Speed is of the essence for retail firms to survive

Donald Trump is no slouch on Twitter: after all, he carved a route to the White House, lifted global markets and managed to revive confidence in the US economy with little more than a tirade of tweets. But compared to Katy Perry, he’s just an apprentice.

Perry, the California-born singer/songwriter has the world’s biggest Twitter following; at 93 million it’s four times Trump’s. And at 219 million across all social media, her followers outnumber Brazilians. Not shabby going for a 32-year-old — an age, not so coincidentally, that makes her a member of that least-understood of human tribes, the millennials.

As the biggest demographic bloc in the US, the world’s richest and most influential consumer market, 18- to 34-year-old millennials are the mother lode for apparel companies seeking safe passage through some of the most treacherous trading waters in living memory. And Global Brands Group’s Bruce Rockowitz is betting Perry can help him tap some of the millennials’ US$720 billion annual spend with a line of footwear under her name that’s due to launch in the spring of 2017.

“In the last eight years, the consumer is much more influenced by social media, much more influenced by celebrity, they’re much more into experiential stuff as opposed to physical things,” said Rockowitz, chief executive officer and vice chairman of the group spun out from global sourcing and logistics company Li & Fung in 2014.

Clothes by themselves used to be an important way for consumers to express their identity, he said in an interview at the company’s Hong Kong offices in a rapidly gentrifying warehouse district of Kowloon. “What is a way to show who you are today is the picture you take of where you are, what you’re eating. That is more important than the clothes you’re wearing.”

Not that Rockowitz is suggesting a mass abandonment of clothing just yet. His fallback line when asked just how deep the digital disruption of global retailing can get is to cheerfully draw a verbal red line: “People are going to always wear clothes. I don’t see that going away … at least, I don’t think that in my lifetime I will.”

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Technology won’t fundamentally alter the business of manufacturing clothes. What it can do — and has been doing — is transform the way consumers buy things, he said.

People can now choose multiple channels through which to shop: online, bricks & mortar, a hybrid solution; they can opt for malls, own-label stores, discount chains or more social outlets. Technology has also eliminated distance, to the extent that logistics chains can often speed a pair of jeans across a country faster than it takes to catch the train to a neighboring town and visit its mall — and cheaper too. The increased speed of processes has removed enormous inefficiencies from design-to-manufacturing and from factory gate-to-customer.

Digital disruption is handing greater power to consumers, too. Innovations include crowdsourcing of popular designs and the ability of social media channels to spread new fashions globally in seconds. Companies unable to adapt as design cycles get brutally compressed are getting crushed by the sudden changes, Rockowitz said.

“Speed is everything: if you can wait until a customer comes into a store and know what they want to buy and produce it, then you never have a markdown,” he said. “Sales has been the killer of all these companies`

Changing consumer demands

A company caught out by a rapid change in fashion may discount products to clear unwanted inventory and begin a fresh design cycle. The trouble is that if a T-shirt retails at eight times what it costs to bring to market, to then sell it at half price will wipe out more profit than any incremental rise in manufacturing or shipping costs is likely to. A common assumption after the failure of American Apparel, which went  bankrupt in 2015, is that the cost of making clothes in the US was unsustainable. A more likely villain was a too-slow response to changing consumer demands.

Global Brands makes most of its revenue manufacturing and selling products under license from brands such as Disney, Calvin Klein and Michael Kors. The group also has its own brands, such as Frye and Aquatalia. 

While owners of brands will typically hold onto them throughout their product life cycle, Global Brands says its licensing model gives it the flexibility to pick up and let go assets as needed. The company also describes itself as “channel agnostic,” meaning it is free to pick whichever sales and distribution options it deems best at any given time. In today’s world, that means “we need to sell to bigger box people who buy multiple brands: Amazon, Costco, TJ Maxx.”

It’s a model that appears well suited to the emerging digital landscape.

“We don’t have a lot of our own stores; we sell to other people,” Rockowitz said. “We don’t own a lot of brands, we control brands by licensing them. We don’t hold a lot of inventory; we are very flexible.”

Consumer confidence in the US is testing levels not seen in a decade

In November, 2016, the company reported a 15% gain in revenue to US$1.84 billion in the six months to September 30. Adjusted net profit rose more than fourfold to US$44 million.Total margin was 35.5% and Rockowitz said he sees that trending up to 40%.

Given the challenging economic backdrop, the strong growth numbers were a vindication of the business model, Rockowitz said, adding that he expected further improvement in the coming year … which brings us full circle to Donald Trump once more.

Trump is “going to be driving the future,” Rockowitz said, pointing to sales already rising before he’s even got to the White House. “Trump has done what the central banks couldn’t do for the past eight years.”

Consumer confidence in the US is testing levels not seen in a decade, on expectations of massive infrastructure spending to stimulate economic growth. The University of Michigan sentiment index reached 98 in December from 93.8 in November. There are even signs of a pickup in Europe, with the key gauge extending a rising trend that began about four years ago and is also testing multi-year highs. 

“We’ve never had the luxury of a solid economy,” Rockowitz said. “I’d love to feel what that’s like.”