Five Thoughts For A Gilt-Free Future

Two of our biggest hats here at Pemba Serves are our “Brand Ambassador” and “Business Consultant” hats.  You’ll find one of these on our heads most any given day. Today, I’m sporting the big Ten Gallon Business Consultant hat. It bends my ears down a bit because I haven’t quite grown into it, but there you go. Honestly, I look like Dopey when I wear it, and I may think like him too. But – ya know – it’s my hat to wear today, so “giddyap.” Just don’t shoot me. I’m only the messenger.

This might be new news to some of you, but it was all over the internet last week: Several outdoor brands tested sales at online retailer giltman.com. This members-only site offers brief (twelve to thirty-six hour) sales of high-end, typically fashion-forward product, at a deep discount. That the site ventured into the outdoor space naturally drew a response. One industry buying group in particular hit this head-on with a round of e-mail newsletters to their members. I’ll spare you the highlights. It’s out there if you want to find it.

This giltman.com experiment is not the start nor the end of efforts like this. For years, many outdoor brands have been in Mervyn’s, TJ Maxx, and liquidation specialists like them across the country. This has been a not-so-secret secret, and just about everybody has put product in one of these locations at one time or another.  Not to mention, there are dozens and dozens of online sites (like gilt.com) that specialize in moving inventories. Vendors have used them and will continue to do so. (Don’t be surprised, now; you’re warned.)

Given the current manufacturing model, vendors have to do this. The supply chain is broken, and until it’s fixed or collapses completely we’re going to be dealing with these issues. It’s painfully simple: In a two-season buy/sell cycle, whatever’s left at the end of season one has to go away before season two starts to ship.

So, with this in mind, here are five things to think about if you’re interested in a Gilt-free future:

1) Know The Math: Margins for both vendors and retailers are really similar. Most vendors need to make a minimum of 30% to 40% to make ends meet. The product that appeared at giltman.com last week was excess current-season (F09/W10) merchandise that had already been offered at closeout to existing retailers at up to 50% off. For most vendors, this means that they were already losing money on it. They have to move it because they’re paying warehousing on it, they’re paying interest on the debt to own it, and – most pressing – new spring stuff is showing up any day now so they’ll have to pay to have it moved around the warehouse. It’s gotta go somewhere. And, after two straight months or more of closeout offerings, it’s going to show up wherever somebody can buy it in bulk.

If you’re a small retailer and want to make money on this stuff, buy it during the early close-out offerings when the discount gets to be attractive. A 20% discount early-season when the product is still turning at full retail is better than a deeper promotional discount, later. Bring in what you can use in ones and twos, sell it for full-retail for as long as you can, and then when the bottom drops out take it to your cost to get rid of it. Hopefully, you’ll have made some extra margin before this happens. In regard to closeouts, remember that anything at or below 40% is likely rock-bottom for the vendor, so at that point be prepared to buy in bulk or see it appear somewhere else. And know that you’ve had your chance and – hopefully – you’re out of the product at a higher margin, already.

2) “Do You Mind If I Dance With Your Date?”: You’re at the Sock Hop, the music’s howling, and if you’re just sitting in a booth sipping on a milk-shake while everybody else is shaking it, you may go home alone. What’s this mean? Well, in an environment where everybody’s looking to hook up there’s no room for wall-flowers. You need to make a commitment, or commitments will be made without you.

Here’s how it works: Nobody can make inventory just to sit on it. Preseason commitments from retailers are declining; manufacturers need to take more risks, accordingly. Nobody wants to get left holding the bag of goods. If retailers don’t prebook it, and don’t take the close-outs, then where’s it going to go? As nice as it would be to send all of this stuff to Haiti or some other charity venture, there’s no way for vendors to do this and not go out of business. If you’re a retailer and you’ve had two or more opportunities to own this product, accept that – in the end – it’s going go home with someone.

So what if you brought the brand to the ball? You didn’t dance, and it’s going to go off with somebody who’s willing to dance. It could be with your best friend, or somebody you don’t like, but in either case, enjoy the milkshake and get ready to get in on the next dance. Your turn will come. But only if you dance. So get ready to shake it, next time.

3) “New York City?!?”: The old Pace Picante Salsa ads had this punchline: “This salsa’s made in NEW YORK CITY?!?” And maybe that’s where excess outdoor inventories are going to go, too. Or to Bentonville, Arkansas, or somewhere else. Why? Because that’s where people are creating different distribution channels that can move large inventories of product, quickly.

You’re a brick-and-mortar at the end of a dirt road at the base of a famous crag? Great, but where’s your e-commerce site? Do you have a discount rack in your store? How about a catalog? Have you considered an Amazon store? These days, you don’t even need skill-sets to develop these channels; all of them can be sub-contracted inexpensively. But, bottom line: Multi-channel is not optional anymore. Any distribution channel that you leave on the table – that you don’t put your own brand on – will be filled by somebody else. And that someone else may be in New York City.

Your customer who lives across the dirt road from you? They may be buying stuff you stock from New York City too, if you’ve not given them the option to buy it from you the way that they want to buy it.

4) “I Dreamed A Little Dream About The Future, And None Of Us Were In It.” At the recent Unconference gathering at #ORWinter, Malcolm Daly stopped the room with this statement: “If you’re a middleman in this economy, you’re dead. And guess what? We’re all middlemen.” We all knew that this was true the moment we heard him say it.

We’re seeing and experiencing disruptive change in a number of industries. Media, advertising, and related fields are the first in line (450+ specialty magazines closed in 2009), and retail is not far behind. What’s driving this? Changes to the way that people communicate, buy, and relate to one another and themselves are shortening the distance between producers and consumers. You like a piece of jewelry that your friend is wearing? She probably has the Etsy.com site for the jeweler (and it may even be stamped into the piece.) Want to hear what Kristof thinks of the war in the Congo? Friend him on Facebook. Do you like the jacket I’m wearing? Check out [YourFavoriteBrand].com, and they’ll have links to buy it from your phone. From your location-enabled phone, they can probably direct you to the company store nearby (conveniently via Yelp or FourSquare, and go there by 5pm and they’ll e-mail you a coupon!)

Does this mean that retail is dead? No, far from it. But we need to build our businesses around something other than exclusives. Doing things as we’ve always done is not going to work in the very near future. Don’t believe me? Just ask National Geographic Adventure.

5) The Most Important Brand You Sell: There seems to be a collective memory that “Specialty” at one point meant “we have brands that nobody else has.” Whether this was ever true or not is – at this point – not relevant. It will never be that way, again, (and whether it ever was is another conversation.)

It’s a truth that the most dominant vendors in our little industry also have the broadest distribution. They sell to every retailer, they have their own retail stores, catalog, and internet direct distribution, also. So if exclusivity is really the root of all specialty retail sales, why is this the case? Because, the truth is, it’s not about the stuff, and it’s not about the brand.

It’s about you, and your store. You are your most important brand.

How do I know this is true? Because thirty years ago we sold tents from Black Ice, and fleece from Forrest. EB was the best climbing shoe out there, and Fabiano and Pivetta were the two best hiking boots in the world. Almost every outdoor store sold wool army fatigues, because nobody else made decent hiking and backpacking pants. Royal Robbins sold carabiners and climbing shoes, and long-billed baseball hats for hiking; they had not yet started to make clothing. And we bought this stuff – stuff you can’t get anymore from brands that don’t exist – at places like Midwest Mountaineering, Rutabaga, Laacke & Joys, Erehwon, Uncle Dan’s, and the Alpine Shop. Guess what? Thirty years later the stores are still around and the brands they sold back then are mostly long gone.

The best brands – the best specialty stores – long ago realized that the only exclusive that they had was on their own brand, and have built that from the ground up and never given it away to anybody else. Own your own brand, and you don’t have to worry about what’s sold elsewhere, and for how much. Just worry about how to get your customers to engage with your brand, and nothing else will ever matter beyond that.

photo: Cowboy | aerodesign.pl / Piotr | Creative Commons

6 responses to “Five Thoughts For A Gilt-Free Future

  1. You are so right on. The brand you own, the brand you built is the only enduring thing there really is in this industry. Find the heart and soul of that you own and work it hard.

  2. Thanks Malcolm! You were a big inspiration for this. What was the name of that book again? Gotta read it.

  3. Brad,
    Your well written Pemba Blog has inspired me once again. I will definitely be sharing this with many of my key folks.

    You know what they say….”fous on the windshield, not the rear view mirror”.

    Take care and give my best the Pemba Crew~

  4. avatar Josh Fairchilds

    Brad,

    Thanks for offering some more great insight to the ongoing dialogue.

    I would like to add another thought (and I apologize ahead of time if this is overly self-serving): One of the key components for a specialty retailer when building their own brand is to partner with vendors who are committed to supporting them. There are a lot of great manufacturers in our industry – small and large. But, I believe there are just a few that stand out from the crowd in their ability and willingness(!) to support the specialty shops. Maybe they do this for pure business reasons: they lack multi-million dollar ad budgets, and they need those committed specialty shops to “market” their brand. Or maybe they provide the support for reasons higher on Maslow’s pyramid . . . i.e. they know that without the specialty accounts, this industry is just another widgets industry – selling anything bought or processed, buying anything sold or processed or processing anything bought or sold (apologies to Lloyd Dobler for misquoting . . . )

    My 2 Pence, Dong, Yen, Yuan.

    Best,

    Josh

  5. This looks like an outdoor focused version of Gilt:

    “The Clymb is the industry-leading venue for connecting premium outdoor and sport brands with dedicated outdoor enthusiasts, athletes and professionals. Exclusive arrangements with our partner brands allow members access to pricing as low as 70% below retail on apparel, footwear and equipment from an elite group of premium manufacturers.”

    http://theclymb.com/
    http://twitter.com/theclymb

  6. Brad,
    I like to say, “It’s not about WHAT you do, but rather HOW you do it”. When a product can be found anywhere you have to give customers a reason to buy it from you. In essence, you have to sell them on yourself. It’s the same advice a store manager gives to their sales associates.
    Thanks for spreading this good advice.
    Greg