The New World Order: Quality, Transparency & Sustainability
November 29th, 2016
The fashion industry has been a shady one for a very long time.
For decades the average consumer knew very little about what they were buying when it came to fashion items (how it was made, where it was made, what it was made out of, who actually made it, what the working conditions were, how much profit was inflated into the price tag, etc).
Well, I’m happy to say that times are a changing. Thanks to the wonderfully connected world of e-commerce and all the free information provided by the internet, blogs and social media, consumers have never been more educated, and producers have never been more transparent. There are now real benefits for a brand to produce quality garments using sustainable and environmentally conscious practices. Even better, cutting out the retail middle men and selling direct to customers allows designers to offer higher quality goods and more pesonalized service, all at a much more reasonable price.
To illustrate this point, I’m going to walk you through the process of producing and selling a garment in the “old-fashioned” retail model (pun intended), and compare it to the new model of made-to-order, direct-to-consumer e-commerce which is shaking up the industry and driving up quality, service, and transparency across the board.
The Old Way: Retail Mark-Ups
Step 1: Buy Raw Materials
The first step is confirming your design and investing in all the raw materials needed to make it.
Your costs at this stage: Cost of fabrics, linings, buttons, zippers, trims, etc.
Step 2: Create Patterns
Next you’ll need to make patterns (graded styles, sizes and fit) and tech packs (technical specifications for your manufacturer to use as assembly instructions).
Your costs at this stage: You’ll need to hire a professional if you aren’t trained in this yourself.
Step 3: Sample with Bulk Manufacturers
You’ll want to sample multiple times with each factory you’re considering, so you can inspect the quality, make sure they have the craftsmanship you’re looking for, and compare pricing between producers. This is also the time to do your research regarding labor laws and ethical business practices.
Your costs at this stage: Sampling costs + shipping fees.
Step 4: Manufacture Garments
Once you choose a factory, it’s time for production. Keep in mind that most factories have mandatory minimums with regard to number of units per order.
Your costs at this stage: Manufacturing costs.
Step 4: Ship Garments to Warehouse
Once your manufacturer is done making your garments, it’s time to ship them to your wareshouse or distributor. If you’re producing overseas, you’ll also have to pay importing fees.
Your costs at this stage: Shipping fees + import fees + storage/distributor fees.
Now that you’ve successfully “landed” your goods you can do some simple math to figure out your cost, wholesale price, and retail price. For example, let’s say your product is a shirt that cost you $20 to land ($10 for fabric, $7 for manufacturing, $3 for shipping & storage). This means you will sell the shirt to department stores for roughly $50 (wholesale = cost x ~2.5). Then the store will turn-around and sell the shirt to their customers for roughly $125 (retail = wholesale x ~2.5). At the end of the day, the consumer pays $125 for a $20 shirt. That used to be the way the world worked, everybody had to make their cut.
Step 5(a): Market Your Goods to Retailers
Now that you have a product, you have to convince stores that your product is what their customers want. This process, if you don’t know anyone on the “inside”, usually involves doing the tradeshow circuit in New York and Las Vegas. Tradeshows like Project, Agenda, Capsule, Liberty Fairs, etc. typically charge brands anywhere from $5k-$20K for a 3-day booth in a massive convention center. Your hope is that the store buyers who are invited to the tradeshow will walk by your booth and be interested in carrying your products.
Your costs at this stage: $5k-$20K per tradeshow + travel costs.
**If you’re savvy and have your supply chain figured out, you can do a tradeshow with only a few samples to show, then proceed to manufacture only the number of garments you need based on the orders placed. The challenge with this model is that your unit cost will be higher (due to smaller minimum with the manufacturer) and you face a tight turn-around time for delivery. If you miss the delivery deadline to the store, your order will be canceled, no questions asked. This means there is usually only enough time to manufacture one run, so if there are any mistakes or slow-downs in the manufacturing process, you won’t have time to do proper quality control or manufacturer again. Ultimately you risk ruining a relationship with one of your potential retailers if you can’t re-produce the same quality, in the correct sizes, on time.
Step 5(b): Sign a Delivery Contract with a Retailer
If you get lucky at a tradeshow, you’ll get picked-up by a retailer. Of course, if it’s your first time selling with this store, they will start with a very small buy (3-5 of your trademark styles in one size run each; small-large). You’ll also need appropriate labels and hanger tags, which the retailer can edit and request.
Your costs at this stage: Shipping goods to the manufacturer + possible additional labels & tags.
Step 5(c): Deliver to the Retailer
Ok, so you’re finally getting close to making a little money (but nowhere near what you’ve spent to get this far), right?! Not quite. Department stores hold all the power over small brands. Many of these buying contracts include return clauses in them, especially for new brands that they are testing for the first time. This means that you may not actually get paid for the units they “bought” until 30, 60, or 90 days after you’ve delivered them to the store. Even worse, many of these contracts allow the store to return the goods to you (and not pay for them at all) if they don’t sell through a certain percentage of the units within a certain period of time. This protects the wholesaler and allows them to take more risks on the designers and styles that they offer in their stores, but makes it extremely difficult for a new brand to break-out. Basically if your stuff doesn’t fly off the shelves soon after arriving to the store, the goods are likely getting returned to you (unpaid), and another designer is getting an opportunity on those shelves.
Your costs at this stage: Shipping goods to the store(s).
Step 6: Sell In Your Own Store(s)
In addition to, or in lieu of, selling your products to department stores, you could open your own brick & mortar shop(s) and sell direct to your customers. The advantage here is that you make more money on each sale (the price on the tag stays consistent, so now you make the full retail – not the wholesale – essentially doubling your profit on every product sold). The downside is that owning and operating your own store(s) can quickly eat up more cash than anything else in your business model and immediately puts pressure on your ability to move units to stay in the green.
Your costs at this stage: Rent, taxes, employee salaries, health care & benefits, monthly utilities, interior & extorior furnishings, computers, checkout stands, garment hangers, shopping bags, etc, etc.
Step 7: Advertising
Now I know it sounds like we’ve already spent a lot of money (and we have) but the heavy spending hasn’t even begun. Most brands spend significantly more on marketing and advertising than raw materials and manufacturing combined. After all, you can spend a million dollars developing a great product but if nobody knows about it, it’s worth nothing.
Your costs at this stage: As much as you’re willing.
Bottom Line on “The Old-Fashioned Way”
In the old-school, cut-throat retail model, you were taking a major gamble on yourself, and so many things could go wrong in the process. This is why 95% of clothing brands never make it, and why brands who you thought were successful (like Band of Outsiders, for example, remember them?) can quickly go from being on everyone’s radar, to being out of business.
At the end of the day, the real travesty of this model is absorbed by 1) the consumer and 2) the garment worker. The consumer is buying products at a FIVE TIMES mark-up (a $20 shirt for $125 was the industry standard) in order to make up for all the spending above. And the garment worker, well, I don’t even want to get started there. More on this soon, but for now please read this.
Aside from people getting ripped off, and other people dying, this model also inevitably creates an exorbitant amount of waste and pollution. Producing things before you know that you can sell them is always a risk, and is always detrimental to the planet. Take a second to think about how many warehouses around the world are filled with unsold inventory from the 95% of brands who never made it. Now think about all the oil burned up to ship all that stuff, and the affect of the chemicals dyes used in manufacturing, and the water wasted in the growing of the cotton, etc, etc, etc.
The New Way: MTO Direct
Now let’s take a look at the new world order: made-to-order products sold online directly from the creator to the consumer. Ultimately this new model, driven by lean e-commerce shops and small efficient teams, is good for everybody (except the department store, of course). Designers have more creative freedom, make more money, and are incentivized to become the story tellers of how their businesses operate. Consumers are no longer restricted by geography, have access to higher quality products at lower prices and, in many cases, participate in the production process by customizing garments to their own personal preferences. No egregious mark-ups. No excuses for slave labor. No waste.
Here’s how to do it today.
Step 1: Develop a Website and a Following
The best way to start a brand today, is to find and develop your market first. The best way to do this is to become an expert in your field by testing all of the other products in your market, finding a solution to make it better, and using digital media to share this knowledge and expertise with your portential customer base.
Your costs at this stage: Blogging & social media are FREE, as is creating an e-commerce store.
Step 2: Sample with Made-to-Order Manufacturers
This is where the new model gets challenging. You’re not just looking for a “contractor” (a factory that can bang-out a bulk order), you’re looking for a “partner” (a workshop that you can rely on to produce single unit orders at any time, and deliver consistent quality within a certain time frame). Because you’re doing on-demand production year-round, the process of sampling, testing, and building a reliable supply chain takes more time and effort. But once you’ve implemented the correct processes and ironed out the kinks, all you need to do is scale. You’ll want to start by sampling at least one of each style you plan on offering. This way you can take photos of it, describe it in detail, and demonstrate its properties to your customers.
Your costs at this stage: Sampling costs + shipping fees.
Step 3: Advertise Your Samples & Drive People to Your E-Store
This is where an important inversion in the old model occurs; advertising actually comes before production. This allows brands to cut-down dramatically on the time, energy and resources spent on attempting to predict markets and produces volumes, and eliminates any waste caused by over-manufacturing. Basically designers can focus on being designers, and work directly with their customers.
Because you operate online, you can also benefit from the age of digital marketing which is light years ahead of traditional advertising in terms of efficiency and transparency. For example, today you can buy an add that specially targets males, aged 30-35, who live in NYC, and who shop at stores that carry similar products to yours. And for every dollar you spend this way, you’ll get more data than you even know what to do with. There’s lots of efficient ways to spend ad dollars online today (targeted Facebook ads, google search rankings, celebrity/influencer endorsements, etc.) so you’ll have to make the best decisions based on where you think your potential customers are.
The real challenge here is gainging the trust of your customers by proving to them that you have the knowledge, expertise and comitment needed to deliver consistently. Keep in mind that it’s a bigger leap for the customer to buy something that they cannot see, feel, or try-on.
Your costs at this stage: A data-driven online conversion model can actually make more than it spends.
Step 4: Deliver Customer Orders
You’re already making sales and making money!! Using this model it’s very possible for small businesses to remain lean and be profitable at a young age. Keep in mind though, it’s not easy. It takes more consistent effort to deliver in this model than the traditional “buy and sell” method. Since your customers pay up-front for goods that are not produced yet, and you’re overseeing year-round manufacturing, quality control and customer service are paramount and can make or break your business. This model forces brands to be hyper aware of their clients and provide consistent support from the time the order is placed to the time the final product is delivered.
- Cutting out the retail middle men means customers get much higher quality at much lower prices
- Customers are now part of the design process and receive personalized products made to their preferences
- Manufacturers deliver one garment at a time, which means that quality assurance is a critical part of the crafting process (designers no longer need to accept “bad apples” in the bunch)
- Regular interaction between designers and manufacturers, as well as a direct line of communication with their end consumers, provides greater accountability and transparency.
- Customers have to be patient and wait for the production of their orders
- Customers have to trust the seller, as they typically cannot see/feel/try-on the garment before purchasing
- Brands need a clear and concise website that fully explains their offering and allows users to place custom orders
- Brands need to manage expectations and have a bulletproof return/refund policy
Bottom Line on “The New World Order”
It’s not easy. It’s not easy to sell a product that doesn’t physically exist yet. It’s not easy to plan your purchases 4-6 weeks in advance, even if you’re getting much better quality. But the change we need is never easy. And one thing is for certain; this new model of made-to-order, direct-to-consumer production is better for everyone.
Finally, I want to remind you that you, the consumer, have all the power. Where you spend your dollars makes all the difference in the world, as the scales can tip very quickly when it comes to changing economies. Ultimately we have to move away from a culture of making things in bulk that nobody is asking for, and move toward a culture of only making things we actually need, or want. So if you care about living sustainably and buying quality products that are made with integrity, the first step you can take is to stop buying bulk retail and spend your money with brands who are transparent about their practices and committed to making products specifically for you.
Thanks, as always, for reading.
Yours in style,