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 figure out how to connect directly with its customers and they must structure their business around the relationships they want to have with their customer rather than let their distribution channels define them. The economics are too great not to do so.

If all brands must connect directly with their customers, it also means the roles played by retailers must change. Online retailers will not succeed as customer access points for brands anymore, because the brands can now access these customers directly. So, the online retailer must be more. I would argue that Net-a-Porter is as large a threat to Vogue as it is to Bergdorf Goodman, because of the editorial content and contextual placement they provide. In my mind, making a decision to sell on Net-a-Porter is a branding decision, not a revenue decision. The ramifications of this shift will destroy many large incumbents in this industry, as they realise that they must provide a brand more value than simply aggregating customers and selling their products in unimaginative Sears-catalogue formats.

Another major change will be retailers and brands realizing that there is enormous opportunity to use technology to create shopping experiences that replicate the emotion that a customer feels when they shop an incredible physical store, without resembling the traditional shopping experience in any shape or form. In the current fashion-tech world, many incredible designers and merchants who create amazing physical experiences have created dull online experiences. Too often they try to far too literally recreate physical experiences online: I go into a store, I look for a product that I like, I put it in my bag or cart, I proceed to the checkout, I pay for it and I leave. But fashion is not about process or necessity: I need water but I don’t need that fantastic Tom Ford suit, I only feel like I need that fantastic Tom Ford suit. Simply displaying products like they are in a grocery store (rows and categories) doesn’t work.

Fashion makes you feel. It is about emotion. The web can create amazing experiences using video and images to convey a story. Sites can engage customers and get them to participate in the definition of brands and products. My personal favourites: Net-a-Porter Live which recreates the emotion of sitting in the middle of Bergdorf’s during Christmas, every second of every day of the year; ModCloth’s Be The Buyer program that enables customers to determine buying decisions and take a vested interest in the product’s success; and Miista Shoes, which sets clearance sale pricing based on the Klout scores of its followers.

As an investor, I am putting my money behind brands (people that make stuff!) that are leveraging technology to create a new kind of relationship with their customers. Before the Internet, brands needed retailers to be the vehicle of this relationship by physically aggregating customers. Now brands can aggregate customers themselves, not based on where the customer lives, but on the values, interests and aspirations the brand and its customers share and use technology to create incredibly unique, intimate, personal, interesting and fun relationships.

One of the most brilliant brand concepts that I have seen (and loved so much I invested in) is LollyWollyDoodle. Lolly sells dresses for little girls, but in a unique way: through stories on Facebook. On any given day you can look online and see an offering of several products (full price, limited run items) that engage and excite a passionate set of customers. Founder and CEO Brandi Temple is a brilliant entrepreneur who figured out how to replicate the emotional experience of shopping without replicating the process of going into a store, with daily surprises, stories and emotional connections. In addition, she is able to use the data on the velocity and acceleration rate of product sales on Facebook to predict product demand on the website, thereby being able to manufacture more profitably by not over- or under-producing a given product.

Another company I have invested in is Tommy John which aims to change the men’s underwear industry. And via a personal investment, I helped start a unique high-end luxury fashion brand named Norisol Ferrari which is creating a new type of relationship with customers who are tired of mass “luxury” brands that make up so much of the so-called luxury industry today. The brand I most wish I had invested in is Warby Parker, who is blowing apart the eyewear industry (and Luxottica can’t touch them).

I’m also putting my money behind retailers who recognise that brands can and will go directly to their customers and rather than try to fight and prevent them from doing so, are creating platforms that enable brands to build and strengthen their relationship with their customers. Retailers won’t exist in the future if they can’t provide value – and only a few can provide value through brand and merchandising talent. I think Moda Operandi (another company I wish I had invested in) will be able to carve out their own niche as a direct retailer in addition to their current business, but I believe that they have more potential as a service provider of trunk shows for brands.

I love “retailers” like ModCloth, but the truth is nobody cares about the brands on the site, they care about what founder Susan Koger puts on there and I would bet that they become a direct label brand more and more. I met with the two founders of Of A Kind recently. At first, I cringed, because they were introduced to me as a “designer discovery site” and I figured they would be like the dozens I had seen recently. But they had a unique twist: provide customer acquisition, brand building and data (and maybe technology one day?) to enable new designers to build their own businesses while Of A Kind builds theirs. They are a true brand service provider that recognises how this industry has changed.

One of my companies that sells fashion as part of a broader mix is AHALife. There will be some very interesting developments there that demonstrate what a retailer-as-service-provider can be. And my prediction is that we will see more and more entrepreneurs who understand that it’s the brand that matters and use technology to provide unique value-added services to them.

One thing’s for sure. It will be an exciting next few years as technology transforms the relationships amongst brands, retailers and customers. But the biggest challenge entrepreneurs face might be themselves. Many would-be fashion-tech entrepreneurs have a deep understanding of the fashion industry and no understanding of technology. Or they have a deep understanding of technology and no understanding of fashion. Or, they understand neither!

The entrepreneurs who master both and understand the subtleties of each will be triumphant and realise all the potential that lies in this combination of technology and fashion.

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 on retailers for most of their revenue.  For the retailer, they are no longer the gatekeeper to the customer relationship; they are a promoter for the brand and will be compensated on the value they add, not on the value they take (I have another blog post coming on this topic later in the week).

Tommy John has a small, meager web presence, but that is where we can help.  Their products are anything but meager – they have a loyal following for their undershirts that never untuck and their boxer briefs for men that are the best I have ever worn.  In fact, if you buy them (www.tommyjohnwear.com), I will guarantee you that these products are the best you have ever worn (sorry ladies, it’s a men’s brand) and I will personally reimburse you if you don’t agree.

We are not investing in a clever web business model or a discounter with the most efficient distribution channel – we are investing in a better brand, with better product that a customer will pay a better price because it is a much better value.  Tom Patterson is a product genius and there is a long list of additional products behind his first two products that you will see in the near future.  What he needs to do is to build a team of entrepreneurial-minded web geniuses and that is where we come in.

We know this industry and we have a long list of portfolio companies that are doing very well in it (Pinterest, AHAlife, Shopify, Lot18 to name a few) and we know how to bring the right people to the table to help Tom to reinvent the retail industry.  Honestly, what we do is more fungible than what Tom does, so we are confident that we can bolster his skills and capabilities with a great team that can implement a great internet-based infrastructure. It’s really hard to find an entrepreneur who can make a really extraordinary product.  We found that with Tom Patterson and his company, Tommy John, and now the journey begins.

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 to flourish.   As cities grew, there were more opportunities to specialize and focus on targeted markets, but advances in manufacturing and the transportation network (trains then trucks) enabled department stores to grow and flourish where there were large populations.  With more and more people owning automobiles, malls began to sprout up along with discount stores who could buy in bulk, build less expensive large stores and access the sprawling population in the suburbs that needed goods for their homes and growing families.  Each of these transitions was an innovation, and each was based on geography.  As demand for goods grew across the globe, brands that embodied ideals or manufacturing capacity or distribution capability grew and flourished through these retail channels.

The internet and globalization go hand-in-hand.  With the spread of various media throughout the world, the world has become smaller and flatter.  With the internet, you’re connected to nearly 3 billion people.  I wrote the original thoughts for this post as I was returning from Paris earlier in the year and I was reflecting that in all of the cities to which I travel,  I find that it has become hard to tell where you are based only on the appearance people you see on the street.  The same types you see in NYC, you see in Munich or Madrid or Bangalore or Santiago or Oslo (or Topeka for that matter).  There is a homogenous heterogeneity that exists out there (how’s that for an oxymoron?) meaning that more and more, we, as a global society, are different in the same manner irrespective of where you are in the world. The consequence of this dynamic is that there is a significant possibility that you have more in common from an interest, value and aspiration perspective with someone sitting on the other side of the globe than you might with your next door neighbor.

The power of the internet is not just global reach.  It is also very specific reach (and local reach for that matter).  It is the only medium through which you can connect with people based truly on interests, values or aspirations on a very specific level.  This concept is not a new concept for retailers – look at the many specialty retailers and niche brands that exist.  These businesses developed out of the same insight discussed above: with a growing population, there are many areas in which you can access a niche market, create a brand and grow a large business.  Here is a small presentation that I created that talks about how specialty retailers and brands developed and grew.  It is a pseudo-mathematical representation of this theme by using bell curves to represent the size and distribution of a population, the arcs of the curve to describe a given market segment and the area under the curve and the arcs of the curve to describe the economic opportunity.

This sounds pretty technical, but its a simple concept that makes some key points:

1. Retailers/Brands have historically approached their target customer as a collection of geographic markets with specific demographics for each geographic area.   In other words, there was a separate curve that described the market for each geographical market that a store addressed.
2. There is only one big “curve” with the internet since everyone is connected and can be accessed instantaneously irrespective of location.  This one large curve is segmented based on values, interests and aspirations, not geography.
3. Consumers will increasingly view themselves less as a geographic collective than a collective based on values, interests and aspirations, in other words, not a niche on a regional market, a but a very specific market that transcends geography
4. On a global basis, what would be viewed as very specialized and small “niches” in a geographic frame of reference are really big markets and enormous opportunities

I don’t think the industry really understands this.  Even if they do, they won’t do anything about it because the concept is too destructive to the status quo – its clear implication is that the internet replaces the store network as the backbone of its business.  This does not mean there won’t be stores – there will be.  Lots of them.  But probably not as many as there are now.  With the internet as the backbone, of the business, the store is just another touch point along with the web store, Pinterest, Twitter, Facebook, etc.  With the store network as the backbone, the web store is just “another door” and the internet is a promotional vehicle to get customers into the store.  In other words, in an internet-based commerce model, the business is oriented along the point of view “how do we engage our customer” vs a store-oriented point-of-view which asks “how do we get our customers into our stores”.  In the former, you are indifferent to the medium of choice and how they are used and you create an organizational incentive system that rewards a deepened customer relationship irrespective of the contact point.  In the latter, you created silos that compete with one another rather than embrace each other.  Most retailers today still don’t compensate their stores for internet sales and vice versa.

The winners will be retailers and brands who architect their business around the relationship with their customers, using the right medium that conveys their message and strengthens their relationship.  The internet will be the hub that connects the business to its customers, but electronic-only will fail in the long run.  Physical stores are essential to activate and energize that customer relationship.  The retailers and the brands that can use both the physical AND the electronic will be the leaders of tomorrow.  Warby Parker for instance has opened pop-up stores and and encourages customers to visit its HQ location as well as locations in retail stores.  It’s hard to tell who is doing well in the traditional bricks and mortar sector because just having a good web store and social media strategy does not mean that the company has architected its business around an internet backbone.

But the biggest problem that retailers might face is that all brands will begin to go more directly to their customers for two reasons: 1) they can and 2) because in an online world, retailers are capturing much more value than they provide.  (More on this in my next post).  So here’s my point after all this narrative: I think broad-based retail is in real trouble.  And by trouble, I don’t mean that they just won’t grow as fast.  Trouble meaning that a large number of them won’t exist in 5 years.

This topic is keen on my mind for many reasons.  Most outstanding is the fact that evidence of integrity is lacking more and more in our personal and business lives.  Look at the mess from the financial crisis as one of many examples.  Simply put, we do not have a culture that emphasizes doing the right thing when nobody is looking.  It’s more of a win at all costs.

The point of this class though was not simply to preach morals and values.  Rather, it was to make a business case for being ethical and having integrity.  Here it is:

1. It builds trust.  Trust is earned by demonstrating integrity repeatedly and in trust reduces friction in a business relationship.  Think of the amount of legal work you go through if you don’t trust the other party.  Now think of the agreement you’d need with someone you would trust your life with.  A lack of trust costs you and your business time and money
2. Your cost of capital is influenced by your ability to be trusted. If I don’t believe what you’re telling me, I’ll discount it in the price I am paying you.  If I know you will deliver, my risk is lower, therefore, I can pay more and generate the same risk-adjusted return.
3. You cannot escape your reputation.  Electronic media are more permanent than stone tablets.  People don’t just talk; they broadcast.  If you are viewed as dishonest, it will be known and will cripple your career and your business.
4. Nobody will follow you out of respect and love if they don’t feel you have integrity.  They will follow you out of greed and/or fear but they will turn on you when you can’t provide them with money in the bad times or if they have other alternatives to work.
5. Every low integrity action erases a dozen high integrity actions.  Go back to point #3.  One bad action is really costly because it makes all future actions suspect.
6. You might go to jail.  I think people are getting tired of scumbags.  Push the envelope a little far, you might end up in the big house.  Ask Raj from Galleon about this.
7. It is a real differentiator (because not many people have it).

I have attached the slides from the class.[Download not found] We went through different scenarios, each of which was based on a real-life situation, some from my experience and other submitted from Quora.  The students were great and it was incredibly valuable to have my co-teacher, Jason Finger of Seamless Web, and our guest lecturer for the night, Divya Gugnani of Send-the-Trend) providing input.  These are two of the most ethical and high integrity people I have ever met as they have demonstrated many times in their career.Ethics and Integrity

But here’s what I wanted to tell him:

“Mr. President, last week we announced that a higher percentage of Americans have college degrees than in any time our nation’s history, but nobody in your administration or Washington seems to realize that we also have the highest skills gap between what our people have and what our nation needs than at any point in our nation’s history.  This will be the largest near term problem that you will face and the one that may decide how history judges your presidency.”

When I say skills, I’m not only talking about welders and pipefitters and other trades (although we need more talented people in these fields too).  I’m talking about the skills and knowledge that our nation needs to remain on top in the industries that drive our economy.  Every industry from financial services to media to retail to manufacturing is undergoing enormous change as the internet and advancements in software, computing and storage create a connected world where the old rules no longer exist.  This connected world looks nothing like the world we lived in as recently as 10 years ago but only a few people in this country (and none in our political leadership) realize it.  As our leaders trumpet the success of education as evidenced by the growing percentage of college educated citizens we have, they don’t realize that our universities, for the most part, are doing a terrible job overall in preparing students to be competitive in this new world where our dominance as a nation is no longer assured.

Our universities have become so dislocated from the world at large because they have convinced everyone that we need them, we subsidize their tuition with student loans and then we don’t hold them accountable for the product they produce.  20 years ago, this may have been fine, but no longer.  The world has changed, it is more competitive, the skills needed by the companies that are driving our economy have changed, our government is growing more dysfunctional each day yet our universities feel they are doing just fine because they have created more college graduates.

At one point, statisticians figured out that college grads earn more than non college grads.  Therefore, they concluded, everyone needs to go to college so they can make more money.  But I believe they mixed up cause and effect: most smart people went to college and graduated and smart people make more money.  Why?  Because they are SMARTER!!!  What we have now is more people with degrees that have prepared them for nothing.  We should stop focusing on college degrees and start focusing on what we want college degrees to mean.  In my mind, a university is successful if it can mold someone who has mastered these broad skills:

1. Constant Curiosity – the person who is always wondering why and then seeks to figure it out.  We don’t graduate people who are curious – we graduate people who have mastered meaningless topics and have paid $200,000 for the privilege of being incredibly unprepared for a changing world.
2. Problem Solving – every day we are faced with new challenges.  In a connected world, this pace is accelerating faster each day.  No matter what you do in life, you need to be able to identify and then solve whatever problem you face.  This is not a talent; it is a skill and it is rarely taught outside of math, science and engineering.
3. Communication – in a connected world, the ability to communicate clearly irrespective of the medium is critical.
4. Prepared for Constant Change– what you know now will be obsolete in fewer than five years because the world is changing so quickly.  You will be learning everyday for the rest of your life so get used to it!

Yes, these are skills not concepts or attributed.  They can be developed and mastered if they are taught and emphasized.  But we are not graduating people who have mastered these skills because these skills are not critical to the curriculum of the universities outside the math, science and engineering disciplines. Moreover, we have been conditioned to think that when we graduate with our college degree, we are done learning.  Maybe in the past, but in this connected world constant change means you need to change your skills and knowledge constantly.  Your education does not end at graduation, it begins.  But structurally, we don’t recognize this fact.  We don’t provide guidance for people for the skills they will need so we end up with workers with obsolete skills and knowledge, many of whom will never work again in their life as the world speeds by them.  We need a systematic approach to continuing education and training.

I’m a big believer that for America to be great, we need to make things.  I believe that there will be a wave of “reindustrialization” that can drive this company forward over the next 20 years but these factories that arise here won’t look like Foxconn with thousands of workers doing mindless tasks.  We can’t compete.  These new factories will look like dozens of workers controlling machines and computers, solving problems and making real-time systems adjustments based on the conditions/opportunities with which they are presented.  You won’t be prepared for this job by graduating with a degree in psychology unless you have elements of your curriculum that embrace the broad skills above and enable you to succeed in this new environment (Yes, we need psychologists, but not as many as we graduate.  It is a great major to have if you can pair it with something like computer science or engineering or math).

As a nation, we don’t have the industry-specific skills we need because we don’t have culture created by the broader skills I list above and we don’t have any way of showing a clear path to our people for the development of the specific skills they need.  At the university level,  we’ll keep producing people with degrees in Communications or Political Science or Women’s Studies or many other degrees who lack the skills to compete yet have been conditioned to believe that they will succeed simply because they graduated from college.  Truthfully, they would have been better off and better prepared doing something else.  We will hit 15% unemployment before we hit 5% and the reason is not because we don’t have jobs, it’s because we don’t have people with the skills to fill them.  But, on the other hand, we’ll have the most educated burger flippers on the planet.

So, that, Mr. President, was what I wanted to say.  I’m glad I got that off my chest and I hope that someone in your administration is focusing on it.  If we can develop the people we need to achieve the opportunities we will be presented with, many of the other problems our nation faces will become a whole lot easier to fix.

P.S. I’m here to help and not throw stones.  I believe that our nation’s best years are ahead of us, but only if we recognize and embrace the significant challenges we face.

Course Introduction

• •Teaching Team
• •Law of Ready, FIRE!, Aim
• •Historical Perspective
• •Entrepreneur Lifecycle
• •Ideas vs. Execution
• •Innovation

Grading, The Assignments, the PROJECT

Organizational Roles Introduction

I realize that other people have toyed around with this in the past and I have seen economics papers written on variable pricing models, but I just found this fascinating.  First, it was really well done and fun.  Second, it was a great way to find the clearing price for end of season product AND drive traffic to other products on the site.  They paid for advertising through in-kind discounts and engaged and energized a loyal base while gaining exposure to new customers.

To me, pricing is one of the most fascinating facets of commerce and, especially in fashion and luxury, pricing is as much art as it is in science.  There are all sorts of crazy elasticity curves that describe the relationship between demand and price.  I am going to refrain from an economics lesson here, but I am convinced that for more than a handful of luxury goods of finite supply, there is an inverse elasticity curve (more demand at a higher price – crazy but true!).

But once the price is determined, all creativity goes.  The price is the price and depending on demand, it holds or it is discounted as the season progresses based on the judgment of the brand or the retailer (obviously, some brands don’t discount at all, no matter what).  But for years, fashion and luxury brands have given celebrities free or discounted product with the hope/commitment that they would wear the product and be photographed in the product, thus promoting the brand.  In an abstract sense, the brands are making a conscious decision to buy (the hope of) publicity for the cost of the product.   The celebrity provides credibility and aspiration for the brand and so it is usually a good deal for everyone.

In the world in which we currently live, everyone is a celebrity to some number of people.  Perhaps its just one person, or maybe its millions, but almost everyone provides some level of influence greater than zero over some number of people greater than zero.  So, as a brand, if I can harness that “celebrity” to influence other people to buy my brand, I should be willing to pay for that in some way.  If I can influence one person, it might be too small to measure, but if I can move an entire audience, someone might be willing to give a 100% discount or more!  10 years ago this influence could not be measured quantitatively, but now it can.  Klout and other services are beginning to provide real numbers to measure this influence and brands such as Miista are beginning to leverage it.

What does the future hold?  Perhaps a different price for everyone on the planet based on your ability to influence others to purchase the brand?  Sure, why not?  One of our brilliant CEO’s has been drafting a way to do that already.  But services like Klout measure influence in a really limited manner based on criteria that might not be important for brand.  Justin Bieber has an incredibly high Klout score, but he would be a negative influence for me in men’s fashion – he has no clout with me at all. But someone like Brad Pitt would (hey, would not want to aspire to look like Brad Pitt?!!).  But Brad’s score is a 41 while Justin’s is a 100.  For me, JB is 1 and Brad Pitt is a 92 in Men’s Fashion.  But Brad’s clout would change for me in other industries – in venture capital, Brad is probably a 5.  So a one size fits all approach won’t work in gauging influence.  I believe that in the future, a core competency of any brand will be its ability to gauge who are there actual and potential influencers.

Influence is an economic bargain: if you (my customer) influence others on my (the brand’s) behalf, I will give you some economic reward for doing so.  That compensation may be reflected in the price I charge you for my product.  There are so many subtleties that remain to be worked out (e.g. how do selective discounts impact other customers) but the promise here is really unlimited and it will be an amazing step forward in deepening the relationships between brands and their customers.

So congrats to Miista for making a fun and interesting first step here.  I look forward to keeping an eye on this brand and the other creative things they will do.

I’m embarrassed now by how wrong I was.

My immediate thought was that it was one of the dumbest things that I had ever heard (despite it being magnificently said). It was if that by waving her arms and declaring “no more discounting” that the industry would get out of the brand death spiral that had been facilitated by their addiction to the crack cocaine of flash sale sites (click here to see an earlier blog post I wrote on my take on flash sales). Just stop discounting and it will all be better! I left that dinner that night wondering when the asteroid would hit that would wipe these dinosaurs off the face of the planet.

I didn’t then and I still don’t think that the retail industry really gets the web. While their stores and their products are incredibly presented in their physical and print manifestations, their websites often look more like the circulars that P.C. Richards puts in the NY Post. Their tweets and Facebook pages are fairly purposeless, communicating little of their brand or their point of view. I find this amazingly surprising given their ability to present their brand as such an indelible experience in their stores. Sure, they are selling product successfully, but most of them are selling like Amazon sells (product next to product, just like the old Sears catalog). And, in a competition with Amazon, they will lose.

Badly.

So back to DVF.  One day, I was telling this story to a brilliant friend who has built several successful manufacturing companies supplying the industry and his response was “she’s right”. It was like a lightning bolt striking me – it was so shocking that it made me rethink my entire position.  I suddenly realized she was right and it was I who was the dummy. I was mistaken in thinking that she was simply cajoling her fellow CEO’s into stopping the practice of discounting on the web. What she was really doing was admonishing them to do on the web what they already do so well: amaze and engage and delight their customers with an incredible and unique experience like they do in their stores and with their brand advertising every day. Create an experience that gives the customer the same feeling as when they walk through the door at Saks or Bergdorf or any other retailer during the holidays.

Where I think the retail industry struggles is that the web is not a physical experience, so the experience that creates that feeling needs to be different.  Moreover, it has to be different and unique for each brand. A brand is a relationship between a customer and a company, so what it says and how it says it and how it engages its customer needs to be unique and different too. There is no checklist (Did we tweet today? Check!  Did we get more Likes on Facebook? Check! Did we post to Tumblr? Check!). Why are you on Facebook? What are you trying to say to your customer with your tweets? How did you amaze and excite your customer today? Those are the tip of the iceberg of questions each brand needs to ask itself. If all you have is stores, then that is the lens through which you look at everything.

We are starting to see some interesting things, mostly by start-ups, but some established brands are starting to get this…More or less. Most still look at the web as another store in its portfolio of physical locations. It’s not – it’s the fabric that is the backbone of that relationship you have every day with your customer. Are stores irrelevant?  NFW!  They are the cornerstone of that brand relationship in many cases. But what they are and how they fit in a holistic view of your relationship with your customer may be different.

By the way, while I am throwing stones, let me throw some at the web-centric companies that have been formed over the past few years. Most of these are terrible for one reason: the entrepreneurs don’t understand the retail industry.

In creating innovative business models of discovery or sharing, they miss the magic that a brilliant merchant creates. What is needed is the next generation of merchants who understand both the web and the physical store and can take the best of all worlds to create a truly unique experience for their brands. They are out there and more will form (If you are one of them – email me.  My firm has a lot of money to put to work!). In my mind, the best company on the web is ModCloth.  If you don’t know them, learn more about them – they are the future. I’ll give you my opinion why at some point.

So, in my mind, DVF was making a call to action for her industry: view the web simply as an extension of your stores where you present a list of products and you will be forced to discount because that is the only way you can differentiate yourself. If the choice is between two apples, the cheaper apple wins every time. But if you can embrace the web as the backbone of your brand that is the relationship that you have with your customer and how you engage with that customer, you can mitigate the need to discount. Don’t compete with a cheaper apple, compete with a banana.  Or a watermelon.  Or anything that you want to be and stand for as your brand.  DVF was right: promote through theatrics in your experience, not on price. Discounting as an everyday strategy is an exercise in brand destruction that will destroy the magic of this incredible industry.