No. 323: The Sociology of Brand

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Zero to one, in the age of Moore’s Law, is an interesting phenomenon to observe. We see it in software and other forms of technology. It’s a common enough sight. Like Facebook’s 2004 explosion or Slack’s adoption growth in 2015, the hockey stick is so frequently observed that we expect other types of businesses to emulate the same trajectory. But fashion doesn’t work the same, the best ones take time and discernment. They pop after confluences of events or press mentions or the right person wearing something at the right time. It’s a brand’s foundation that should be the KPI, not it’s sales CRM.

It wasn’t until I recently spoke with the managing partner of a sizable family office that I learned just how little knowledge there is about what is required to build an enduring apparel brand. One that can IPO or stand on its own as a privately-held, profitable company.

Fashion retail is different than other product categories. In ways, it’s applied sociology. A DTC fashion founder can manipulate lifetime value (LTV) through product iteration, SKU variance, loyalty programs, and savvy ad retargeting. But fashion will never resemble the predictability or dependence often found in the consumption of cleaning products, dietary supplements, beauty components, or grooming necessities. Those products are needs more than wants. Apparel is often the opposite, it’s the embodiment of prioritizing our wants over our immediate needs. The DTC apparel space is irrational.

However unpopular the notion, venture capital is well suited for consumer packaged goods. Perhaps accessories and furniture, as well. Those are the types of one-off purchases that can be simplified to a simple ratio: $ = (MSRP – COGS) / CAC. The $500 luggage brand can spend $100 acquiring a customer and still net nearly $200 per sale (assuming a $200 cost of goods). Luggage is a need – even if it’s a fancy aluminum one that shines through the terminals of the world. But there’s never been a product with more substitutes than fashion and that’s why it’s becoming clear that digitally-native apparel brands may not be suited for traditional venture capital.

Whether or not there is a brand to suit that trend or idea is answered by studying the society, not an algorithm.

I’d argue that the vast majority of fashion-based digital-natives have better odds of developing profitability, scale, and potential exit without traditional venture capital. The growth horizon for fashion is closer to 10-15 years than it is 5-7 years. That 5-10 year difference allows for improved founder discernment, real consumer connection, and a shot at a longevity independent of the customer acquisition methods that venture firms are subsidizing today.

In a conversation with former Rebecca Minkoff CMO and Sociology Ph.D Ana Andjelic [1], she remarked on this issue.

Contributor: Ana Andjelic

Fashion is applied sociology. It is a recording mechanism of our time. It captures values that a society emphasizes at the moment and these values can live as a dress, a song, as a tweet, as a t-shirt or graffiti.

A couple of years ago, it was a time of rebellion and Vetements was at its peak with hoodies that made one look like they’d just smashed a Berlin wall. Some of their garments wore massive shoulders that seemed to signal “stay away.” But values unfold. What set Vetements or Off-White on a path for success, today, actually happened a decade or longer ago.

It was then when luxury fashion began to feel the generational shift – in brands, media, consumers, platforms.

The arc by which a fashion brand becomes popular is long. For example, everyone is talking today about Harry’s and Dollar Shave Club as new models of retail. That as may be, their rise started a decade earlier when men’s grooming habits started to shift. They were first to capitalize on the shift in the culture of modern masculinity.

Gwyneth Paltrow is often quoted saying that she was crucial in making yoga popular. That’s probably true. This idea symbolizes the American consumer’s fascination with Veblen brands [2] and the spread of trends from affluent to everyone. Again, the arc of adoption is long and has more to do with social influence and the evolving social currency than with a specific business model.

The biggest indicator that VCs should consider is whether a society is ready to embrace a new trend or an idea. Whether or not there is a brand to suit that trend or idea is answered by studying the society, not an algorithm.

The practice of reducing every product and brand decision to a figure on a Google dashboard is as pervasive as ever. In a recent conversation with an early stage apparel founder, he cited the need to maintain a consistent, non-promotional price point for his apparel concept. He pinpointed a specific, luxury customer and worked to develop messaging and content around a consumer that we called “Lucy.” A married mother of three, Lucy was an active, suburban resident with a household income of $320,000. Her neighborhood scratched the highest strata of the middle class. Her disposable income hovered between $3,000 and $3,500 per month.

Within six weeks of launching the brand and with little sales traction, he gave up on Lucy. He exhausted his targeting budget. His strategy shifted to cheaper pricing and an altogether new target consumer: college students. He set aside three months of consumer and trend research because Google told him that sorority students were clicking through to his site at a larger proportion than “Lucy’s.”

This is a common refrain. Rather than patiently and diligently speaking to the consumer that the product was designed for, he chose to offload inventory at 40% of the intended product price. This led to lower sales projections, a high rate of product returns, logistical headaches, and a customer acquisition cost that was no longer economically viable. He didn’t make it to the next round of investment. By lacking patience and trust in clear market trends, this founder surrendered the potential for sustainability and the fruits of power laws.  He closed the doors to his company seven months later, writing off his own $90,000 investment. He cited “the data” throughout his short process from zero to zero.

Developing the foundation

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Investment thesis: seek out DTC brands that can achieve modern luxury KPI: 1/ upper-to-premium price point 2/ avoids promotions 3/ discerning / few wholesale partners 4/ low-to-no performance marketing 5/ polarizing 6/ brand-first 7/ can achieve 8-figure run rate by 18th mo.

But zero to one requires a longer horizon. And ironically, there are few greater analogs for this the development of the Walt Disney Company. Designed by Mr. Disney in 1957, the document below is a mapped promotional system of media, influence, merchandising, and experiential marketing that worked as a collection of nodes. These nodes interacted with the consumer in numerous ways with the intent of promoting a single entity: Disney’s creative talent.

Replace Disney’s emphasis on “Creative Talent” with the “Optimal Customer”, the types of consumers that market-moving fashion brands need to leap into the mainstream. It takes time to map a brand’s promotional system. Consider that Nike reaches consumers in several ways. Consider this week:

  • NBA team sponsorship
  • Social Media (see here)
  • NFL team sponsorship
  • USWMNT uniforms
  • Clever advertising
  • Resale sites like StockX and GOAT
  • NCAA sponsorship
  • Brand storytelling (see here)

Brands can adopt similar vision strategies to scale from niche to eight and nine figures in annual revenue. For apparel retailers: patience, discernment, and vision have never been more important. This is how traditional apparel brands were built. However, in the DTC era, it’s a method that has been set aside for early-stage growth hacks.

Consider Wone [3], the luxury leggings brand. By starting with a small “friends and family” round before taking a round of non-traditional venture capital from Kate McAndrew and Bolt Ventures, quick scale took a back seat to the right scale. This approach allowed founder Kristin Hildebrand to focus on exclusivity. As a result, retailers like Barney’s recognized that their clientele were drawn to the brand. Net-A-Porter and Equinox Hotel followed. From Kayleigh Moore’s Forbes article on her sales strategy:

For WONE founder Kristin Hildebrand, it was Paul Graham’s Y Combinator article “Do Things That Don’t Scale” that sparked the idea to use a limited access model. She decided to build a company that was focused on prioritizing its best customers rather than mass audiences and sales numbers.

To many observers, long-term growth potential in digitally-native fashion is often disguised as a lack of meaningful scale. The right kind of development takes much longer than the wrong kind. From No. 277’s The Power of 100:

Without a strong group of early adopters, you will not efficiently achieve the attention of the masses. The first 100 are the foundation. Without the support of the 100, the masses will not adopt. Made famous by Simon Sinek, heed the diffusion of innovation theory: the early majority will not try something until someone else tries it first. Brands are judged by this early majority.

The alternative to the right kind of growth is scaling exclusively by paid impressions. There can and will be multi-billion dollar apparel brands built in the DTC era but they may not be conventionally built or traditionally funded. While the technologies behind them may not be particularly innovative, the founder’s mentality must be.

Statistics is a regression-based form of math that is founded on the belief that what worked in the past will work in the future. But unlike software and technology, apparel brands cannot be built in a vacuum. Society and its influences are as a part of apparel products as the threads themselves. To build an enduring brand, there must be an accounting for the variables that you won’t find on a dashboard.

Identifying those brands that are capable of transcending online retail is more art than science. And that means that traditional metrics are deceiving. It also means that modern luxury is for the taking.

Read the No. 323 curation here.

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[1] You can follow Ana on Twitter here.

[2] More on Veblen brands here.

[3] A 2PM investment

Member Brief: Lore’s Great Challenge

Marc Lore is right. On the heels of an explosive report by Recode’s Jason Del Rey, 2PM delves into the forces in play. Amazon alum and Jet founder Marc Lore has always had a tough task within the walls of Walmart Incorporated. Consider the influence of history on his task at hand.

Este resumo para membros foi elaborado exclusivamente para Membros executivosPara facilitar a associação, você pode clicar abaixo e obter acesso a centenas de relatórios, à nossa DTC Power List e a outras ferramentas para ajudá-lo a tomar decisões de alto nível.

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No. 322: On DTC and Public Relations

As digitally native brands go, high-growth DTC concepts find their way to the halls of creative engines like: Bullish, Gin Lane (now Pattern Brands), Red Antler, or King & Partners. A subset of the dozens of DTC companies that launch each week, these digital-natives have likely completed a raise or they are well on their way to closing that first $1 to $5 million in seed capital. Primed to achieve outsized success at launch, it’s not uncommon for a small selection of DTC brands to finalize cap tables before their products are finalized or go-to-market strategies are decided upon.

Before a potential customer can determine their affinity for a product, or tolerance for its price, or their appreciation for the go-to-market process, or even intensity of their brand preference – a company’s PR precedes many of these decisions. Product, price, process, and preference share two letters: PR.

Depending on the product being sold and the company’s average order value, key performance indicators vary but CPA, CAC, LTV, COCA, and ROI are considered the most important. The aforementioned measures tend to be quantitative. For PR agencies, however, the majority of the key performance indicators are qualitative in measure. Here’s a short list of those qualitative KPIs.

  • quality web traffic: did the campaign reach the right audience?
  • media mentions: was there buzz around the campaign? did the promotion earn media?
  • content quality: a sentimental analysis (how it was received by potential consumers) and prominence (was the campaign distinguished?)
  • share of voice: media performance in comparison to the brand’s competitors. Which company has the greater share of attention
  • social engagement: the volume of potential consumers that interact with the story
  • impressions: while extremely difficult to measure, this KPI is the number of views across all media sources and platforms

And here is a list of KPIs quantitative measures:

  • lead volume: the success of the campaign as determined by contacts received via email, opt-in, or enquiry form
  • advertising value equivalency (AVE): the (volume of media) x (ad cost per impression) at volume. PR firms often measure what a client would have paid for the same exposure through traditional advertising.
  • revenue: did the efforts of the PR agency impact top line revenue? Sophisticated efforts include attribution monitoring across traditional media channels and social media.
The Harry’s “pre launch” landing page. KPI: captured emails. Waiting list? “100’s of thousands.”

Though the DTC era chatter tends to revolve around the vaunted LTV:CAC ratio, it’s time that we consider PR has potential to be an x-factor for brands looking to efficiently grow. From Member Brief collection’s Retail Media Report: “On February 15, 2010, warbyparker.com went live. Within 48 hours of GQ’s dubbing the company “the Netflix of eyewear,” the site was so flooded with orders for $95 glasses that Blumenthal temporarily suspended the home try-on program.” This is not the only example, Harry’s executed a similar approach to use a PR agency to drive pre-orders by collecting tens of thousands of email addresses. And Away launched with the help of Sunshine Sachs and then Azione PR and a clever plan to sell coffee table books before their now-famed carry-on’s were available to fulfill. From her recent interview with NPR’s “How I built this“:

So basically, you had to buy the book for $225, which was the price of the first suitcase. And we sold hundreds on the first day. And a bunch of other [news] outlets picked it up all of sudden. The people [featured] in the book were like really excited about it.

By nature, public relations is a wild card. Media efforts can launch a brand to sold out inventory. Or the launch can fail and lead to a terminated PR agency. Sometimes, both can happen – depending on the circumstances. With retainers ranging from $15,000 to $30,000 per month – founders and PR executives must be aligned on approach and expectations.

Product, price, process, and preference share two letters PR.

The direct-to-consumer (DTC) era is maturing and with that growth comes a shift in priorities. To differentiate themselves, brands have begun to emphasize efficient acquisition and improved brand equity. Digital-only has evolved into digital-first. Until recently, challenger brands maintained an insatiable appetite for a narrow scope: paid advertising. It’s not uncommon to see brands focus spend on a limited number of platforms. These platforms shouldn’t be a surprise: Instagram, Facebook, and Google. And perhaps, Pinterest, Snapchat, and Twitter – if the brand is more risk tolerant.

A Different Era: Zero to one

For top DTC PR agencies like Derris, Moxie, Azione, and Jennifer Bett Communications, the stakes are always high. DTC brands that invest in public relations retainers require an ROA that resembles what they’d otherwise earn through quantitative spend (Facebook, Instagram, Google). But to do so, it takes a mutual trust, a shared vision, a bit of risk, and a lot of luck. One macroeconomic development works in the favor of PR agencies: the DTC ecosystem has spawned countless of traditional and independent media brands who’ve modeled their growth on the coverage of breaking news and analysis of burgeoning DTC companies.

In Member Brief: Retail Media, we featured a short list of the reporters who were most-read by the 2PM audience.

[table id=46 /]

Retailers shifted to a leaner go-to-market strategy, over the last decade. In turn, a growing number of publications, consultants, reporters, and analysts expanded their coverage to feature the strategies, successes, failures, and macroeconomic effects of online retail. Just 5-7 years ago, stodgier business publications covered major retail. Coverage of DNVBs were limited to Warby Parker, Dollar Shave Club, Bonobos, and Harry’s. Capacity was limited and so were the perspectives. But over time, newer publications (and reinvented traditional outlets) began to cover developments in greater detail. This democratized coverage and gave readers a unique look into companies that were in an earlier stage; these companies are more vulnerable (and interesting) than ones who’ve raised venture in the nine figures.

Retail media’s analyses have expanded and resources have grown to cover the ecosystem with greater depth and a growing frequency.

Quite frankly, the DTC media industry has evolved into sport. This, especially, as the coverage has become more lucrative. Publishers like Forbes, Fortune, Fast Company, and Inc. now cover early-stage, direct-to-consumer developments en masse. And this is not just limited to traditional media. Without this new era of direct-to-consumer retail, it’s unlikely that platforms like New Consumer, Lean Luxe, or this one would exist. Digiday‘s recent decision to expand their coverage of the DTC era by launching Modern Retail, a familiar format, confirms this. The term “ecosystem” has taken on new life. In response to an early-draft of this report, Paul Munford of Lean Luxe had this to say:

Because people’s first interaction with Lean Luxe is the newsletter we publish or the reporting that we do, they tend to think of Lean Luxe as a media property. In some way it is, and that’s always been a core function (and will continue to be). But by far, pound for pound, the most powerful component of the Lean Luxe ecosystem is the private Slack channel that subscribers, for the moment, have to qualify for in order to be considered. Not only is it a place for daily connection between users around this shared interest in modern brands and business, it’s also, more importantly a place that facilitates real world connection offline.

Platforms like LL have amplified impressions and product discovery. Rather than focusing on reach, Lean Luxe chose to focus on depth, a characteristic of many of the most effective PR nodes throughout the ecosystem.

What does this mean for DTC and public relations? While it may be easier than ever to submit a quote for a major tech, lifestyle, or retail publication, market-moving coverage has never been harder to achieve. Alternative forms of PR will be considered and KPIs will continue to be developed. A press mention isn’t the validation that it used to be. But PR agencies have never been more essential to the lifespan of DTC brands. And the best agencies are finding new ways to reach primed customers, online and in real life. In some niche circles: forums, Slack chats, and direct email – product buying decisions are made and brand affinities are formed. Haus [1] cofounder Helena Price Hambrecht saw this first hand when with the successful launch of her spirits brand. She opted for personal connections over the traditional KPI: optimizing for top funnel impressions:

Influence is not follower count. Influence is years of making meaningful connections in the industries you’ve chosen to work in. It’s building a reputation for doing what you say. It’s a track record of putting out work that doesn’t cut corners. If people expect quality work from you, they’ll invest in whatever you put out next.

It’s now a matter of mass impressions (lower conversion) vs. niche influence (higher conversion). As customer acquisition continues to evolve, PR must evolve with it. One observation is abundantly clear for DTC founders: revenue is the KPI. For digital-natives looking to launch with velocity, they’re opting to set aside impressions as the primary KPI. These brands are optimizing for a genuine and deep connection.

Read the No. 322 curation here.

Relatório de Web Smith | Por volta das 14h

[1] Haus is a 2PM portfolio company