LONDON — As stores began shuttering and brands faced one order cancellation after another due to the coronavirus, the flaws in the wholesale system became even more evident.
With many stores insisting on sell-through guarantees, designers were already squeezed, having to finance production and wait 90 days, post-delivery, to get paid. And if their stock failed to sell, it was simply returned.
Now, with retailers in most of Europe and the U.S. in lockdown, those hits are much bigger — and more universal. So will more brands start taking a page out of the direct-to-consumer playbook, and ditch retailers in favor of building their own communities?
The general consensus among brand owners, sales representatives and retail analysts is that the shift toward direct sales, which was already happening, is bound to accelerate. Wholesale and visibility in major retailers has been a boost for labels, offering a stamp of approval by storied names in the business and helping ramp up marketing, too. But amidst financial pressures, those benefits are put into question.
“You are the master of your own pricing when you sell retail,” said Luca Solca, Bernstein’s senior research analyst for global luxury goods. “We have seen many times that after a crisis like this, the wholesale channel massacres brands with huge discounts in the attempt to monetize unsold inventory. And every time we have also seen that the consequence of this has been a structural decline in wholesale dependence by brands worth their salt. I will therefore expect that COVID-19 will be a catalyst for an acceleration in the wholesale channel demise.”
For young, digitally savvy clothing, jewelry and accessories designers who had started making the transition even before the crisis, going direct-to-consumer is the only way forward. The burden of paying hefty fees in exchange for a small space in a Paris showroom, and the hope that buyers will invest in your label, just doesn’t do it for many designers anymore.
Gaelle Khouri, a Beirut-based jeweler, said cutting ties with wholesale gave her label the breathing space it needed to survive.
“The wholesale model doesn’t work anymore, and if [retailers] want to stay, they must change their model and the way they do business,” said Khouri, who has been favoring trunk shows that target the Middle Eastern market and working with personal shoppers rather than retailers for the past year.
Had Khouri continued with the traditional wholesale model, “now would have been disastrous. Even though it’s a tough time to transition, to learn about the market, to find your own clientele, it’s definitely the best way to go.” She added that the fine-jewelry category is particularly challenging as product is almost always taken on consignment by the retailer, with no upfront payments.
The stores, she said, “require huge stocks, so you pay the money, you invest in producing the collection not knowing if it’s going to sell, you send it to them and you wait. But given that these platforms don’t pay money to get the goods, they also don’t feel compelled to sell them. When you take a risk in something, it can yield a more positive result, because you’re [giving] everything you can to tell the story of the brand and sell it to the customer. It’s just absurd that a major retailer can stock all these brands without paying a dime — at least in jewelry.”
Havva Mustafa, an up-and-coming footwear designer, has had a similar experience. By shifting the focus to her brand’s e-commerce platform and creating targeted digital communications campaigns, particularly in the U.S., she started seeing high sell-throughs on her web site and real engagement from her customers.
Now Mustafa forgoes fashion weeks in favor of smaller drops on her web site, which also means less stock wasted. By offering customers the chance to preorder key styles, like the trendy flame-print square-toe spring 2020 sandals she created, she makes financing production easier, too.
“People are looking for more direct connections from brands. By connecting one-on-one with the consumer, we are now able to control the entire shopping experience from brand discovery through our socials, to product packaging and delivery,” said Mustafa. “Being direct-to-consumer has also allowed us to expand outside of just product. We can interact with the customers more directly with things such as our ‘Cool Girls Don’t Sleep’ radio playlists to our newly introduced Instagram Live drawings lessons.”
Even those who played the wholesale game well and attracted major retail partners across the globe are seeing the value of investing in their own platforms and engaging with their own audiences.
As retailers delayed payments or canceled orders, those with more established direct-to-consumer channels were the ones in a stronger position with at least one viable channel left to hold onto, to help them keep consumers engaged and some stock moving. The Danish brand Ganni is one of them.
“We were forced overnight to think like a direct-to-consumer business, because Ganni.com is right now our only channel of commerce. It’s definitely making us rethink our 360-approach and realign,” said Nicolaj Reffstrup, chief executive officer of Ganni, which has seen a 40 percent spike in the brand’s web site traffic since the COVID-19 lockdown.
The Turkish accessories label Misela sells via its own web site and its brick-and-mortar stores in Istanbul and London, while the designer Serra Turker owns her factory in Istanbul. Despite the high overheads of its Mount Street store and the decrease in demand due to the pandemic, Turker was able to receive direct orders and produce them on demand by sending employees to the company’s factory a few days each month to produce all the orders in bulk.
“The digital-first approach has been extremely valuable during this time. The customer is at the heart of the business ensuring there is a fully transparent communication, versus relying on a wholesale partner to filter messages down,” said Lauren Stevenson, whose public relations agency Aisle 8 has been working with a variety of direct-to-consumer labels including AllBirds, Sezane and Away.
“Direct-to-consumer brands can flex with an environmental change, adapting their messaging and marketing in a much more dynamic way,” added Stevenson. She believes that postcrisis, there will be a reduction in the number of physical stores and a greater focus on unique experiences, and the direct-to-consumer business will continue to gain momentum.
For those who have been reliant on wholesale, the burden of the COVID-19 closures is proving to be far heavier.
The Danish designer Stine Goya, who’s had to deal with daily “unpleasant surprises” like canceled orders, delayed shipments and postponed projects, said the shift to direct-to-consumer has been essential, but much harder to execute under the current circumstances.
“Practically speaking, our business’ accelerated growth in the past few years has been a direct result of the partnerships we forged with retailers and stockists worldwide. If we are now in a position where 50 percent of our key accounts are closed to shoppers with limited online profiles, do we have the capacity to absorb those losses and restructure our focus to direct sales at a time when consumer confidence is so low?” she said.
Does this mean that, postcrisis, brands will start putting more focus on their own channels, having experienced firsthand the damage a wholesale partnership can bring?
Everyone from small-scale labels like Charles Jeffrey Loverboy and Palmer/Harding to more commercial businesses like Galvan are talking about building up their own web sites more.
“With a direct business, you can feel that recovery much quicker than you do with wholesale,” said Katherine Holmgren, cofounder of Galvan.
Showroom owners are also encouraging brands to focus on setting up their own e-commerce platforms and take control of the customer journey.
“We believe strongly in the power of the direct-to-consumer retail approach and we have already been seeing designers being more selective and targeted with their choice of wholesale partners for a few seasons now, allowing for more selective points of sale and for stronger and strategic brand-driven campaigns to support wholesale performance,” said Giovanina Attie of Maison Pyramide.
“With the increasing challenges of the wholesale terms and the continuous growth of customer reach through digital platforms, young designers have got to take control of their sales and work on innovative practices to keep reaching their needed targets through direct sales.”
Maria Kastani, whose namesake showroom represents emerging brands, echoed her thoughts, adding that the role of the showroom will evolve into an incubator that provides not only sales, but communications, design and branding advice.
“The wholesale model is so stagnated that if you invest in your own web site and offer small, well-curated collections, direct-to-consumer can work. It also gives you direct access to customer feedback and the opportunity to get creative with different initiatives where you are inviting customers straight into your world. It’s time for designers to do a clearing out, understand what’s in it for them and become more focused and able to say ‘no’ to the wrong terms,” Kastani said.
This would also encourage a clear-out, with more emphasis on retailers who are willing to take risks and express a point of view — as well as experiment with alternative business models.
“For me, the future is in the small independent stores across the globe. Less risk, more connectivity. What could be interesting is a platform of available stock per brand worldwide, open to the end consumer,” said Maria Lemos, founder of Rainbowwave, also pointing to the strength of the Farfetch model, which helps move stock by independents via its platform rather than buying more of its own.
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Personal shopping platforms like Threads, which service customers via WhatsApp, have also found themselves at an advantage and are able to pivot their focus to categories like interiors and loungewear that are more in demand at the moment: “Threads is a very unique business model and as we don’t hold inventory, we are able to stay agile and show our clients and audience what they want to see instead of having to push the stock we have. Due to this, we have an incredible client retention and repeat purchase rate,” said Sophie Hill, founder and ceo of Threads.
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