The Death of Apparel Retail As We Knew It, Part I: The Survivors
Let's start with the survivors. Knowing where we are today will help to understand how we got here.
Who are they and why are they emerging while others are dead or dying? (Don't believe me, see the graph below.)
Some of them: Inditex (Zara, Massimo Dutti), Uniqlo, H&M, Primark, Amazon, Costco, Sam's Club.
Why are they growing while others (such as Macy's and J. C. Penney) are dying slow and painful deaths?
Is it because of the growth of online shopping? Not totally, as everyone is selling online today. Certainly Amazon has led the way to an online revolution, but everyone has online sites today, some better than others, so let's consider that a push.
- Fashion basics: Here we go back for a moment into the past: does anyone remember the Gap pocket tee? At the time Gap CEO Mickey Drexler believed in the mantra of Narrow and Deep, which found its best execution in the pocket tee — many colors — one style, planned promotion, but everyday low price (more about this bit of history later).
It is this concept that today's Masters of the Retail Universe have embraced. Customers know that when they need a pair of pants to wear around the house, or to work out, they can go to Uniqlo and find them — no shame (count me in that group). Look around Uniqlo — not hard to tell what they believe in, whether it is linen shirts or chino pants, the store is stocked with fashion basics, surrounded by go-with pickup items. Inditex stores show the same philosophy.
- Fast fashion: Let's use Inditex as an example. Stores and merchandise are changed many times each season so you can revisit the store regularly and not see the same thing you saw a couple weeks ago. The last offering is either taken off the floor or isolated as sale merchandise. So the store always looks great, not confusing or a mess.
- Price pointing: You can see that there are fewer price points in a Uniqlo or Massimo Dutti/Zara store than there are items. This differs from traditional department stores, which pay no attention to the customer's value thinking and just mark the item where the (inflated) markup numbers take them. This price pointing simplifies shopping for the consumer, as well as creating the impression of everyday value.
- Sales are real (or at least it looks that way): Consumers have caught on to the department stores' game and can tell you when discounts, more discounts, further discounts, and discounts upon the discounts will happen. And they know it is a game, therefore the value perception of original price is nil.
If original price value perception is believable, smaller discounts have more value.
Finally, why buy something at original price if you know it will be available at a discount? The keywords here are: if you know. If you see something you like and less than a million pieces are available in your size, maybe it will disappear before you have a chance. No such worry in overassorted and overstocked Macy's, etc.
Most brands in the world have lost or diluted their value perception as store brands' are growing: If you can remember back to the '70s and '80s, brands were king (or queen). We worshipped the names and paid too much for them, rejoiced when we could find them on sale. Very few of those brands have endured, if at all, with anything like their past aura (okay, name some). I don't want to get sued so I won't name names. We all know who I am talking about.
At the same time, store brands are gaining the confidence of consumers for what they are: no tricks. Massimo Dutti or Uniqlo means okay quality and a value price for that quality. Not good if you are entertaining the Queen or her relatives, but perfect for everyday wear.
- Sourcing: As global brands, they have built sourcing organizations and resources that are close to their store concentrations, and can mix/match offerings from different regions as long as their color stories are consistent — which they are. Most important: they can move quickly! Neither the skill nor the strategy of today's department store buyers can match the resourcing power of today's brand fashion kings, nor the nimbleness of their global operations.
- Global equity: If you go to a Massimo Dutti store in Shanghai, New York or Rome, you will find the price points are very similar, and I am sure that is not by accident. Shop brands or designers in different locales, and you will find the prices are dramatically different — by multiples in some cases.
So let's be clear: the imminent expiration of the world of Macy's et al. is not due to price. Macy's can get down and dirty with the best of them. It is about value. The brand value that department stores used to represent and that differentiated them from the discounters is gone, eroded by the overdistribution of brands, resorting to promotion to bring in consumers (while at the same time killing the manufacturers by making them pay for the buyer's incompetence and the stores errant philosophy). Most important, it's due to losing the trust of the consumer.
There was a time when self-respecting middle-class America did not want to be seen shopping at, or wearing product from, "the mass market." Now there is no distinction about shopping in Macy's — it is a confusing and discouraging experience — and no shame to shopping at the new normal. If you go to Uniqlo, Massimo Dutti, or sit home and shop from Amazon, it is a satisfying experience. Can it also be a badge of honor?