What can the pandemic-induced retail demand slump and reseller bot fatigue teach us about emerging brand strategies? It’s taught us to get back to the basics of supply and demand. Brands that understand this fundamental economic concept are embracing the art of “the pre-order”.
At the onset of the pandemic many retailers had to close their doors for an extended period of time. This move away from brick and mortar accelerated the shift to online. However, retailers who were reliant on in-store sales and the brands whose business was dependent on wholesale to brick-and-mortar retailers were caught in the cross-hairs. Retailers resorted to liquidating prices before the typical sales cycle in order to move inventory. In some cases they returned or cancelled orders from their brand partners.
It was at this moment that brands had to face head-on the excess that had become characteristic of retail. It was threatening their margins and in extreme cases, their very existence.
I made a point to pay special attention to the way that some of the brands I most respect would respond and fare against these headwinds.
I’ve been a long-time fan of @AmySmilovic, Founder and CEO of @Tibi, and look forward to her daily IG hot-takes on the evolving Brand and Retail relationship that’s been decelerated by the Pandemic. Amy’s most poignant point is that pre-pandemic, many brands felt the pressure to over-produce by their retail partners. This often left them holding the bag when the inventory didn’t sell.
How did Amy plan to buck the trend? By previewing Tibi’s fall collection to her captive IG audience and introducing the concept of reserving items to be sure the brand produced just enough to meet demand.
A few weeks later I read an incredible thread by @jayvasdigital about @Gymshark’s glowing financials (even before they announced their partnership with General Atlantic) and what stood out to me was their negative cash conversion cycle (-CCC).
What is a cash conversion cycle? It’s a measure of how many days it takes for a business to turn invested cash (usually purchased inventory) back into cash in its bank account.
A negative cash conversion cycle means that the retailer’s vendors are effectively financing their operations. This is not typical for 99.999% of retailers. One way to achieve -CCC is by taking preorders which means that customers are paying for production and demand is guaranteed.
Finally there’s TELFAR’s #securethebag promotion which was announced on Monday and is running today for 24 hrs. It was after this announcement that I paused to consider if this isn't a tipping point of a new strategy for highly coveted brands.
Photo: Telfar
Telfar’s eponymous shopping bag, better known as the “#BushwickBirkin” is a highly coveted item and has risen to meteoric fame for good reason. As eloquently stated by Writer, Art Critic, and Fellow Hoya, Antwaun Sargent in an article for Dazed, “When it comes to inclusivity, Telfar isn’t a brand paying lip service; the clothes are created from and speak directly to ideas of identity, primarily being young, a POC, and queer in America. It has a kind of integrity and authenticity that most brands could only dream of. “(The bag) captures the fluidity of a crowd who are not really interested in what the fashion pages are saying. They make and break their own trends. I have generally seen a certain generation of QTPOC wearing the bag downtown and in Brooklyn. It’s like the first it bag to truly represent who they are. It makes them feel something.”
Telfar’s promotion is a direct response to the assault reseller bots staged against their July 23rd restock. Taken from Telfar’s site, “We are not about hype and scarcity. We didn’t set out to make an impossible to get product. The whole point of our bag is accessibility and community.”
With this promotion Telfar has simultaneously opted out of the scarcity hype cycle, further endeared themselves to their customers, and caused resellers major pain. I've already seen the resale price of their bags plummet on the grey market which means resellers hoarding inventory will have to sell at a loss. I think Telfar Clemens would’ve made this decision during any economic climate but it certainly doesn't hurt that in 2020 several retail journalists are reporting that consumers are rethinking their relationship with brand hype and showing a preference for brand values they connect with.
Pre-orders are the perfect dance between brand and customer. The notion of scarcity still exists to lend to the idea of exclusivity only now instead of limited inventory it’s the limited time customers have to make a buying decision. Once the customer places a pre-order the brand has an attentive audience until their items are delivered. This creates an opportunity for further brand-engagement and up-sell, and the brand can order just the right amount of inventory and pay their supplier with money from the pre-order sale.
How can a brand launch their own successful pre-order strategy? While it sounds like the perfect approach for boot-strapped businesses there are a few important prerequisites. First, pre-orders require you to build awareness with customers/ potential customers who see value in your brand. Many experts have proclaimed that the best way to start any new venture is by building a community/ audience first and it couldn’t ring truer in this case.
While the approach may sound novel it certainly isn't new. Pre-orders have been a terrific success in the video-gaming space. Gaming publishers invest time and effort into crafting their pre-order strategy to generate buzz and early sales for their titles; and for good reason, pre-orders account for an average of 28% of the games’ sales.
Given the recent trend and obvious benefits, is access the new luxury or will exclusivity continue to reign supreme? Furthermore, if access is retail’s new ethos will other retailers be able to achieve the elusive negative cash conversion cycle?
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This article originally appeared in the Diff Agency blog and has been published here with permission.
