[I wrote the following post about a month ago for the Business of Fashion as a guest op-ed piece] Fashion is an incredible industry. It’s sexy, it’s glamorous, it’s exciting. But it’s also incredibly complicated and the amount of change the Internet and other technology innovations will bring to this industry in the next decade will be mindboggling. Indeed, our offices have been swamped with business pitches from more than a thousand entrepreneurs who want to transform this industry. As for the ideas themselves, many look great on whiteboards or in business school competitions: virtual closets, flash sale businesses, new designer “discovery” sites, you-be-the-designer sites, social shopping, user-curated boutiques, subscription sites, custom clothing, and so on that seek to use technology in ‘clever’ ways. But, in the end, they often miss the mark by a wide margin. There are many flaws to these businesses. But the biggest flaw I see is that these “Internet entrepreneurs” fail to understand how the Internet will fundamentally transform the fashion industry, not just provide another access point to buy something. In my opinion, the biggest change will be a dramatic shift in the relationships amongst brands, retailers and customers. Going forward, every brand must [...]
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The relationship between a brand and a retailer is complicated on many fronts and it is going to get a lot more complicated in the coming months and years. Since time began in this industry, the direct relationship with the customer was owned by the retailer and brands have been reliant on the retailer to manage these customer relationships. Most major brands have established their own flagship stores, especially at the luxury end of the market, but a very large chunk of the revenue still passes through the retailers’ doors and web stores. I’ve had lots of conversations with fashion designers about retail. I usually start the conversation out by asking them if it is worth paying a retailer $600 to sell a product that is sold to the consumer for $1000 (assuming a fairly standard wholesale/retail mark-up of 2.5x). The response is almost always: “Oh you don’t understand. We sell it to the retailer for wholesale and then they mark it up”. I respond by telling them that if a customer is willing to establish an economic value for the product by paying $1000 of which they only get $400, those dollars are being paid to/taken by/stolen by someone, in this case, the retailer. At [...]
Read MoreWe just closed an investment in Tommy John, a manufacturer of the best men’s underwear on the planet. Since we are technology investors, it might be fair to ask why we are investing in a company that makes product. The reason is simple: we will use technology to transform how a product brand is built in today’s retail industry. Ecommerce retailers and bricks and mortar retailers who sell on the web are not new by any means. Nor are brands that sell directly to consumers via the internet. But what is different is that these strategies are simply extensions of a retail business model that has been in place for ages: aggregate customers geographically by building stores where they are and sell to them. The future is aggregating customers by who they are, what they like and what they want to be. This is not a geographic phenomenon; it can only be done on the web (I have an entire blog post on this topic here). This may sound pretty much the same as the old way, but it is actually completely different. For a brand, it means that they need to connect directly to the customer and not rely [...]
Read MoreThe internet changed everything for retailers and retail brands for many obvious reasons (more customer touch points, more targeted advertising, pricing strategies, more advertising venues, access to more customers and more sales). But it has also had a subtle and important implication to it that most retailers and brands have not really grasped due to their historical points of view. The greatest impact of the internet has been that it has enabled people with common interests to connect on topics and discussions that move them in a more engaging and interesting manner because they can find people who have much more in common with them, irrespective of where they are located physically. Historically, stores have been based on the geographic aggregation of customers – merchants formed stores when enough people passed by their location that they could make a living. When a population was large enough in their given area (either through travels or residence), there were opportunities to specialize. For example, as a western frontier town grew, the proverbial general store gave rise to to the dress shop and the hat store and the hardware store. There were enough people, with enough specific needs for stores with more specialization [...]
Read MoreI had a wonderful time at the Startup Summit at Princeton last week. A tremendous group of future entrepreneurs. Rather than tell them that they are all wonderful and to go out and try to be all they can be, I told them that we are about to enter an epic shit storm of economic and societal distress. There will be lots of change and, fortunately for them, that means opportunity if they have the skills and courage to seize it.
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