Ready-to-wear brands have traditionally earned most of their revenue and achieved growth via department stores. But store closures and the advent of online is pushing these brands to diversify or risk extinction. The call is clear: Find new revenue by diversifying distribution channels and product or die.
Department stores have been dwindling for more than a decade. According to a report released this past spring, stores like Sears, J.C. Penney and Macy’s would need to close as many as 800 locations to return to the levels of productivity they saw 10 years ago. Meanwhile, Amazon is expected to hit a historic milestone in 2017 by surpassing Macy’s as the largest clothing retailer in the U.S. There is a place for department stores in the future, but depending on them for the majority of your revenues means fighting for the scraps of an ever-shrinking pie.
Holiday shopping is moving online even faster than everyday shopping, with a recent Kantar Retail survey that more than half of shoppers plan to buy all their holiday gifts on Amazon. Look no further than last month’s Black Friday: online stores saw a 14 percent surge in sales, while brick-and-mortar traffic dipped 3 to 4 percent despite increasingly aggressive discounts.
To make matters worse, one of the main weapons department stores are deploying to attract customers is discounts, holding sale after sale to the point of channel and customer saturation. The constant presence of glaring “80% off” signs associated with your brand and the picked-over clutter of sales racks diminishes the store’s prestige and drags your brand image through the mud.
But where does all this leave the majority of rtw brands? Like I said: diversification, with one exception that I’ll go into shortly. Find new ways to disrupt the traditional wholesale model by getting the majority of your sales from direct-to-consumer channels. Here’s how some of the smartest brands are doing it.
Although online retail has funneled a vast amount of business from department stores, some online brands (including, ironically, Amazon) have discovered the value of opening what are essentially single-brand showrooms. Think mattress upstart Casper or Everlane, which both made names for themselves as e-tailers but discovered that having a physical presence strengthened customer relations and boosted sales — including online.
These companies recognize that the showroom model or limited retail engagements like pop-ups presents an opportunity to immerse customers in an entire environment tailored toward the brand’s identity; customers walk through their doors into an experience, not just a store — a three-dimensional ad for the product where the entire experience is controlled by the brand to tell and sell the exact story of that brand. The customer’s attention is not being competed for with other brands or offers.
Bonobos goes one step further with its guideposts stores, which look like traditional clothing stores but don’t actually sell off the rack; instead they provide a place where customers can try on clothes, consult with a salesperson and then order the item right then for home delivery or go home and buy it online.
These innovators also tend to keep real estate costs to a minimum by turning small spaces into a stylish aesthetic. Australian skin-care brand Aesop, for example, has become known for their tiny, sleek stores, which ensure high revenue per square foot. Companies that aren’t quite ready to sign a lease, meanwhile, are turning to trunk shows as well as niche venues like vintage fairs and festivals to not only peddle their wares, but also generate word-of-mouth brand awareness.
The Internet still offers diverse distribution channels beyond the standard e-commerce site. Shoppable Instagram feeds not only provide an outlet for sales; they allow retailers to hone their brand image with reach to a highly targeted audience. And while e-mail might seem almost quaint, interactive e-mail providers like RebelMail can be harnessed into a unique tool for life cycle marketing.
The silver lining to being forced to find all these new direct-to-consumer options is that it leaves retailers in a position to be more selective about the partners they do work with; they can choose only those that benefit them financially while also enhancing their brand identity.
Which leads me to the exception I mentioned earlier — the growing trend that’s filling in the gaps left behind by wholesale channels without requiring brands to go it alone: licensing.
Licensing can provide rtw brands with an easy way to enter new markets like accessories and makeup — products that are sold at a much lower price point than, say, a designer dress and so offer both high profits and an entirely new stream of customers. Tom Ford set the model by building his business off the success of his fragrance and eyewear lines.
Licensing is also a great way for younger brands, like Karen Walker, to mold their identity and get their name out to new customers. Having started out in 1989 with just two t-shirt styles, the New Zealand company became a global brand through a wide array of licensing partnerships for jewelry, housewares, footwear and more. Its eyewear alone sold over $28 million in the U.S. market.
There’s no denying that wholesale channels are no longer the reliable path to success for ready-to-wear brands. In order to reach new customers and thrive, the choice is clear: diversify or die.
Andrew Lipovsky is founder and chief executive officer of e-commerce eyewear firm Eponym.