Vetements and the exaggerated death of wholesale

There's a great piece in the Wall Street Journal called The Cult of Vetements, a detailed look at the Paris-based fashion brand that has, since 2014, been the talk of the industry. The piece goes into detail about the brand's pricing, production and distribution model, the latter of which has been vastly under-appreciated among all of the hype.

Vetements might be the greatest example that wholesale is not dead. Rather, the brand has been successful because of the unique power of wholesale, and the brand's ability to evolve this centuries old practice.

The irony of Vetements is that as often as the brand is hailed as an "industry outsider," as a result of its designers being "disillusioned with the industry," the brand is doing things very normally. Vetements uses time-tested techniques that have powered the fashion industry for decades: high prices, relative scarcity, traditional distribution and an elusive brand. Vetements is the ultimate case of inside baseball, that has somehow been construed as an outsider breaking into this industry. No wonder the fashion world eats it up.

The beginning

Vetements launched in 2014 in an air of mystique, with an unnamed collective of seven people behind the brand, who hailed from industry staples such as Maison Martin Margiela and Louis Vuitton. By early 2014, Vetements racked up 27 wholesale accounts, and let these store owners do most of the marketing on behalf of the brand. It was a smart move, which started to cement the validity of the brand while still driving the curiosity about who was behind it. The brand was profitable in its first year, as a result of these 27 wholesale accounts, according to The Journal.

Sometime in 2015, the brand dropped the anonymity and Demna Gvasalia surfaced as the face of the brand. Far from being an industry outsider, Gvasalia trained at Royal Academy of Fine Arts in Antwerp under Walter van Beirendonck, worked under Margiela at his namesake brand, and Marc Jacobs and Nicolas Ghesquière at Louis Vuitton. Gvasalia was deeply embedded in the industry. He knew exactly what he was doing.

The power of wholesale

Wholesale's biggest benefit is that it lets a brand tap into an existing audience. Vetements didn't need to start from scratch with its audience, worry about customer acquisition or marketing. It outsourced most of this to its influential wholesale accounts, which accomplished the job in a quicker and more powerful manner than any brand ever could. The team behind Vetements leveraged their existing industry relationships to start growing their stock lists, while the boutiques and retailers took on a large portion of the brand building.

Wholesale remains a very viable distribution method. While many are quick to jump about the power of "owning the customer" with a direct to consumer brand and capturing "the full margin" that pesky retailers take, there are very good reasons that wholesale has and continues to launch many successful brands. The relationship balances itself out. The brand can spend all of its energy on design, production and some marketing, while the retailers help build the audience and sell the clothes.

Vetements now has over 200 stock lists with some of the best retailers in the world, including Dover Street Market, Bergdorf Goodman, Opening Ceremony, Lewis, Browns and Matches Fashion, just to name a few. The brand has clearly "made it," with revenue beyond $10 million, according to The Journal.

Why did Vetements go down this route? Because it works. One of the most under-appreciated aspects of wholesale is what it lets a brand focus on. If a brand wants to capture the full margin on a product by selling directly to a customer, it needs to work for that full margin. A brand can't just say it wants to capture the full margin but work as if it's only capturing half of the margin. This is why a direct to consumer brand requires a vastly different cost structure and skill set than a wholesale brand. One is not better than the other; they serve different purposes.

For a brand like Vetements, which is highly focused on design and brand, outsourcing sales to the best boutiques in the world is a no-brainer. Time and money is finite, and for a brand launched with only Gvasalia's personal savings, building a brand through wholesale makes perfect sense. Wholesale is a dream for design-driven brands, since it allows them to focus on the design and product, while offloading the selling to an often influential third party. Brands that really want to own the relationship with the customer, such as Warby Parker or Everlane, often won't be as design-driven since they have many other skills to master, from customer acquisition to ecommerce to customer service.

Selling wholesale versus direct to consumer is often pitted against each other, when in reality it should be a conscious and poured-over decision each brand makes individually. There is no formula. Some brands should start by selling wholesale and some should start by selling direct. The most interesting thing to watch for, specifically with Vetements, is how the brand grows. Two things could happen. First, the brand will continue to sell wholesale, which allows it to stay focused on design (not to mention Demna Gvasalia's second job at Balenciaga) and continue building up influence and stock lists. Or, now that Vetements is well-established, the brand could start pulling back its wholesale accounts and transition to a hybrid model, and shift the focus more towards direct to consumer. I'm guessing the brand will stick to its current model, but we'll find out soon enough.

Online vs in-store

It's worth noting that this discussion is not really about selling online versus in-store, but about wholesale versus direct. Vetements is fully stocked online, as it is in-store. The brand outsourced the duty of selling online to retailers with excellent online and in-store presences, which was a highly astute move. The brand now has both a digital and physical presence, all while staying highly focused on the design-driven part of the business.

This leads to an interesting implication, which Gvasalia calls uniting the creative and the commercial side of a brand, not necessarily the business and the customer. By making sure that the design and business of Vetements is always in sync, the brand can put its best foot forward in this rapidly-changing market. This cuts against the grain of many brands, especially ones that sell direct, who are obsessed with owning the customer relationship. Vetements decided that if it was going to focus on one relationship, it would be the internal one between business and creative. The move has been paying off, to say the least.

Vetements also uses wholesale to outsource its forecasting to its stock lists, who have very good insights into what is selling and where the market is headed. A direct to consumer brands needs to forecast in-house, and there's even more pressure to do so if the brand is producing clothing constantly. Vetements, however, leans on its partner retailers to help with this effort, removing another skill that they would otherwise have to figure out themselves.

The brand allows retailers to put its products on pre-order, which allows customers to buy products well in advance of their delivery date. Vetements products often sell out before the brand has even ordered the fabric, which gives them an immense amount of control over their production and distribution. If a product sells out quickly, they can always make more so less money is left on the table. If the product doesn't sell too well, the brand can trim the production run to ensure it will still sell out once it's in stores. Vetements has figured out how to get the forecasting benefits of selling direct while selling wholesale, which is impressive.

Pricing and scarcity

Vetements decided early on that it was more interested in influence than scale. The once unnamed designers told Business of Fashion, “We definitely want to cater [to] a niche.... We don't believe in making masses of people like our clothes or want to buy them, but we also believe our niche is big enough.” The brand made an intentional decision that their work could be influential and commercially successful, but it would not be for the masses. This aligns very nicely with the value of wholesale, which enables customers to get items they often can't find elsewhere at a destination store, such as many of the brand's stock lists.

This brings us to Vetements' pricing, which The Journal called "asking prices near couture level for what are essentially streetwear-inspired pieces." $800 sweatshirts, $330 t-shirts. Vetements is not cheap. Why? This pricing—and its success—are the result of a conscious decision related to selling wholesale: the brand needed to price in healthy margins so it could grow, especially given the payment gap between retailers.

Vetements created a virtuous cycle with its pricing. Because it only sells wholesale, it needed to price in its own margins and then the retailers. This is how they end up with $330 t-shirts and $800 sweatshirts. The brand is already doing very small production runs given the demand, which can range anywhere from fifty to a few hundred pieces per style. These small production runs raise the unit prices well beyond what they would be from a mass brand. Then, Vetements slaps on a healthy margin for themselves, in what I'm guessing is somewhere in the range of 70-90%. This item then gets sold to the retailer, who can also earn a very healthy margin on these pieces with a near guarantee they will sell. My guess is that Vetements is giving retailers something around a 70-90% margin as well, which leads to the elevated pricing. When retailers have access to this much margin and demand, they will quickly curry favor with the brand and support it. This drives Vetements' virtuous cycle.

Another conscious decision was shifting off of the normal fashion calendar. Instead of showing in March and September, Vetements now shows a men's and a women's collection together in June and January, which is usually when pre-collections are shown. According to Gvasalia, stores allocate 80% of their budget during this period, which leaves only around 20% for main collection. Vetements has figured out a way to still only make product two seasons a year, while keeping products on the shelves for a longer time period, thus reducing markdowns. This reinforces the prestige of the brand while also keeping the design expectations manageable, since they don't have to design and produce new mini collections every few months.

Press and social media

Vetements is also taking advantage of another interesting transformation: the proliferation of the press and social media, which enables the brand to still have a relationship with its customers without being forced to sell direct. Social media allows the brand to control its message and aesthetic, with a much lesser burden than it would take to do so while selling direct. Vetements has found the best of both worlds. It can talk with its customers on its own channels and through the always-influential press, while selling in the best stores around the world. The combination of these two attributes leads me to believe that wholesale is not going away as much as it's being reinvented.

The success of Vetements is entirely unique to a brand and market it is selling in. Vetements would not work to this degree if it only sold direct to consumer. The prices would be cheaper, there would be less scarcity, and most importantly, the brand would have to start from scratch building up the demand and prestige that powers a brand like Vetements. The real answer in hyperbolic and absolutist debates about selling direct versus wholesale is nuance. An immense amount of consideration should go into decisions about how to build and distribute a fashion brand. Even with all of the direct to consumer craze, starting a wholesale-driven brand today will still be the right decision for many brands that want to exist at the top of the fashion world.

Vetements has simply updated the age-old blueprint for building a fashion brand, it hasn't abandoned it. Wholesale is far from dead.