Goodbye Wholesale Brands

Its hard to think of a commodity with more of a conspicuous consumption purpose than expensive fashion clothes, other than perhaps cars. The act of shopping for them, being seen shopping for them, the whole trying them on and looking a mirror, seems to reach or exceed the enjoyment of eventually wearing them in public.

I would imagine sizing is a complicated issue impacting possible 10% annual growth rates and all that. Tee shirt sizes are simple so online tee shirt sellers do well. I have bought my last four pairs of shoes on line because they're identical mfgr, model, size, width. I'm thinking high fashion clothing sizing might be somewhat more complicated. "do these stripes make my butt look fat" is hard to answer if you don't try the clothing on. As if thats ever an easy question to answer.

Finally you can increase annual sales of $300 fashion brand jeans by 10% per year for quite a few years, but eventually you bounce off declining median adjusted incomes, permanent decrease in economic activity, long term demographic decline stuff like that. It is very much like growing the 50+ foot sailing yacht market by 10% per year, you can do that for awhile, but eventually you run out of people capable of paying $300 for a pair of jeans, err, buying 50+ foot sailing yachts... The fashion market may not be big enough to make the subset of internet sales large enough to be viable. Perhaps walmart has more to fear from amazon than the major fashion brands... there's a lot more people buying $25 walmart jeans wanting to save $5 at amazon than people buying $300 jeans hoping to save $200.

(edited to add that if you agree with the assumptions of the article, its a well written and well analyzed article with no obvious mistakes. I just happen to disagree with several core assumptions which has quite an effect on my opinion of the conclusion.)

TL;DR: The author's thesis is that wholesale apparel designer brands can recoup margins by selling direct online. The way this will be accomplished is by the brand itself holding inventory.

Here's 100 years of experience condensed into four words, so if you're considering disruptive ideas in the apparel industry (like this one) please consider that:

INVENTORY IS THE ENEMY.

I am part owner of a 100-year old vertical apparel outfit in midtown Manhattan, and was there on hand every day for 12 years. We make custom men's suits and sell direct to the consumer, but that's only been the main revenue stream for a little more than a decade.

My great-grandfather started the business as a wholesale manufacturer in Brooklyn circa 1913, and my grandfather grew it into a national wholesale men's clothing line, supplying many of the nation's stores with their private-branded tailored clothing lines.

My father took the big move of selling direct to the customer in the late 70s, from the factory and warehouse on 5th ave in Manhattan. By the early 80s, especially as the result of clever marketing and other market factors, the retail business exploded. The consumers LOVED that the clothing was made in NYC, that they could see it being made, and that it was less expensive because middleman margins had been cut out.

So, my father bought a huge former department store on Broadway in the mid-80s, with a three-floor factory above, and was pumping out suits in record quantities (for our business). Also, our suits were wholesaled to Japan, Germany, etc, under our name.

Then the market shifted. Suddenly my father was stuck holding quantities he couldn't move. (The same thing had happened to my grandfather numerous times.) Overseas manufacturing hit full swing, and even with the cut margins, it was getting impossible to compete. We nearly went bankrupt by the time the "casual trend" hit during the tech boom of the late nineties.

In 1999, I came in to help shift the factory back to purely custom-made tailored clothing. NO INVENTORY. MADE TO ORDER ONLY. It was a huge retooling process, and since I was in my early 20s and there are no baby boomers who learned custom tailoring, I had to fill in the generation gap by learning the craft completely, and computerizing the whole pattern-making process. (Doing this custom is a near-impossible task that few do, and I eventually wrote my own software for it.)

We had to stop stocking inventory or we never would have made it to 100 (this year) if we had hung on to the idea that a small brand can hold its own inventory.

Here's an old Jewish garmento joke from the 70s, it's caustic but we say it often: "Inventory killed more Jews than Hitler."

There are very few brands out there that can handle vertical operations like this, and fewer people to manage it. Trust me, we've been hiring candidates for ages.

Brands will incur all that additional personnel overhead and the incredible risk of stocking inventory, and need the huge marketing budget to sell purely online with no retail locations to build awareness (or at least be reliant on their existing, pissed off accounts for that). The author recognizes this, but glosses over it, and that's why I told this long story.

The real disruption of the apparel industry is technologically enabled mass customization. This has been talked about for ages but the operational skill to pull it off at scale is not there. I was granted a patent on using bodyscanners to make custom clothing years ago, in anticipation of this disruption, and I'm still waiting for it to happen, but it seems faaaar off.

The author says that a brand holding its own inventory is the "new" industry model. It is actually one of the oldest and most dysfunctional, and fraught with risk.

[1]Source - I work directly with a wholesaler who matches almost every description in the article.

We can predict then that aggregators and re-sellers of fashionable clothes will go out of business, and discovery marketplaces like Kickstarter, Ebay, Etc, will create the channels between consumers and their products.

I would guess that small run clothing factories will be a growth industry, more so if they are highly automated.