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16TH May 2017

Creative problem Solving - Fashion Snoops - Timely - Uncategorized

Opportunity and the Retail Apocalypse


How's that one selling?

How’s that one selling?

Alexa- I need to reorder my shirts. Make it so.

No more chilling words could be spoken to an outdated- one might say outmoded- industry. It might as well be a eulogy to Fashion Avenue. Vaya con Dios, Garmentos. You had flair.

There have been nine retail bankruptcies in 2017—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy. Last week, several apparel companies’ stocks hit new multi-year lows, including Lululemon, Urban Outfitters, and American Eagle, and Ralph Lauren announced that it is closing its flagship Polo store on Fifth Avenue, one of the several brands to abandon that iconic thoroughfare.

From what I see, it happened in five subtle steps. Here they are:

Step #1) Information got fast. I remember a suit retailer in the 80’s named Sy Syms. He used to end all his adverts with “An Educated Consumer is our Best Customer” and that was true. If you did the homework, you realized you could get brand name suits for half off at a Syms store. There was one a block off Wall Street, and I hit it hard. So did Bud Fox, apparently.  … However, Sy never envisioned the internet and mobile devices, where information traveled at light speed and had the effect of arming the consumer with way more information and informed questions than the retailer was prepared to answer. People are now able to use devices to mark, inspire, order, and get delivery overnight. So now, for a retailer, an informed consumer has become “Our worst Nightmare”. But data also became misused. It began to control the buyers: what sold last year became more important than what a designer presented next. A sales number was more reliable than trying the NEW thing. The buyers- or should we call them gatekeepers- put an end to surprise and discovery at retail and created a predictable, SAFE offering. Ho-hum.

Step #2) Creative Oracles made more (mostly) blind bets. So you had these guys, mostly guys, who had a lot of information in their heads and quite a few contacts in their Rolodex. They could come up with products, and versions of products, and twists on products, and extensions of products, and get a large retailer to buy truckloads of it. If they were in a fashion category, they doubled down by creating demand in ad-thick glossy magazines full of people we all aspired to be, wearing what we aspired to wear. Can’t blame them, they got away with it for a long time. The closest thing that ever came to perfect information back then was the Movie Crazy People, in which Dudley Moore devised ads based on truth instead of desire: he was sent to a sanitarium…

Step #3) The pent-up result is inventory, the merciless retail killer. Federated (now Macy’s) stores got smartest, fastest, and started sending unsold goods back to manufacturers aka dilution and returns. This delayed death for them and those that followed them. It caught on quickly, passing the inventory risk back to the maker. Each truck may have well had a note attached “we all thought this would sell, but we were wrong and so were you. But since you said so, you get to take it back”. Suddenly, the Oracles were living a remake of the Emperor has no clothes… but in this case, he had waaaaay too many clothes. Oracles used to count on selling 25M pieces of their designs to 25 retailers. Not so much anymore; everything is online, the brick and mortar retailers are drowning and the e-comm guys are too smart. No. More. Big. Orders.

Step #4) People started valuing experiences over things. Especially the Millenials. Blame the internet, but we don’t have to own things like we used to. We can AirBnB, we can Uber, we can even Rent the Runway. The whole idea of acquiring things to look at in our closet has lost (most) of it’s appeal to most people. Marie Kondo, a Japanese organizing consultant, and the author has written four books on organizing, which have collectively sold millions of copies. She has led to more purges of closets, less need to stack things and expectations that new things are bought wisely and at the best price. [Add the sound of industry collapsing like a stack of high-end shoe boxes].

Step #5) Malls and Retailers collapse. People begin to get just what they need and browse no more. The B,C,D, E -Grade malls begin failing one after another, and their anchors are falling with them. While A-Grade malls are up 10%, the behavior is in & out in a highly targetted fashion. People shop 3 stores, not 6. And the impulse purchases that were driven by all that Oracle inspiration, driven by all that fashion publicity, just falls flat. (I’m sure any red carpet crowd that reads this will scoff and up their nose, but that island gets smaller every day. Promise.). Look at the revolving doors at every major fashion brand in the past 24 months, from Ralph Lauren to Abercrombie, followed by the bankruptcies of multiple retailers from high- end to low. I submit for your consideration the poster boy of the Retail Apocalypse: Eddie Lampert who, according to securities filings, managed the $16.5 billion he once managed at Sears’ peak in 2007, to a mere $653 million—an epic decline of 94%.

So, what happens next? One entrepreneur has a SaaS solution for how this should all work going forward. I’ll tell you about her shortly. And then there’s this thing called Alexa…

 

 

 

 

 

 

 

 

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