Long-term survival might depend on brands and retailers rethinking the fundamentals of their relationships with consumers.
Manufacturing veteran, consultant and author David Birnbaum believes there are two distinct philosophies companies apply when they consider consumers. The recession is amplifying the failures of one of those approaches — the one that is unfortunately being followed by the majority of the industry, he said.
According to Birnbaum, two explanations are offered when products aren’t selling. The first is that the consumer isn’t buying what a brand or retailer is selling. The second is that brands and retailers aren’t selling what the consumer is buying. Birnbaum contends that 95 percent of the industry falls into the “they’re not buying what we’re selling” category — and the results aren’t promising.
The mind-set, said Birnbaum, leads to a predictable pattern. Companies, believing customers simply aren’t buying what they sell, look to outlast the recession and count on recouping sales when business picks up. Managing through the downturn means reducing orders, followed by further reductions, followed by markdowns. As that is going on, management seeks to improve margins by negotiating harder with suppliers and reducing other overhead.
The overall assumption being made in this circumstance is that the brand or retailer controls the market, that it knows what customers want. Getting consumers to pay more for less quality or value is inherent in this stance, according to Birnbaum.
“The underlying assumption is that the consumer’s a moron,” said Birnbaum. “I have to tell you that the average American may not be the smartest person to walk the face of the earth, but when it comes to buying — bunch of Nobel Prize winners.”
Birnbaum believes evidence of the failure of this approach is prevalent within the industry and in other areas. Car companies like General Motors and Chrysler took this approach and are struggling to stay alive. Birnbaum pointed to Gap Inc. and Liz Claiborne Inc. as examples from within the industry.
Birnbaum noted that Gap’s same-store sales have declined 48 out of the last 50 months.
“Underlying Gap’s strategy is the belief that they want to sell everybody in the world a Gap garment,” he said. “There is an alternate strategy, which is…rather than selling everybody in the world a Gap garment or the Gap look, find out who the Gap customer is and give them what they want, which is how Zara works or an H&M works.”
Birnbaum emphasized that in the case of Gap and Claiborne, declines were occurring before the recession hit. The reason, Birnbaum believes, is that consumers have been spending less on apparel for a number of years. Birnbaum said the rate of U.S. garment imports started slowing around 1997 and that a decline in import figures was likely to have occurred by the end of 2008 regardless of the global economic turmoil.
“We are fighting a reduced market with more suppliers,” he said.
Companies like Zara, H&M, Topshop and American Apparel are gaining ground in the current environment because they are focused on providing what their particular customer wants. The retailers are proving that offering greater value doesn’t mean having to present a higher quality or more expensive product. A Zara garment may fall apart in three months, but Birnbaum contends customers don’t purchase items there expecting them to last that long.
“What makes Zara great is design integrity,” he said. “The garment in the store actually looks like the sample and the sample actually looked like the sketch. So you really have something that looks like fashion, not some hodgepodge, lowest common denominator design. For the consumer at Zara, that’s quality.”