, across the board.”
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