The seismic changes affecting retail has everybody talking. The fashion industry in particular always seems to be a topic of discussion when it comes to analyzing things like department stores, seasonal models and brands who are direct-to-consumer. Perhaps the reason why there’s so much discourse around the retail landscape in fashion as a whole is because it’s been slower than other industries in reacting to change. Fashion as an institution is steeped in tradition, and as a business is predominantly tied to a long-adhered to seasonal calendar as well as a complex web of distribution and selling that’s rooted in wholesale.
These themes are the main points of conversation that unfold across various B2B conferences, summits, and seminars. Adam Pritzker, chairman and chief executive officer of Assembled Brands, understands the forces and changes in fashion as good as anyone. The company he founded is built on providing working capital and financial services to a collection of emerging consumer brands that together can benefit from the company’s centralized network where they can share important resources and data. Due to his company’s holding model, Assembled Brands often gets compared to the heavyweight French conglomerates like LVMH and Kering. But Pritzker underscored some key elements that differentiate his company from his European counterparts at the WWD 20/20 Retail Forum in June. He also weighed in on some of the event’s key themes of rapid transformation and how the old way of doing things are collapsing.
Pritzker agrees that direct-to-consumer businesses are particularly suited for success in today’s retail climate, due to several factors. “The important part of any direct-to-consumer business is using data to understand your customer better and then using that data as an input to inform whatever kind of output you’re creating for them,” he says. Indeed, brands that have traditionally relied on a wholesale model with department stores have missed out on a key aspect of selling which is obtaining and analyzing customer behavior through data and buying patterns. He also points out how brands have historically relied on more traditional metrics like PE ratio, but the metrics for success today are different. How value is defined in today’s world is substantially different for brands than it was even a few years ago.
His approach to retail then is entirely different from what previous executives have relied on for years. “I think of traditional wholesale/retail distribution as marketing,” he says. “Your business model really should not depend on wholesale distribution. [Wholesale distribution] should be the point of discover for the customer who will purchase your product repeatedly and most likely online after the first purchase. And if you do it right, you’ve got a direct-to-consumer channel online [where] margins are much higher too.”
His company is a prime example of how he envisions young brands in the market should be operating. Assembled Brands is comprised of modern, minimalist brands like Khaite and Protagonist that have carved out their own identity through a savvy mix of image making and price positioning. He explains what happens in the early stages when a new brand comes in. “We basically help [the brands] clean all of their data information because some days they’ll be trapped in Quickbooks, some will be trapped in Google Analytics, some will be trapped in Shopify,” he says. “We can really combine that data, we can clean it we can present it back to them in a way where we identify the key levers of their business and also anonymously benchmark that data against all the other brands in our database and say ‘Hey say your development costs [for eyewear] are at 10% higher than the average and your marketing costs are 5% lower why is that?’”
“Simultaneously we can use that information to say ‘Hey, we would love to provide you capital to grow.’ And that’s really the underwriting part of our business.”
Physical stores have also been another hot point of discussion lately, what with the multiple store closures that have affected not only mass retailers but also luxury department stores. “The point of having a store is effectively to introduce your customer to your product in the context of an experience and then hope that that stays with them so that they buy again and again,” he notes. When asked about the actual financial purpose of a physical space, he explains that it’s about acquiring a customer who is loyal and will buy more product, ideally from your DTC (because you have higher margins).
“The goal is not volume of sales through the offline direct channel,” he adds. “So what that does is it gives you more room to be creative with the format with whatever it is you’re doing. It’s not about optimizing floor sales. It’s about creating a memorable experience that will make the customer want to interact with the brand again. So when people talk about experiential retail I think that’s actually what it’s about.”
So while some retailers may still be unsure on how to weather the changes affecting retail, Pritzker, who comes from a tech and financial background, approaches fashion and consumers goods from a perspective that rejects the formulas from the past. “I think that the trend that we suspect would happen is happening and I think it will continue to accelerate,” he says when asked about what we can expect from this industry moving forward. “I think there are going to be a lot more products, a lot more brands, and people are going to discover those through social media. Instagram is the new QVC. I think the old line retailers that depended on optimizing floor space for sales will really continue to struggle. I think the question honestly is how people are going to repurpose all of that square footage. We’re so overbuilt in retail.”
