Memo: Four Trends For Fashion’s Future

When you think of Vuori, Psycho Bunny, Faherty, Johnnie-O, and Bombas, you think of their rare growth trajectories. None of the brands were first-movers; they each had stiff competition form incumbent retail brands and better-positioned DTCs. But something set them apart from the rest. Here’s an example of how many of these brands work against the typical best practices associated with the segment:

Tucked away in suburban Ohio, a small boutique features a number of brands, none of which are native to the midwest. One trip around the Trevor Furbay boutique in Dublin and you’ll find Faherty, Johnnie-O, and Vuori among others. For smaller formatted stores like this one, it’s rarer to find modern brands of the caliber of those mentioned. For the brands, this type of distribution is a lot of work for relatively little revenue. To a brand of Vuori’s size, this could seem like a waste of time and energy. But for brands like these, who’ve excelled in the art of finding customers where they are, there is no such thing as an account too big or one too small.

These brands are not just popular; they are reshaping what high-performance retail looks like. With their own unique stories and approaches to business, they are rewriting the rules of success for retailers across the globe. Let’s delve deeper. In a recent deep dive by Women’s Wear Daily, the report explained the characteristics that other DTC brands can replicate for their own success. WWD explains the difficulty in achieving what these brand have:

But there are brands that have managed to break that cycle and build highly profitable businesses. In menswear, some of the most impressive include Vuori, Psycho Bunny, Faherty, Johnnie-O and Bombas. Although they service different parts of the market — everything from socks and activewear to polos and beachy button-downs — they have managed to navigate through the potential pitfalls to build multimillion-dollar businesses.

Their stories emphasize the importance of authenticity, quality, social responsibility, and community engagement – trends that are shaping the future of the retail industry.

In an increasingly competitive market, staying true to a brand’s ethos while adapting to market shifts is as difficult as it is crucial. As these brands demonstrate, remaining customer-focused and delivering high-quality products can drive significant growth. Upcoming retailers and DTC brands looking to replicate this success should focus on these aspects: offering unique, quality products, demonstrating social responsibility, fostering a strong brand community, and perfecting channel mix.

This could not come at a better time as fashion retail is poised for a leap in volume of sales for 2023. It’s never been more important to be build close relationships with consumers as competition grows between competitive brands.

Seeing those brands prioritize a small but potentially influential local retailer got me thinking about how each of these companies did so well to build brands with loyal followings, appropriate amounts of inventory, reach, and profitable growth. Here are the top four characteristics shared by each of these retailers.

Trend: Prioritize Product Quality and Innovation

Product reigns supreme in these companies. If you’ve shopped any of them, this is evident. They understand the three Ps of business: Product, Product, and Product. Bombas, a sock company that also deals in other basics, has taken the ‘product-first’ strategy to heart. They prioritize the quality and the utility of their products and you can tell when you wear them. Faherty, an East Coast-based family business, also follows this principle. They deliver products with an East Coast beach flavor made from sustainably sourced materials. The key to their success has been their dedication to creating exceptional products that are both durable enough, appealing, and readily available to consumers.

Vuori was a fitness brand born out of necessity, and another exemplar of this strategy. In “Size Charts, Returns, and EBITDA,” I explained:

Over the course of the pandemic, Vuori became one of the fastest-growing modern brands in the fashion retail space. When the retailer landed its $400 million Softbank investment (at a $4 billion valuation) in 2021, I admittedly didn’t understand the buzz. Then I bought my first pair of joggers from them around a year later. REI, one of Vuori’s top wholesale partners, made it easy. A section of the store is devoted to the brand and an REI associate is frequently stationed within the shop to answer any questions. I was an immediate fan.

Vuori offered an innovative solution to a lack of appealing athletic wear, leading to its exponential growth.

Trend: Craft a Distinct Brand Story and Culture

These standout brands don’t just deliver great products; they also built compelling stories and cultures around their brands. As CEO Dave Gatto of Johnnie-O said, “a brand is a living organism, more than just a logo or a name.” A successful company must create a culture that reflects its brand ethos.

Psycho Bunny turned the challenges it faced in its early years into an inspiring success story. This excerpt begins the narrative that laid the groundwork for the company’s present day stature:

But around 2013, things began to unravel and Psycho Bunny experienced operational issues and internal struggles. Enter Alen Brandman to the rescue.

In 2021, Brandman became the brand’s majority owner. Similarly, Bombas’ advertising campaign Compassion = Change was a powerful expression of its brand story. This campaign was instrumental in spreading awareness about homelessness and promoting a more compassionate approach towards this issue. And, Faherty had a strong human capital ethos that shaped its culture and had consistently been a part of its brand story over the past decade.

Trend: Understand Your Customer and Their Needs

These successful DTC retailers understood their customers and their needs better than anyone else. Johnnie-O’s focus on ‘West Coast prep’ resonated with its target market. Bombas’ approach to addressing the issue of homelessness through its business model appealed to its consumers’ sense of social responsibility. Vuori and Faherty too, with their unique, high-quality wears, understood and catered to the needs of their respective target markets. This quote by Brandman was pretty solid:

Men especially are strange creatures. Some men have the same type of underwear for 12 years. Some men have the same T-shirt for 10 years, so you need to make sure those core fundamentals are treated with great respect to ensure people are going to come back. And we’re not going to do anything to breach that trust.

These brands are not just selling products; they are partnering with their consumers, selling a lifestyle and fostering loyalty to an identity that their customers could connect with.

Trend: Leverage Multiple Channels for Distribution and Growth

This is the key trend, in my opinion. And it goes back to the second paragraph: several of these brands saw value in working with a small store that would barely move the needle from a sales volume standpoint. Each of these brands recognized the importance of multiple distribution channels to their growth. While direct-to-consumer retail was a crucial part of their success, they also understood the value of physical retail spaces and wholesale partnerships.

Faherty, for example, has a significant brick-and-mortar presence and operates 52 stores around the US. Psycho Bunny, despite facing internal struggles and operational issues in the past, managed to bounce back and is currently present in over 70 retail locations across North America. Vuori has followed a similar path, starting out as a direct-to-consumer brand, and then branching out into wholesale. Their strategy shows how a multi-channel approach can help a brand expand its reach and tap into different customer segments.

The success stories of these high-performing DTC brands offer a road map for other retailers. By focusing on product quality, crafting a compelling brand story, understanding the customer, and leveraging multiple channels for distribution, a retailer can replicate their success. But in the end, the internet remains the center of the wheel for these retailers. Vuori founder Joe Kudla:

There’s so much to learn about navigating different cultures and consumer preferences, but that’s the stuff I view as fun. The real challenges were raising money and getting our product marketing and fit correct. Two years in, I thought we were going to run out of money so I thank my lucky stars for the internet and being able to sell online.

These brands have shown that it’s possible to carve out a niche in the market by taking lessons from DTC’s past and challenging the status quo. As the retail landscape continues to evolve, the lessons from these trailblazing brands will remain relevant, guiding the way for future DTC success stories.

Emulating these brands doesn’t require massive investment or out-of-the-box thinking, but instead a dedication to quality, community, and authenticity. It’s a testament to the potential of retail done right, proof that in an industry often seen as challenging and unpredictable, success is achievable when businesses stay true to their values and put the customer first.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams 

Memo: The Returns Coup

The eCommerce industry is a dance between partners, economic conditions, and balance sheets. Affirm, Shopify, Deliverr, Flexport, Returnly, and Loop have all had their moments on the dance floor this year – each striving to perfect their routine while keeping pace with the rhythm of market dynamics, consumer behavior, and technological progress. But of them all, Shopify is the key benefactor; Loop is the latest beneficiary. Effectively acquiring the chief competitor while bolstering its relationships with two of the most important software platforms in all of commerce.

It’s all one big give and take. Shopify’s divestment of its Deliverr investment may see Flexport benefit over the longterm. Shopify and Flexport deepened their alliance as a result.

Shopify and Flexport are deepening their alliance as Shopify seeks to compete with e-commerce rivals such as Amazon and Walmart. The companies announced a partnership in February that gives Shopify merchants access to Flexport’s freight services, including booking international shipments from suppliers to their warehouses. Flexport also counts Shopify as an investor.

Then, last week, it was publicly announced that Loop did a deal of a lifetime. In what was essentially an acquisition of Returnly, CEO Jon Poma structured a deal that may send a large number of Returnly’s clients from Affirm to Loop in exchange for Loop stock to Affirm (though this agreement is a partnership and not a bonafide acquisition). In line with what was explained above, Affirm counts Shopify as an investor. Loop also counts Shopify as an investor.

Amidst this symphony, the returns segment of the industry has often been offbeat, posing significant challenges to both consumers and retailers. The ‘return to sender’ card was held by as much as 16.5% of overall sales in the past year, tallying up to an imposing $800 billion-plus in return value according to Wayne Pommen, Affirm’s Chief Financial Officer. But as any seasoned dancer would know, to evolve, sometimes, you need to learn new steps. Reflecting this ethos, Affirm and Loop Returns have choreographed a strategic partnership that will nearly double Loop’s business and remove a competitor, all while improving Shopify’s position in a two-fold manner.

Returnly’s clients partnering with the long-time Shopify loyal, Loop Returns, means more ecosystem lock-in and a surer bet from its equity position from its 2021 investment into Loop.

While Shopify was investing in Loop’s Series B, Affirm and Returnly partnered for a tango of their own. Acquiring Returnly was Affirm’s response to the incessant growth of returns and an attempt to streamline the industry. The data reflected in this essay’s title card can begin to explain why Affirm was motivated to enter the returns business. Returns revenues boomed in 2021.

Returnly, with its self-service online returns experience, catered to more than 8 million shoppers, swaying to the beat of returns and exchanges. Yet, two years later, influenced by the increasing importance of core profitability, Affirm decided to change both its dance and its partner. Divesting Returnly, Affirm moved in tune with Shopify’s previous divestment from its logistics business, underlining a trend of letting specialized partners lead in non-core operations.

Ironically, Loop Returns, a company now nurtured with investments from both Affirm and Shopify, emerged as the beneficiary of these strategic divestments. Loop, with its commitment to making returns a more harmonious dance for businesses and customers, struck the right chord. It provided the perfect rhythm for more than 2,200 merchants, enabling them to reduce refunds and retain more revenue according to Pommen (not to be confused with Poma). Affirm’s new dance partner will prove to be a harmonious fit. The timing of the transition couldn’t have been better.

Loop’s CEO, Jonathan Poma, described the partnership as a grand assembly of industry leaders, sharing the common goal of orchestrating better returns for businesses and customers. Poma said merchants moving from Returnly to Loop “will be joining brands such as Princess Polly, Allbirds and Tecovas who continue to trust Loop to manage their returns. Joining Loop’s platform will positively impact your business by delivering meaningful cost savings — from reducing refunds to optimizing your reverse logistics processes.”

With Affirm passing the baton of Returnly to Loop, it enables the latter to optimize the returns experience for an additional 1,500-plus merchants. For these merchants, joining Loop’s platform holds the promise of transforming their returns process from a frenzied jig into a well-orchestrated waltz, with cost savings, enhanced operational efficiency, and a seamless customer experience.

As PYMNTS recently reported, Affirm’s acquisition of Returnly for $300 million in cash and equity occurred at a time when the eCommerce dance floor was more crowded than ever; the pandemic, hungry investors, and a quickening pace of adoption all influenced the all-cash deal and 10x return to Returnly’s venture capitalists. But as the music (ahem, economy) slowed, Affirm decided to refocus on its core operations, a move that echoes the strategic decisions of other key players in the eCommerce sector. Affirm’s CFO said it best:

This partnership with Loop and the divestiture of the Returnly business will allow Affirm to take an even deeper focus on driving strong growth and profitability in our core business, serving our merchant and platform partners with world-class payments and technology solutions, accelerating our direct-to-consumer offerings, and building on our deep capabilities in underwriting and decisioning.

Translation: Affirm needs to capture as much of this growth as possible to remain a viable BNPL business:

As this grand dance progresses, the trend is evident. eCommerce industrialists are recognizing the value of forming equity-based, strategic partnerships to address non-core operations, allowing them to concentrate on perfecting their signature moves. The strategic decisions of Affirm and Shopify to divest from non-core operations and engage Loop Returns in managing the returns process mark a significant shift in the eCommerce industry. In many ways, Loop executed the perfect coup.

By setting new trends and orchestrating new, long-term partnerships, these companies are poised to redefine the eCommerce landscape and its financing mechanisms. As Shopify, Affirm, and Loop continues to improvise and innovate, the dance of eCommerce is set to reflect improved efficiency, enhanced customer satisfaction, and increased profitability. It’s a dance where everyone is learning, adapting, and, above all, evolving.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams

Memo: Where Grocery Is Going (2053)

The future of the grocery industry is at a crossroads. Fiscal conservatism, technological advances, labor shortages, and shifting consumer preferences will dramatically shape the grocery landscape over the next 30 years. This essay examines these influences and proposes a strategic roadmap for the industry. According to recent data by global data science company Dunnhumby, there’s been a notable shift that will influence the rest of this report. For the last decade, speed of delivery and overall convenience were at the center of many buying decisions. Today, pricing and promotions may be eclipsing the perks of the eCommerce age. From the extensive Dunnhumby report:

2022 was all about finding the right products at the right prices and less about saving time. “Price, Promotions, and Rewards” has always been the most important need in our model, and it likely has been the most important customer need for much of the past 100+ years. The story of who has won and lost is also a story of the consumer’s insatiable appetite for a better deal.

The grocery industry, like any other, is not immune to the tides of change. I actually believe that it’s a leading indicator for what other industries may encounter. From economic concerns and the impact of generational behaviors to technological advancements, the industry is facing a multifaceted wave of transformation. Retail Dive’s recent publication of Dunnhumby’s report, “Grocery 2053: A Data-Driven Gaze into The Future,” provides insightful data, unraveling the complex layers that will impact grocery consumption over the next three decades. By analyzing these influences, we can forecast the shape of the grocery industry over the next 30 years. The Retail Dive summary provided great insights like these:

Harris Teeter, Wegmans, Publix and Sprouts Farmers Market are among the retailers whose market share is most vulnerable to fiscal conservatism over the next 30 years, according to Dunnhumby. Overall, Amazon, H-E-B, Costco, Sam’s Club and Walmart are best positioned to take advantage of the trend between now and 2053, when Dunnhumby expects the U.S. grocery retail industry to hit $1.9 trillion in sales, more than twice its size today.

At the heart of the industry’s evolution lies the pulse of fiscal conservatism, whose reemergence is driven by consumers’ worries about their economic future. Dunnhumby’s extensive survey of over 70,000 responses shows that price remains a decisive factor in grocery purchases, regardless of income. Generations Y and Z, more deeply impacted by the Great Recession and Covid-19 pandemic, express heightened concern over financial matters. While health and sustainability compete with cost as primary stressors for higher-income shoppers, cost is the primary obstacle for 60% of consumers seeking healthier food options.

This fiscal conservatism, expected to continue until 2053, signals a market shift toward value-oriented retailers. From Dunnhumby’s executive summary:

Between now and 2053, we see retailers doing much more: offering a grocery-helper budgeting AI, becoming their Customer’s trusted financial partner, and launching their very own private-brand-only, money-saving format of the future.

Amazon, H-E-B, Costco, Sam’s Club, and Walmart are poised to benefit from this trend, while the market share of Harris Teeter, Wegmans, Trader Joe’s, Publix, Sprouts Farmers Market, and other more premium stores might face challenges. This doesn’t spell doom for premium and specialty grocers, but it does necessitate strategic store locations, product differentiation, and customer experience enhancement to thrive.

Technological transformations will significantly impact how we manufacture and deliver products. I believe that it’s at times farfetched, but it’s important to recognize nonetheless. Dunnhumby’s Go-To-Consumer strategy suggests a potential revolution brought about by 3D food printing, synthetic biology, gene editing, and bioengineering. These technologies promise more sustainable and efficient value chains, valued at $72 billion. Drone deliveries, underpinned by a mobility tech market valued at $236 billion, could become the norm, eliminating the risk of disturbances like merchandise being stuck at ports.

The report also cited the promise of advanced connectivity, quantum computing, AI, machine learning, and no-code next-gen software development – collectively valued at $336 billion – powering the next phase of consumer insights. Retailers who plan to integrate these technologies into their vertical chains and customer experience strategies can tap into profound insights and emerge on top.

The digital revolution, driven by the rising importance of data privacy and the reduction of logistical waste, signifies a new frontier for customer engagement. Companies are expected to establish a presence in Web3, a space valued at $110 billion, reflecting the shift towards a more decentralized and user-empowered digital world. And generative AI, which we covered extensively here, opens opportunities for grocery retailers to actively participate in AI’s development, vetting, and regulation for AI-assisted grocery and commerce.

Virtual reality, and the advent of the metaverse, will redefine consumer engagement. With companies like Apple betting on mixed-reality headsets, it is wise for grocers to stay abreast of these technological innovations, even if they are in their early stages. I thought that this insight was pretty valuable:

Although the metaverse has diminished in importance in the new-tech hype cycle, its steady evolution over the last two decades suggests that it may reappear in a future horizon. The question is, just how soon will we get to that future? Apple’s recent announcement of a state-of-the-art mixed-reality headset is a strong indication that the technology world is still betting on the metaverse. Our position is that the metaverse is here, but still in the very early stages of adoption. It would be wise for grocers to keep track of all the innovation.

But back to physical reality. Labor shortages, another consequence of the pandemic, are a persisting challenge. Solutions lie in continued investments in AI and automation for unfilled jobs and in initiatives like the Kroger tuition program, Giant Food stores scholarships, Publix tuition reimbursement, and Walmart’s $5 billion upskilling initiative, which exemplify investments in education, skills training, credentialing, and employment frameworks. Amazon has its own upskilling program – 10 to be exact.

Career Choice—one of Amazon’s 10 upskilling programs—pays for educational opportunities, ranging from English as a second language classes to four-year college degrees for 750,000 eligible frontline workers. There’s no repayment clause should they leave the company. With 400 course options, 300 colleges, and 130,000 total participants to date, Career Choice is Amazon’s most expansive upskilling program. In September 2021, the retail giant pledged to invest $1.2 billion through 2025 in Career Choice and other upskilling efforts.

Amazon’s programs see success as illustrated through two measures: course completion and post-graduation job placement rates. The goal: retention and reinvestment. In each case, these upskilling strategies reflect the awareness that the industry is changing rapidly, wave by wave. The grocery industry, therefore, needs a comprehensive strategy to navigate these waves. In the short term, retailers can continue helping customers save money where it matters most, develop protocols with suppliers or accept price increases, and reassure customers through clear communication about mitigating impacts, such as inflation.

In the longer term, a more visionary approach is necessary. Retailers could consider developing AI-powered grocery budgeting tools, morphing into their customers’ trusted financial partners, and even launching private-brand-only formats of the future. Such strategies could allow grocery businesses to better meet customer needs while leveraging the forces shaping the industry.

The role of technology in this transformation is inescapable. Artificial intelligence and next-gen software development have the potential to revolutionize the way the grocery industry operates and interacts with its customers. The utilization of these technologies, coupled with a dedicated focus on data-driven insights, will enable retailers to provide fully integrated customer experiences and stay ahead in the fiercely competitive market. It’s imperative for grocery retailers to actively take part in the development and regulation of AI-assisted grocery commerce.

As the grocery sector steps into the metaverse, the way it engages with customers will evolve dramatically. Traditional brick-and-mortar grocery shopping could be supplemented, or in some cases replaced, by immersive virtual experiences. The successful navigation and adoption of these platforms could shape the future success of grocery retailers.

Summary

I believe that it comes down to people first. Investments in education, skills training, and employee development will not only help retailers address this issue but also serve as powerful marketing strategies. By portraying themselves as conscientious employers committed to their staff’s welfare and development, retailers can distinguish themselves in the crowded market.

The grocery industry is set to undergo a profound transformation in the coming decades. Amidst economic concerns and technological advancements, the industry must adapt to better serve its customers. Fiscal conservatism, technological breakthroughs, labor shortages, and the digital revolution are all ingredients in the recipe for the grocery industry’s future. Retailers who can effectively blend these components while continuously innovating to meet customer needs are those who will thrive until 2053 and beyond. The evolution of the grocery industry, therefore, hinges on its ability to transform challenges into opportunities, ensuring it remains a central part of our lives for generations to come.

The goal of grocery retailers will be to combine ease of purchase with an awareness of the pricing pressures that will come to define the next 30 years. Human resources, data science, and the employment of technologies available will determine which retailers do the defining.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams