At the whim of a buyer

People have been selling things since the beginning of time. A transaction between two people or businesses is nothing new. More recently, the nature, context and demands of the transaction have changed. Deals can be more complex, take longer, and involve more people than before. But a trade is still a trade.

In the fashion industry, selling things to a buyer is nothing new. In the wholesale model, the traditional buyer is someone with the literal title of "buyer" who buys the clothes for the boutique or department store. The fate of a brand is often at the whim of these buyers, who decide what and how much to buy. If a buyer orders less than the brand anticipated, the brand can get in financial trouble. Brands often feel that they aren't in control of their own destiny, which is an entirely reasonable sentiment.

The direct to consumer model has been hailed as the so-called savior that puts brands back in control. The idea is that brands would sell directly to consumers, cutting out the third-party retailer, and have more say over their destiny since they aren't outsourcing the selling of their product. Direct to consumer businesses are all the rage right now, with new ones popping up weekly. I wrote extensively about the fallacy of cutting out the middle man and direct to consumer brands last week, but I want to keep building on this idea.

The wholesale buyer vs the consumer

Selling direct to consumer is considered the remedy to losing control to a retailer. Brands are supposedly now in charge of who they sell to, how they market to them, and how they serve them. The problem with this logic, however, is that direct to consumer brands remain at the whim of a very different buyer: the consumer. This is not inherently bad—just as wholesale isn't—but the decision to sell one way over the other should be a conscious one. It's wrong to think that one is intrinsically easier to sell to than the other.

Selling to a retailer has its benefits. Brands get instant access to an audience that might buy its products. Brands are able to use purchase orders to forecast production runs. Brands are able to focus—the biggest benefit of selling wholesale—on design while the retailer worries about selling, merchandising and customer service.

That said, selling to a retailer also has its disadvantages. Brands need to bridge the cash-flow hole that selling wholesale creates. Brands often get very little data on who is buying their clothes. Brands are at the whim of buyers who often decide their fate. These are definitely big issues, and selling wholesale is far from rosy.

Yet selling direct to consumer is also a mixed bag. At first, the benefits seem to outnumber the disadvantages. Brands can control as much of the business as they want, from marketing to selling to customer service to design to manufacturing. Brands own the selling data and can learn what's working and what isn't much quicker.

That said, selling direct also has many disadvantages. Brands need to be experts at marketing, selling, customer service, design, manufacturing and customer acquisition. Mastering any one of these skills is challenging enough. Without the guidance of buyers, brands often have to make products before they can sell them, which is riskier. Making hundreds of products no one ends up buying is a very real issue that comes to fruition more often than not. Mining the data to overcome this is also not easy. Most importantly, brands now have to deal with consumers, who are fickle and already have a million different brands vying for their attention.

Direct brands are still at the whim of a buyer, just a very different one. Again, this is not good or bad. It's just a fact. This is why it's crucial for brands to think very hard about what sort of problems they want to solve and what problems their skill set allows them to solve. A direct to consumer brand run by two designers might not turn out so well. Nor will a luxury wholesale brand run by two business people with no sense for aesthetics.

But what about press?

In the fashion industry, the go-to answer for reaching consumers has been something along the lines of: lets hire a PR firm and yell really loudly about our brand. The problem, however, is that press is not a consistent source for acquiring customers. It will work and seem good in the short term, but in the long term a business entirely reliant on press to generate revenue is not a real business. As I wrote in Press is like crack and how fashion brands can stay off it:

A brand is something people want to buy into. A brand can be strong (strong awareness) and be a terrible business (worth nothing). Or a brand can be valuable (strong awareness) and be a sustainable business (worth something). Financial worth is the goal, yet it's very hard to achieve. The reason is because of the word "sustainability." Press, as a sales generating tactic, is often the antithesis of a sound sales strategy.

Press is like crack, and crack is not healthy. Sure, it might be great for a little while but it is definitely not sustainable. Press is a short term gain. It helps with awareness (and probably sales) for a few days and then your sales will go back to earlier levels. Your awareness might be higher, but your sales will quickly fall back to normal.

This happens for a few reasons. 1) The press hit will exist for a few days and then fall into the media company's purgatory of an archive. 2) A customer who buys something from you off of the press likely won't need anything for a while; even if that's a few weeks or months, this is still not sustainable. 3) You can only get press so often. Yes, there are some brands that you endlessly read about for a season or two, but it rarely lasts. A brand that lasts for a few seasons is not a business.

The other problem with press is that if you're able to build your business to a nice size, you will eventually eclipse the audience of the press you're used to getting. If a press piece sends 5,000 people to your site, at a certain point you will need 10,000 people for the business to grow. This press is no longer converting the way you expected it to, and if you relied on press all of this time, you will be very lost when it stops working.

Building a brand on press alone is a trap. Don't fall for it.

Customer acquisition and then everything else

The crux of the decision to sell wholesale or sell direct really comes down to how good a brand is at customer acquisition. If a direct to consumer brand does not know how to acquire customers, it will not exist for long. This is often the single most overlooked element of starting a direct brand. This misconception also correlates to underfunding the marketing and acquisition budget and not accounting for enough margin in the products to pay for it.

These are catastrophic errors. If a brand is built on products with negative gross margins—where a product costs more to make, market and sell than it is worth—it is very challenging to recover. It's one thing to end up with positive gross margins at scale, but without the funding or cash flow to pump into marketing to get to scale, a brand will never get there.

Brands need to architect themselves for the skill sets they have, which requires an intimate analysis of who the buyer will be. The wholesale buyer is not bad, but it does give the person or team a lot of destiny over a brand's success. Diversifying wholesale accounts with different styles and markets is one way to temper the impact of any single account sinking the business. The consumer as the buyer is also not bad, but it requires brands to have a constant pulse on marketing and customer acquisition, which takes a long time to master.

Starting a direct to consumer brand is absolutely not a recipe for success, just as starting a wholesale brand isn't. Someone will always have control over a brand, whether it's a buyer or a consumer. What matters is the brand's skill set and its willingness to optimize for one or the other (or, in some cases, both). Buyers are everywhere, it just depends which one you want to be at the whim of.