This Question Will Make Or Break Your Business


"Where Is My Demand Coming From?"

You must answer this questions if you want to keep your fashion brand alive in today's retail environment.

This question represents a seismic shift in the art and science of retailing–a shift that has crept up on many brands who are now struggling.

Before we get into it, I want to give a big thank you to our launch partner: TESMO. TESMO is a full-service Amazon management agency for DTC brands.

TESMO specializes in scaling the Amazon channel for tricky categories like fashion. If you've considered launching on Amazon, or are unhappy with the state of your Amazon business, you should reach out to them.

Quick note: this issue is a bit more strategy-focused. But I felt like I had to put this up front based on feedback I got on the first newsletter.

This newsletter will be 50% tactics you can apply ASAP, 30% strategic ideas you can apply in a few weeks, and 20% "big picture" strategy that will inform your overall approach to business.

This edition sits in that 20%.

From “What To Sell” To “How To Sell It”

From the birth of ready-to-wear as a category through roughly 2016, the most important question in fashion retail was: “What is the right product to bring to market?”

The “market” was a pool of consumer demand that always seemed to increase–first via foot traffic in malls, then via cheap online advertising CPMs.

But around 2016, the eCommerce ecosystem reached an inflection point. Barriers to entry all but disappeared; thousands of DTC brands were born. Web traffic became harder (and more expensive) to come by. And much of that traffic had lower purchase intent than ever.

To succeed as a retailer today, you need to generate your own demand and get product right. This shift caught retail veterans like Mickey Drexler and Andrew Rosen off guard.

There are only two ways to grow the topline of any business:

  1. Bring in new customers
  2. Win more spend from existing customers

The DTC channel is high churn. In most single-brand eCom businesses, only 23-27 of every 100 new customers you acquire will ever make a second purchase. Only 5-8 of that 100 will reach purchase number four. Churn continues on from there.

This means that, unless you’re a true luxury brand, you must acquire new customers to grow. In fact, you must acquire new customers to maintain a baseline level of revenue.

For every product you produce, you need to answer the question:

Where is my demand coming from?

***

There were almost 175 million U.S. Amazon Prime members in 2023–that's about half the country! And Prime over-indexes for high income households who love to shop online–the perfect audience for a fashion brand.

Getting Amazon right can unlock life-changing scale. But Amazon isn't just another wholesale channel. It has its own conventions, unspoken rules and best practices–if you ignore these rules, Amazon shoppers will ignore your brand.

TESMO is a full-service Amazon agency that has scaled some of the largest and fastest growing brands on Amazon. They're channel experts who have managed over $500 million in Amazon sales since 2008. And they specialize in complex categories like premium apparel.

Click here to book a call with the TESMO team to discuss the size of your brand's Amazon opportunity.

***

The Old Planning Process Doesn’t Work Anymore (But This Does)

The old digital marketing and eCommerce playbook for fashion was built in the era of cheap web traffic. It typically goes something like this:

→ Set a blended ROAS target for digital marketing based on the P&L. If digital marketing is 20% of topline revenue, the blended ROAS target is 5x (100/20 = 5).

→ Build a traffic forecast for each marketing channel based on last-touch attribution. Forecast conversion rate and AOV so that all three inputs tie to the annual sales goal.

→ Determine how many sessions each paid channel needs to generate. Forecast the CPM and conversion rate by channel to determine the budget for each paid channel.

Brands who still use this process will find it less and less reliable as the years pass. There are a number of reasons this process no longer works:

  • Channel CPMs are much less predictable and usually rise faster than projected.
  • The forecast doesn’t account for traffic quality or buyer intent, so the conversion rate component is often wrong.
  • New vs repeat customer behavior isn’t considered. Most brands underestimate their acquisition needs, and acquisition is more expensive than retention.
  • Marketing and merchandising teams are siloed. Merch has no visibility into the buying preferences of specific channel audiences, which can lead to lower conversion rates.

To forecast successfully, fashion brands need to build their marketing strategy process around new customer acquisition:

Forecast sales from repeat customers, then subtract this number from the total annual sales goal. The remainder must be generated by sales from new customers.

Forecast the number of new customers to acquire based on AOV. Forecast the cost to acquire a customer based on historical trends. This is the acquisition marketing budget.

Allocate the budget across marketing channels based on their efficacy. Determine if channels have room to scale relative to their budget, or if the brand must expand its channel mix to hit its growth goals.

Marketing And Merchandising Must Be In Dialogue

In many eCommerce organizations built in the cheap traffic era, the marketing department takes its marching orders from the merchandising team:

“These are our key investments for the season, go out and sell them.” - the Merchants

To a certain extent, this is the marketing team’s responsibility. But no marketer, no matter their skill level, can manufacture consumer demand for a brand new product from scratch every three to six months.

The underlying assumption here is that merchandising has a near-perfect read on the market (or the brand is so powerful that they dictate trends–rare).

But these same brands produce collections on a six to twelve month timeline. The modern trend cycle operates on a six to twelve week timeline. With that lag, it’s harder than ever for merchants to consistently capture the zeitgeist successfully.

Instead of attempting to predict the future from twelve months out, successful brands build a diverse portfolio of products:

  1. Core products that customers return to season after season.
  2. Products developed and marketed to become tomorrow’s core.
  3. Brand statements–new ideas where the marketing team will have to work hard to drive adoption.
  4. Retention builders–products that appeal to the brand’s loyal customers and VIPs.
  5. Products designed into the preferences of “in market” shoppers in the brand’s key acquisition channels.

To develop that last bucket successfully, merchandising and marketing teams need to form a dialogue.

In my Meta Ads Playbook post [link] I described products that tend to “work” well in the channel. Smart merchandising and design teams will dedicate a portion of the assortment to products that check these boxes (if the brand is using Meta to acquire customers).

Meta and other acquisition channels that offer up “in market” audiences are like key wholesale accounts.

The channel’s captive audience has its preferences. In wholesale, the store buyer edits your assortment based on the shopper’s preferences. On Meta, your team (marketing & merch working together) functions as the buyer.

Two Powerful Rules For DTC Success

Two rules for succeeding as a fashion brand in today’s retail environment:

  1. You must take accountability for generating your own demand.
  2. You must shape your marketing, merchandising and financial strategies to suit your biggest source(s) of new customer acquisition.

“But wait!” you might be saying, “Some brands don’t have a single source of new customer acquisition, and they make trends, not follow them!”

You’re right. Globally recognized status symbols like Chanel, Hermes and Louis Vuitton aren’t out there shooting “lo-fi” Meta ads.

Awareness and demand for these brands is reinforced by pop culture, local community and even family (“My mom always bought Chanel lipstick on her birthday”, etc).

Because these brands are established status symbols, many people will buy whatever they’re selling. Marketing and merchandising is a different game.

Your brand probably has a small cohort of incredibly loyal customers who will buy almost anything you produce. But this cohort can’t spend enough to offset the churn that most DTC businesses experience.

That said, positioning your brand as something rare, or as a status symbol, is actually one strategy for creating demand.

If you choose to go that route, you might have to accept a few years of flat or declining sales as you reposition yourself. And there is no guarantee that your attempt will be successful or sustainable.

Brands grappling with the challenges of being self-funded, hitting investor targets or managing the company’s share price typically need to take a more cautious approach.

Part of that approach involves tapping into “in market” demand. And tapping into “in market” demand effectively means playing by the rules of audience brokers like Meta, Google, Amazon, wholesale accounts or your favorite affiliate network.

This newsletter will give you tactics and strategies for balancing those two realities: optimizing your “in-market” audience capture while profitably building your brand.

But to take advantage of what I’m sharing, you’ll have to acknowledge that the old ways of doing things simply don’t work anymore. It’s time to try something new. Are you ready?

Another quick note for those who made it to the end: you're halfway through the free trial period for DTC (fashion) Decoded. In two weeks, every other issue of this newsletter will go behind a paywall.

Click here to become a monthly member, or click here to save 15% on an annual membership.

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