TFR | Strategy Consulting

Growth evolution: Dinosarus and aliens in Fashion Industry Long Tail

The chart above shows the Compound Annual Growth Rate and revenues (size of the bubbles), from 2007 to 2015, of some of the global leading retailers, including fashion, electronics and foods retailers. Inditex is still the king of fashion retail, H&M is fighting for the lead (but Inditex net income is 60% higher than H&M in 2016). Carrefour’s CAGR is around 0% while other fashion retailers like Fast Retailing (i.e. Uniqlo) and Primark are growing +13-15% CAGR.

Primark is a fast-fashion low-cost retailer and took advantage of the economic crisis in Europe, so we will see how it performs in a post-crisis situation. We are already seeing how private labels in the Foods industry are decreasing their market share against national brands. When the customer has more money in their pockets, they switch again to national brands.

Some of the companies in the chart are Dinosaurs companies that grew through real estate, the oldest strategy of retail and the one that made succeed Walmart or Inditex, both looking for market share. I’m talking about pure brick-and-mortar retailers who invested in tangible capex (stores). But something changed two decades ago. In 1994, Amazon was founded and the Long Tail economic model in retail began to show its power.

There are three companies growing above 25% CAGR: Apple, Yoox-Net-a-porter and Amazon. Net-a-porter was founded by Natalie Massenet in 2000, as a concept catalog in website format. In 2014, Net-a-porter launched Porter, a new magazine with an associated app and digital version. Nowadays, there are no barriers between business, even retailers, media and online services are collaborating. Big data is too interesting for retailers and CAPEX is switching from bricks to IT and digital. A clear example is LVMH investment in the online e-commerce platform “24 sèvres” and online media Nowness.

Yoox and Net-a-porter merged in 2015 to become the world’s leading online luxury fashion group. Natalie Massenet left the company she founded and joined the main competitor, Farfetch, on February 2017. The Long Tail of fashion is continuously fostering new businesses to appear on the map, but also to fail due to extreme competition. We will see in a future, if centenary businesses prevail.

Back to Farfetch, this is a fashion “unicorn” founded in 2007, offering more than 3.000 designers clothing labels and fashion brands with revenues of €650 Millions. Farfetch is not only selling products but offers an online service platform for small fashion retailers too. Farfetch is another example of a company taking profit from the long tail demand. The fashion unicorn offers a complete assortment of brands, from leading brands to niche brands, from local stores that are not able to find a platform to increase their traffic. It’s the Robin Hood of local stores, luxury niches, that find the way to sell globally thru the online platform. Farfetch is growing +50%, not reaching break-even yet, but is preparing for an IPO in 2018-2019.

From hits to niches: the rise and fall of Zebra Society

It’s difficult to understand the Long Tail economy not mentioning what Chris Anderson (The Long Tail: Why the Future of Business is Selling Less of More – C. Anderson, 2006) described as the death of previous Blockbuster World, built under massive media, celebrities, mass-market products, Hollywood, MTV…that resulted in a global, clone society: the Zebra Society. Zebra as a metaphor for a non-differentiated, extremely homogeneous society. Everything powered by a new kind of Colonization, where market standardized people under the 20/80 Pareto rule. The 20% most popular products gave 80% of revenues, so everyone bought the same products.

“A global society oriented by the Bible of mass-consumption, which resulted in a global, clone society: the Zebra Society, based on 20-80 Pareto rule…”

At the end of the 20th century, the whole retail system progressively evolved and new joiners appeared on the map, like eBay, Google, iTunes, Spotify, Netflix, Amazon…Today, online distribution allows us to buy any product, from hits to niches. We entered a world of abundance, with a boundless assortment. The demand curve is less concentrated in the head, lengthens and fattens the tail covering every single need.

An Amazon employee described the long tail as follows: “We sold more books today that didn’t sell at all yesterday that we sold today of all the books that did sell yesterday”.

The industry side

A good example of long tail is the music industry. 15 years ago, you could go to a Walmart store and find a huge library of 60,000 tracks. Today, you can find more that 30 Million songs in Spotify. Another one is mass media. Twenty years ago, we could watch not many television channels and most of the people watched the same movies, same news, same opera shows. This was the golden era of Hollywood. Culture was global, and it was difficult to find something authentic and different. If you were looking to experimental films, niche productions, you had to go to vintage cinemas, little hidden “museums”. Nowadays, we can register on Netflix, Apple TV, You Tube… and watch thousands of channels! People are able to find their real passion, the movies they like.

The customer side

The media industry is currently facing great challenges due to emergence of independent amateurs, influencers, photographers, bloggers… that are a serious complement to The New York Times or the CNN. Not all of them are 100% substitutes, but complements to historical daily newspaper or mass media television news. Those corporations have seen the birth of competitors by surprise. They were used to look to their neighbours, their alter agos and lost perspective. Individuals became new journalists using their smartphones cameras, tweeting, writting posts and using many social media tools to explain the reality without intermediaries, without filters. Something similar happened in the fashion industry, where most influential media and prestigious gurus saw their power diminish.

 

The Fashion retail “Long Tail”, from hits to niches

When fashion retailers Dinosaurs were comparing their market shares and footprint, suddenly, thousands of “aliens” (e.g. streetwear brands) appeared little by little on the long tail. Blockbusters were losing market share against niche products and services. 

Henry Ford said “a customer can have a car painted any color he wants as long as it’s black”. Today, the customer will answer: “I want it now, and customized”.

So, Ford specialized in We-profiles. Amazon and niche players are already targeting the “I-profile”.

Amazon started selling books and became the biggest library ever, having more books than millenary traditional libraries in just a few years. Today, more than 55% of customers turn first to Amazon in product search. Shoppers use Amazon to find a product, its charateristics and recommendations. Walmart is investing in niche players and online to compete to Amazon and recently acquired Bonobos, amongst others.

What are the key differentiating factors of this special niche brands?

Everlane: Radical transparency. The San Francisco pure player give visibility of their suppliers, like the ones in Ubrique, a village in the South of Spain known as the manufacturing paradise of handmade luxury leather goods.

Trunk Club: Subscription-based clubhouse to find clothes that fit customer’s lifestyle and budget. Customers will receive a selection of clothing that fit with their style and will keep the ones they like (Trunk Club was acquired by Nordstrom in 2014).

The Reformation: Eco-friendly sustainable brand that products mainly in Los Angeles (USA).

Satisfy: Collective of multidisciplinary artists/ runners from Paris, New York, Los Angeles, Stockholm and Kyoto.

Vestiaire Collective: Europe’s leading online marketplace for buying and selling pre-owned luxury fashion.

Brownie: Clothing collections that incorporates the season’s latest trends targetting Millenials. It’s a “mini-Zara” producing badge collections, near shore and with high level of quality. Shop assistants are guiding the customer during the shopping experience. Brownie implemented RFID system in June 2017.

El Ganso: A roguish alternative that offers relaxed and affordable clothing for spontaneous individuals with class who are in search of a unique style (L Capital acquired 49% of the company in 2014).

Third Love: Bras tailored to both size and shape, and come in exclusive 1/2 cup sizes.

Cuyana: Style over trends, quality over quantity, Fewer, Better.

Jack Erwin: Simply designed, well-made and well-priced men’s shoes.

Bonobos: Founded by Brian Spaly (also founder of Trunk Club), Bonobos is a menswear brand offering the perfect fit pants, a personal guideshop and customer service Ninjas. (Walmart acquired Bonobos in June 2017).

Rent the Runway: Online service that provides designer dress and accessory rentals. This is renting versus owning, a trend that impacts many industries: Nownership.

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