What The Fashion Industry Can Teach Us About Distribution and Retail

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What The Fashion Industry Can Teach Us About Distribution and Retail

Thomas Brownlees

CEO and Founder,
440 Industries

Introduction: Why distribution matters.

Among the 4 Ps of Marketing, it may seem that Place may be much less ‘sexy’ than the other 3. This is because it’s easy to associate distribution with “mere” logistics and supply chain management, rather than with the customer experience.

In actual facts, managing your distribution effectively provides a real long-term competitive advantage to your company and lets you connect with your audience in a much more interesting way than through short-term promotional strategies.

High-end fashion companies have been able to address the challenges of distribution by developing a forward integration strategy which is aimed at establishing and controlling the relationship created with their customers. This achievement, however, comes at a very high price, both in terms of upfront cost, as well as in terms of management and operations. Not every player may actually afford it.

Today we’re going to look at:
1. How B2B Distribution Works.
2. How B2C Distribution Works.
3. Conclusions

Why Fashion Companies Opt Between a B2B or B2C format.

Fashion brands, have to start with deciding if they are looking for a wholesale (B2B) format or for a retail (B2C) format. Let’s see how fashion brands, choose between vertical distribution (company-owned) as opposed to intermediated distribution (through third-party retail).

1. How B2B Distribution Works - Using Intermediaries

In B2B distribution a company works through a distributor which will be in charge of connecting the company’s products to the final consumer.

Benefits: “Sell-in” (third-party) distribution is much cheaper. Developing business relations with wholesalers does not entail for an upfront investment. This approach objectively provides less financial risk: a newborn company may test a foreign market by using intermediation to access a variety of POS (points of sale) before proceeding with further investment. By conducting a ‘pilot’ program through distribution intermediation, a company will also be able to collect data regarding the product’s adaptation\standardisation requirements of the new market.
Limitations: as much as we perceive distribution as the ‘final mile’ of a company’s efforts, it’s really the first point of contact with a customer, and as such a company needs to manage it effectively in order to ‘convert’ exposure into sales. Not managing the shopping experience provided to the final user prevents a company to develop that ‘masstige’ approach capable of luxury-fying commodities and pursue premium pricing even in more accessible product categories.
A choice towards intermediated distributions, on the other hand, makes it harder to keep higher margins, because of the longer pipeline.
If we analyse B2B fashion brands under the lens of Porter’s 5 forces model, we are quick to notice that owning the retail outlet helps in delivering aspirational factors associated with fashion products. Unless this type of exclusive experience is delivered the profit margins are much more likely to be limited by the thresholds set by larger players. Moreover, not owning the distribution channels accounts for a longer time to market (TTM), making a company less reactive to faster fashion trends.

2. How B2C Distribution Works - Using Fully Owned Retail.

In B2C distribution a company will instead pursue a sell-out approach whereby a company will own and manage proprietary retail locations.

This accounts for the development of a different marketing mix, and for the creation of a whole new company department, as many more decisions need to be taken in order to pursue vertical distribution. These decisions can be split into two, related to both intangible and tangible value delivered through the distribution chain.

Intangible Values – Brand Consistency and Delivery. What type of experience and atmosphere are you going to create for your customers? What kind of association will you create between the different items of your collection?
These are simple questions, but they entail for strategic thinking as the development of a brand requires the delivery of a consistent image across a variety of different media. You will also need to manage the blurred line separating physical and digital ‘customer journeys’. These types of brand experiences entail for at least one flagship store, capable of delivering all of the theatrical elements which need to be associated with your brand.
Tangible – Store Operations and Supply Chain Challenges. When looking at consumer behaviour it’s easy to spot two growing trends: “showrooming” and “webrooming”. The former means that customers are likely to visit your store and then buy online, the latter means that the customers are going to conduct their research online and then purchase in store. How are your retail locations going to address these challenges? Some interesting reflections on this topic are suggested by Angela Ahrends from Burberry.
Moreover, taking into account product selection and inventory management decisions, we can see how fast fashion is one of the major sources of competition for luxury brands and designer brands alike. The strength of fast fashion lies in time-effective inventory management and shorter pipelines. As a result, fully-owned retail stores will allow for a quicker time to market (TTM).

Without further hesitation, we are quick to realise that in reality only large and established companies are capable of developing this type of infrastructure. Furthermore, this approach will often be conducted in an omnichannel perspective whereby retail and e-commerce dynamics will overlap. This accounts for additional challenges as a brand will need to manage their brand coherently in a variety of situations (both physically and digitally) to create a value promise which is consistent across every touch point.

Benefits. As we’ve discussed, the distribution may seem like the ‘last mile’ in your business model but in reality, it’s the first point of connection to your customers. Owning your distribution channel allows for a competitive advantage in managing your customer experience as well as your customer journey. As fashion companies strive to engage customers in the masstige segment of the market, a fully owned store can assist businesses in delivering the exclusivity of the brand.
Limitations. The limitations consist of the costs that owning a store entail. Unless you are developing a tailor’s workshop, it’s likely that a company pursuing aspirational branding will need to search for retail space in some of the most expensive real estate areas in the world. Moreover, you will need selected human resources to become effective brand ambassadors.

3. Conclusions

From this analysis, we can easily understand that if we compare only the operational aspects of product distribution, a B2B format will be a much better choice, as the missed ‘extra profit’ will be balanced by low investment access and minimal resource allocation (both human and financial).

At the same time, very few fashion brands sell products. Most maisons sell a dream at premium pricing due to the intangible elements belonging to a brand’s heritage. This is why most fashion brands over the last few years have pursued a vertical integration strategy and focused on creating new retail concepts and formats which to some extent disregard the physical product, in comparison to the other ‘theatrical’ functions provided by a flagship or self-standing store.

At the same time, no pun intended, fashion brands realised that there is no one-size-fits-all approach to distribution, and different formats will be required to cover effectively each consumer behaviour, price segment and demographic profile.

Readings for Further Research

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What The Fashion Industry Can Teach Us About Distribution and Retail Fashion brands have been transitioning towards vertical integration in order to leverage on the opportunities of masstige, lets' see why.

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Thomas Brownlees

I am an Anglo-Italian business lecturer and consultant based in Florence, Italy. In 2017 I started 440 Industries, an education and training company focused on fashion, music, and technology. Our mission is to help students, entrepreneurs and managers in overcoming the challenges of starting, developing and scaling their business in the creative industries. When there's a will, there's a way!