Direct-To-Consumer is fashion’s new cool kid on the block and that’s because 2020 hit fashion hard. Really hard. In order to survive, 2020 also became the industry’s most innovative year in history and direct-to-consumer (or direct in short) fashion’s top priority. Brands like Nike or Levi’s have turned their focus to this channel looking for more control and flexibility. The more brands focus on direct, the more the industry wonders: what about wholesale?
Fashion and wholesale have had a long and fruitful relationship. For decades, success for brands in wholesale was synonymous with volume. Brands had to be physically everywhere to reach consumers and that meant a huge distribution galore. The bigger your distribution network, the bigger the volume to move. Brands focused on wholesale to drive expansion and increase sales without incurring in the costs of running the business directly. Volume became the success metric in wholesale and that made it so for the fashion industry as whole.
When wholesale’s mold broke.
Before the pandemic hit, brands had started realizing this business model was generating challenges in their supply chain. Delayed deliveries, quality issues, inconsistent brand positioning or continuous markdown strategies were becoming endemic in the industry, forcing brands to look beyond wholesale to keep margins intact. The omnichannel obsession had started. Wholesale’s volume remained a temptation too difficult to refuse leaving its P&L, for the most part, unchanged.
2020 hit us hard not because it was unexpected, but because we knew this would happen. We knew the wholesale model was growing old, but we didn’t renew it in time. Direct gave brands flexibility and control they couldn’t get from wholesale. With big retailers like El Corte Inglés or Macy’s shutting down over 20% of their stores and stock piling up in warehouses, you start to wonder: is wholesale dead?
Maybe not. But it is definitely changing. 2020 has seen the solidification of new business models. Zalando wants to become the industry’s first Platform as a Service e-tailer with their new Partner Program. Inditex brands have started selling via other e-tailers showing that wholesale can be valuable even for the most vertically-integrated brands. There’s hope for wholesale but there’s also significant change ahead. Brands are more selective in their distribution, looking for partners that give them direct control of their product and brand positioning, forging new wholesale relationships into the future of fashion’s long loved channel.
Reducing costs is wholesale’s present
Understanding the differences between sales channels is understanding fashion’s hottest topic: margins. Oh thy margins! The industry can’t stop thinking about them and with reason: making clothes isn’t easy nor cheap and making them in 2020 became a lot harder and expensive. When done right, the direct-to-consumer channels offer brands more control over their positioning, their offering and the price, leading to more favorable business results over the long term.
Unfortunately, the share of wholesale for most brands is so big that diverting focus to direct initiatives won’t be enough to cover for the loss. While direct’s revenue has seen double-digit growth, it hasn't covered the damage seen in other channels. If direct’s growth can’t heal wholesale, then what can? Wholesale can. Wholesale must reset.
Wholesale’s recovery must start with redefining its success. With sales revenue in decline, brands must look into ways to avoid the collapse of their margins. Rather than looking at wholesale’s volume, brands should look into their P&L, reducing the costs to serve customers and further invest in digitization to increase their advantage in adversity. This shift in focus will allow brands to keep margins intact in the short-term and lay the foundation to further increase them after the industry’s recovery is past us. The future is bright for a better wholesale model.
Better sales is wholesale’s future.
Wholesale is all about the relationship between brands and retailers. This relationship is based on sales: Brands selling products to retailers and retailers selling products to consumers. Sales is the essence of wholesale and the key to its future. New digital platforms have helped sales teams to make business while reducing the costs to serve customers. However, digital platforms shouldn't be seen as a silver bullet. They can make the process faster, but it won’t solve other, bigger underlying issues. Technology and people must work together seamlessly for this new model to succeed.
If better wholesale means reduced costs, sales performance should be measured in the same terms. More sales won’t solve wholesale’s biggest issues. Sample costs, poor brand positioning or order fragmentation will only grow in scale if the only action taken is implementing a digital platform. In order to reach a better wholesale model, brands need to adopt a better sales mindset, one that strives for efficiency, not volume. One that encourages sales to work on quality, not quantity. One that enables sustainable growth.
Fashion doesn’t need more wholesale. It needs better wholesale. And better wholesale starts with better sales. Is wholesale dead? Well, the old wholesale is.
Hatch is a Digital Showroom Platform born from fashion and built for fashion. Hatch Digital Showroom empowers fashion brands to drive better, healthier sales at scale and reduce the costs to service customers. Hatch achieves this by offering a software platform that enables engaging, efficient and more sustainable sales meetings.
Big name brands like Tommy Hilfiger, Clavin Klein and Havaianas® use the Hatch Digital Showroom to sell better. It’s Hatch’s mission to transform wholesale by creating a new sales experience for all fashion brands and retailers.
Better Sales Start with Hatch.