Silk Linings

Good Morning and Happy Memorial Day

In the worst of situations, if we dig deep enough, we can almost always find a silver lining. Let’s just call it a silk lining for our purposes now. And the silk lining that I am talking about is the rethinking of the entire fashion and consumer goods cycle. It has become so obvious during this pandemic that the way the consumer goods, (particularly fashion) industries have operated, those classifications that sell their products to major retailers, whether brick and mortar or DTC, hurts every link in the supply chain.

Yesterday I participated in a zoom meeting with a group of exceptional and creative, independent retailers, brand owners and managers, and CEOs on the subject of re-wiring fashion, originally facilitated by the Business of Fashion. The focus of the group to date was on resetting the fashion calendar, reimagining fashion weeks and breaking the syndrome of promotions, markdowns and chargebacks. During our two- hour discussion Friday, we concentrated on how to force change in the industry, and we reached consensus on multiple, vital areas.

I have been fighting the fight for years now, since we at Hilldun have such a clear window into just how devastating to independent brands and small retailers the current pattern has been. We hear the stories and we have seen the damaging results over many years. The big fashion-brand conglomerates set their own rules. They can. They are omnichannel, in many cases vertical as well, and they have achieved a level of power and influence that permits them to dictate their own terms regarding discounting, seasonality and how their brands are merchandised. Independents cannot do this. They have little leverage. Often the choice they face comes down to whether to sell to a particular retailer or not. Negotiation is always a gamble. Fighting back against unreasonable terms often leads to cancellations of potential orders. The risks ostensibly outweighed the benefits up until now. But, this pandemic has changed everything. Major retailers are frightened. Their futures are uncertain. Large venues are no longer the keys to greater top line sales. Versatility, creativity and personal attention are all more viable in the smaller footprints of specialty stores and brand-owned settings. Current circumstances make it clear that now is the most opportune time to change the dynamic and re-wire the system. There is power in numbers. A unified voice will be heard. There is no reason why independent brands cannot band together and speak to retail in the same ways that LVMH does. Retail is vulnerable now. Everything is vulnerable now. Hence, there is opportunity like never before to find a more collaborative answer to margin deterioration for the sake and benefit to all. But for this to happen, each of you needs to get on board. The leverage that fashion conglomerates have is based upon the need on retail’s part to carry their brands. It is quite clear that without that clout and implicit threat that they will not sell to certain retailers if their conditions are not accepted by them, terms are dictated, not negotiated. Once more, the small player is the victim. Hence, independent brands should endorse and support a new and fair balance of power as a group. This is the only way the playing field will ever become level.

The changes needed require a multi-pronged approach. As I discussed with you last Sunday, legislative action is a necessity if any semblance of order is going to be established regarding promotions, sales and markdowns. Spain, Italy and France all have designated weeks when sales are permitted. Authorities determine when promotions begin and end. In Spain, the law states that twice a year sales can take place, and they must last at least one week and no longer than two months. In Italy, once sales begin, they can go on for no longer than 60 days. In France, sales can go on for no longer than six weeks, and any sale products must have already been available to consumers for at least one month at full price. In Germany, winter sales and summer sales begin on the last Mondays in January and July. They continue for two weeks. Though in Germany this is no longer governed by law, they maintain the structure. And it works! Why can’t we do something similar here?

In addition, and just as important, is the need for independent retailers to get behind the effort to enable major changes. Specialty stores and independent retailers who can clearly serve the needs of their patrons better now than ever before should recognize this unique opportunity now. They too suffer extensively from the promotional cycle dictated almost randomly by the major retailers. There is power in numbers. There is no reason why independent retailers cannot band together and speak to the majors and to government on their own behalf. Retail is vulnerable now. Everything is vulnerable now. Hence, there is an opening like never before to find a more collaborative answer to margin deterioration. They need to express their concerns and regain some control over the market. Margins are very slim for many privately owned and operated retailers to begin with. They are casualties of both sides of the supply chain. The fashion conglomerates demand extensive buys and often relentless and unreasonable terms of their own, further diluting a small store’s margins. Independent retailers also have no jurisdiction over their own pricing. When the majors discount, they have no recourse but to follow their leads or lose their consumers. This must change. If our legislature claims that the changes we are discussing constitutes price fixing, how do they then allow the imposition of specific pricing terms on the industy by the European fashion conglomerates?

The situation is clear, as are the remedies. We at Hilldun can speak to both sides of the equation. I have joined the group hosted by BOF and I will do whatever I can to make this industry better, stronger and more profitable. There is no enemy here. Everyone is suffering and It is thus in everyone’s best interests for the major retailers to thrive, just as it is in their interests for the independent brands and specialty stores to flourish. Homogeneity from retailer to retailer will only seal their fates and further dilute prices and margins. Consequently, we all must work in partnership to establish new guidelines that will serve everyone’s needs. I will be reaching out to our vast database of retailers for support as well. Without an organized response to this broken system, nothing will ever get repaired. Our industry needs to collaborate and get behind the re-wiring of fashion. The bottom line is that ALL of retail will benefit in the end from the fairer treatment of every party, realistic delivery schedules, systematized markdowns and a level playing field. All of you will also be able to recapture lost margins, take comfort in the elimination of price wars, and sell on reasonable and equitable terms. And finally, if legislative action is every going to happen, the consumer in the end must be served. Structuring the confusion and chaos of pricing, making it more predictable by creating order out of the current anarchy, will surely serve the top of the food chain, the consumer better.

Stay Safe. Stay Strong.