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As someone who has cut my teeth in the fashion industry for the last decade, this article resonated with me. It was very well written and thoughtful
However, it left out one dirty industry secret that I believe truly caused the fashion crash
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However, it left out one dirty industry secret that I believe truly caused the fashion crash
2/ The dirty industry secret is what& #39;s called & #39;Guaranteed Margins& #39;
These are agreements between Brand X and Retailer Y, that sales of Brand X for Retailer Y will maintain certain quarterly and annual Gross Margin %
These are agreements between Brand X and Retailer Y, that sales of Brand X for Retailer Y will maintain certain quarterly and annual Gross Margin %
3/ As long as Brand X sells through its product in Retailer Y at a reasonable clip, this is a harmless arrangement
However, when Dept Stores sales, traffic, and sq ft expansion flatlined, fashion brands realized that the battle had become a land-grab for rack space
However, when Dept Stores sales, traffic, and sq ft expansion flatlined, fashion brands realized that the battle had become a land-grab for rack space
4/ So brands started to use this arrangement as a blank cheque:
More space =
More racks =
More units =
More Sales
Retailer Y was fine with this approach from Brands, because their downside was capped by the Guaranteed Margin agreements
More space =
More racks =
More units =
More Sales
Retailer Y was fine with this approach from Brands, because their downside was capped by the Guaranteed Margin agreements
5/ This quickly created a bubble
Too much inventory + declining traffic and sales = markdowns
It didn& #39;t take long for one Brand X to miss its sales expectations, which required them to lower prices
This requires Brand Z to also lower their prices
This cascades
Too much inventory + declining traffic and sales = markdowns
It didn& #39;t take long for one Brand X to miss its sales expectations, which required them to lower prices
This requires Brand Z to also lower their prices
This cascades
6/ Retailer Y is still feeling OK about all of this, because the lower prices actually invite more traffic and customers into the stores
For while there is a sugar rush of increased sales and stable margins for Retailer Y
Brand X is also scaling up their production
For while there is a sugar rush of increased sales and stable margins for Retailer Y
Brand X is also scaling up their production
7/ This scale allows Brand X to lower their production costs thus improving their margin, giving them more comfort with the Guaranteed Margin agreement despite the markdowns
And the cycle continued for years and years
And the cycle continued for years and years
8/ At this point Retailer Y is just a sea of markdown racks
New weekly product drops are hastily executed on tattered racks and then promptly marked down to give way to the next product delivery that follows on
The customer has lost respect for Brand X and Retailer Y
New weekly product drops are hastily executed on tattered racks and then promptly marked down to give way to the next product delivery that follows on
The customer has lost respect for Brand X and Retailer Y
