The success of DTC brands and decline of wholesale is leading some companies to evaluate the current system. Well before the pandemic hit, brands were questioning the wholesale model, pivoting at least a proportion of their team to focus on direct sales whilst experimenting with the drop model. An approach which consists of releasing regular bursts of one-off products popularised by streetwear labels including Supreme and Palace, who have operated this way successfully for over a decade.

Alex Ingildsen, CCO at LTP Group has noted an increasing amount of brands effectively ripping up the old playbook and recalibrating their strategy stating

“Timelines are shifting as brands move to monthly drops whilst also taking a responsive approach to repeat orders with in-season replenishment which ultimately allows the brand to be more responsive to market signals and better align supply and demand. Brands should experiment with different methods. It can take some trial and error to figure out what works best for their consumer. Working with a strategic partner who can be agile and flexible is critical during this period”

Cutting out the middleman is a hot topic right now but this doesn’t spell the end for wholesale. Brands are increasingly evaluating their distribution model in order to build a blended approach which fuses the best of both worlds. The hybrid wholesale-DTC model forms the basis of the industry’s transformation but brands must realign their supply chain to win with this strategy.

Here, Ingildsen and trend forecaster Chantell Fenton discuss the challenges and value of wholesale. As well as exploring new opportunities presented by the drop model and a blended approach.

Reimagine Wholesale

Wholesale still has a complementary role to play in the distribution channel. Strategic wholesale partnerships can be instrumental in the development of new and existing brands. Good multi-brand retailers can significantly reduce new market entry costs whilst also helping brands gain name recognition and access a larger potential consumer base. Business consultant, Julie Gilhart told BoF

“Most young brands can’t afford to spend enough on digital marketing to get the presence and competitiveness they need through their own channels. Wholesale can prove to be beneficial if added into their strategy”

The key is to negotiate favourable terms with wholesalers, from increased floor space to more-detailed customer data. Aim to partner with multi-brand retailers with a good reputation who can increase both sales and exposure whilst supporting the growth of the business.

But don’t get caught out, brands that hand control over pricing, display and marketing to wholesalers are increasingly at a disadvantage to vertically integrated, digital-native competitors that offer a similar product at lower prices. Henri Lloyd has recently shifted its business model, no longer sells via third-party distributors and focusing all efforts on direct-to-consumer. The brand announced the move via social media stating

“Same great quality product at permanent lower direct prices. Today we are excited to bring to you our new No More Middlemen pricing, which means on average you will save 40% Off traditional RRPs”

The wholesale distribution model comes with inventory risk and high working-capital requirements. The approaches inflexibility and long lead-times are issues which must be resolved.

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Make Limited-Edition Product Drops Part Of Your Strategy

In the age of direct-to-consumer, wholesale brands need to take cues from start-ups. Selling direct is not only more profitable with higher margins, it also enables brands to nurture a one-to-one relationship with the consumer whilst gathering data which can be used to inform future business strategy.

As traditional methods have struggled to maintain consistency with repeat customers, employing the drop model on a weekly or monthly rhythm drives consumer engagement with a constant stream of newness.

Retailers like Everlane drop a few new items every week to better connect with their consumer who wants to be engaged all year long. This approach ensures the brand is front of mind and crucially front of social feeds. Remo Ruffini who famously pivoted Moncler to a drops-driven approach with the brands Genius project reaffirms

“You cannot talk to your customer every six months; you need to talk every day,"

Product drops have become a way for brands across the industry to cultivate exclusivity and excitement across their online and offline channels. For the most part these collections sellout very quickly. Limiting supply is a traditional marketing tactic as scarcity and desirability are intrinsically linked. Producing fewer styles with heightened demand means less inventory markdowns which ultimately closes the gap between supply and demand whilst reducing the biggest single cost for fashion companies: unsold inventory. Some brands even presell a drop via social media posts or crowd funding sites. The brand therefore produces only what is ordered and funds the collection up front. Western Rise repeatedly experiences success with kickstarter. The brands Evolution Pant campaign in 2018 raised $600,000 in 30 days whilst creating an instant audience for the product launch.

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A Reliable Manufacture is Essential

A well-executed drop can have longer-term benefits beyond a single purchase; creating buzz, tapping into new targeted consumer segments and injecting energy into the product calendar but none of this can be achieve without transforming the supply chain and realigning delivery cadence.

Working with a reliable manufacturer that you can trust is key. A flexible supply chain will be a priority with efficient and responsive production. The ability to faster deliver on drops and respond to changing demand in-season via near-shoring is vital for the success of this approach.

Occupy The Sweet Spot Between Wholesale And DTC

The drop model isn’t without its challenges. An engaged social media following, an adaptable cross-functional team approach and engaged supply experts are key to success. Brands should experiment with different methods to cultivate an approach which works for them and their customer. A mix of wholesale and direct sales can provide the best of both worlds. Aim to diversify risk by taking a blended approach and mitigating a single point of failure. A hybrid model where sales are coming from a variety of sources is optimal.

About Chantell Fenton

New design manager at LTP, Chantell is an experienced performance sportswear designer and trend forecaster, with a passion for wellness, technology and function-first design. Chantell has an in-depth knowledge of how to spot and translate the must-have trends and macro shifts for the sports and outdoor industry. For more details visit www.chantellfenton.com

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