Sunday, April 30, 2017

The Death of (Apparel) Retail (As We Knew It)-Part I- The Survivors

Let’s start with the survivors. Knowing where we are today will help to understand how we got here.

Who are they and why are they emerging while others are dead or dying? 

Some of them: Inditex (Zara, Massimo Dutti, Zara Home), Uniqlo, H&M, Primark, Amazon, Costco, Sam’s Club.

Why are they growing while others (like Macy’s, JC Penney) are dying slow and painful deaths?

1.     Is it because of the growth of online shopping? Not totally, as everyone is selling online today. Certainly Amazon has led the way to an online revolution, but everyone has online sites today, some better than others, so let’s consider that a push.
2.     Fashion basics- Here we go back for a moment into the past- Does anyone remember the Gap Pocket T? Then CEO of Gap Mickey Drexler believed in the mantra of Narrow and Deep, which found its best execution in the pocket T-many colours- one style, planned promotion, BUT every day low price (more about this bit of history later).
It is this concept that today’s Masters of the Retail Universe have embraced. Customers know that when they need a pair of pants to wear around the house, or to work out, they can go to Uniqlo and find them-no shame (count me in that group).  Look around Uniqlo- not hard to tell what they believe in, whether it is Linen Shirts or Chino Pants, the store is stocked with Fashion Basics, surrounded by go-with pickup item. Inditex stores show the same philosophy. Try that in Macy’s…
3.     Fast Fashion- Let’s use Inditex as an example. Stores and merchandise are changed many times each season so you can revisit the store regularly and not see the same thing you saw a couple weeks ago.  The last offering is either taken off the floor or isolated as sale merchandise. So the store always looks great, not confusing or a mess.
4.     Price pointing- You can see that there are many fewer price points in a Uniqlo or Massimo Dutti/Zara store than there are items. This differs from traditional department stores, who pay no attention to the customer’s value thinking and just mark the item where the (inflated) markup numbers take them.  This price pointing simplifies shopping for the consumer, as well as creating the impression of every day value.
5.     Sales are REAL (or at least it looks that way)- Consumers have caught on to the department store world’s game and can tell you when discounts, more discounts, further discounts, and discounts upon the discounts will happen. And they KNOW it is a game, therefore the value perception of original price is nil.  And time is on the consumer’s side.
If original price value perception is believable, smaller discounts have more value-thus 20% in Uniqlo is more exciting than 40% in Macy’s.

Lastly, why buy something at original price if you know it will be available at a discount? The keywords here are: if you know. If you see something in Massimo Dutti that you like and just a few pieces available in your size, maybe it will disappear before you have a chance to buy. No such worry in overassorted and overstocked Macy’s etc.
6.     Most brands in the world have lost or diluted their value perception as store brands’ is growing- If you can remember back to the 70’s and 80’s, brands were king (or queen). We worshipped the names and paid too much for them, rejoiced when we could find them on sale. Very few of those brands have endured, if at all, with anything like their past aura (ok, name some).  I don’t want to get sued so won’t name names. You and they know who I am talking about.
At the same time, store brands are gaining the confidence of consumers for what they are- no tricks. Massimo Dutti or Uniqlo means ok quality and a value price for that quality. Not good if you are entertaining the Queen or her relatives, but perfect for every day wear.
7.     Sourcing- As global brands, they have built sourcing organizations and resources which are  close to their store concentrations, and can mix/match offerings from different regions as long as their colour stories are consistent-which they are. Most important: they can move quickly! Neither the skill or the strategy of today’s department store buyers can match the nimble resourcing power of today’s brand fashion kings, nor the nimbleness of their global operations.
8.     Global equity- IF you go to a Massimo Dutti store in Shanghai, New York, or Rome, you will find the price points are very similar, and I am sure that is not by accident. Shop brands or designers in different locales, and you will find the prices are dramatically different=multiples in some cases.

So let’s be clear- the imminent expiration of the world of Macy’s et al. is NOT due to PRICE.  Macy’s can get down and dirty with the best of them. It is about VALUE. The brand value which deparment stores used to represent and which differentiated them from the discounters is gone- eroded by the overdistribution  of brands, Since brand worship is dead, department stores are resorting to promotion to bring in consumers (while at the same time killing the manufacturers by making them pay for the buyer’s incompetence and the stores errant philosophy). Most important, losing the TRUST and respect of the consumer.

There was a time when self-respecting middle class America did not want to be seen shopping at, or wearing product from “the mass market.” Now there is no distinction about shopping in Macy’s- it is a confusing and discouraging experience- and no shame to shopping at the new normal.  If you go to Uniqlo, Massimo Dutti, or sit home and shop from Amazon, it is a satisfying experience- can it also be a badge of honor?

Next- Part 2 and 3- The Way We Were and How Extinction Can Be Avoided.

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