Fashion Briefing: Are new privacy laws driving DTC brands to third-party retailers?

This week’s briefing looks at the impact of privacy changes on brands’ choice sales channel mix. Plus:

Are new privacy laws driving DTC brands to third-party retailers?

This week, I went down a bit of a rabbit hole, curious as to whether Apple’s recent iOS privacy updates are driving brands to increasingly sell in wholesale channels. A couple of conversations with industry insiders and comments during recent earnings calls hinted that such is the case. What I found is that it’s not that simple.

Indeed, retailers are seeing a good boost in the number of brands coming to them to sell on their website, sell in their stores and/or be featured in their ad materials. That’s in contrast to early pandemic shifts, when retailers with closed stores were canceling brand orders and brands were editing sales channels to rely on their own. Privacy changes are one contributor to the trend. (They’re also motivating brands to diversify their advertising mix to include direct mail, SMS and Snapchat, as Danny Parisi reported earlier this week.) But there are at least three other factors to consider. 

“For DTC brands, yes, digital marketing is now less efficient because, due to the Apple and Google Android changes, [ad] targeting and measurement are not as strong [as they were before],” said Polly Wong, president of marketing and creative agency Belardi Wong. “But brands are also [turning to retailers] because the cost of marketing is up significantly, in every channel. And people are going back to stores.”

Belardi Wong clients with 50-100 stores are now seeing 30-100% year-over-year revenue increases, Wong said. She also pointed to the stats that more than 80% of total retail sales and two-thirds of apparel sales are still in stores. What’s more, the cost of new customer acquisition is much less expensive in wholesale channels, versus digital, she said.

What cued my curiosity on this topic was a conversation I had with Revolve’s co-founders and co-CEOs last week. When asked about the company impact of brands increasing their focus on direct sales mid-pandemic, Michael Mente simply said that the opposite is now true: As a result of privacy changes shaking up their advertising routines, brands are increasingly leaning on Revolve and its diversified marketing playbook.

He elaborated on the playbook’s success during the company’s 2021 fourth-quarter earnings call on the same day: “The diversity of our marketing channels has helped us to navigate through the marketing headwinds resulting from Apple’s recent iOS privacy updates,” he told investors. “In fact, during the fourth quarter, we realized more than a full point of marketing efficiency as a percentage of net sales, when compared to Q4 of 2020.”

During the quarter, Revolve increased its inventory investment by $29 million, to $171 million, owed to alleviated supply chain challenges. Third-party brands currently make up 80% of Revolve’s sales. 

Further fueling the notion that brands are now flocking to retailers was Nordstrom’s fourth-quarter earnings call, on Tuesday. Pete Nordstrom, president and chief brand officer, said the company grew its “choice count by 50%” in 2021, allowing it to enter 2022 with “record-high selection.” It brought in 300 new brands during the year. 

At least in part, CEO Erik Nordstrom owed that to the company’s advertising platform, Nordstrom Media Services, publicly announced on Tuesday. According to the company, it allows brands to get in front of Nordstrom’s 32 million customers to drive traffic, sales and engagement. The platform offers sponsored product ads and brand pages, as well as paid social and display ads, YouTube videos and affiliate campaigns, among other menu items. Nordstrom’s owned digital channels see 2 billion unique annual visits, it reported.

“One of the key attributes that allows us to be the softer partner for a lot of up-and-coming brands, especially digitally native brands, is that we can expose their brands to a lot of people that wouldn’t see them otherwise,” Erik Nordstrom said on the call. 

The company’s recent addition of brand partnership models beyond traditional wholesale deals – to include drop-shipping, concessions and revenue-share deals – was also mentioned as a factor.

I decided to ask a number of direct-to-consumer brand executives whether they are expanding to more retailers as a direct result of privacy changes. Not one gave a definitive “yes.”

“We’ve always worked with strong, very specific retailers like Nordstrom as part of our marketing mix; we were ahead of the curve in treating retail partners as a customer acquisition and marketing channel,” said Melissa Mash, CEO of Dagne Dover. “As our e-commerce business has grown, we’ve wanted to [continue doing] a stable and consistent portion of our total business through wholesale to support continued brand exposure, regardless of what Facebook’s doing.” 

She added, “But hopefully selling through a diverse group of retailers will assist us in continuing to be in front of the customer both online and offline in this increasingly cookieless world.” 

Goodlife’s wholesale strategy has also remained consistent through privacy changes. “We’ve always believed in omnichannel retail and leveraging wholesale partners for customer acquisition,” said Chris Molnar, co-founder and CEO, calling Nordstrom a vital partner. “Their network of stores and national customer base helps to maintain acquisition costs by promoting brand awareness.” 

Interestingly, based on the success it’s seen at Nordstrom, Goodlife is now rolling out its own brick-and-mortar stores for the purpose of acquisition.

“The ‘commerce continuum’ – with brands and retailers situated on either end and DTCs sitting somewhere in the middle – is blending more than it ever has,” said Nich Weinheimer, gm of strategy and commerce at intelligent marketing platform Skai. “DTCs are realizing that, for ultimate scale, they need to diversify marketing beyond digital customer acquisition and sales channels [to include] physical retail environments.”

For Nordstrom’s part, launching a high-margin ads business expands its footprint on the “commerce continuum,” while also upping its competitive positioning against “its biggest existential threat, Amazon,” he said.

As with every retailer, including Amazon, brands will need to pay up to be included in Nordstrom’s ads. But, along with exposure, it will grant them new access to sell-through data, said Wong. According to a Nordstrom spokesperson, “We tailor our reports to the needs of our brand partners, measuring overall brand growth and campaign-specific performance.” And for some, with data in high demand, that may be a selling point in itself. –Jill Manoff

5 Questions on The House of LR&C’s road to B-Corp status

On Wednesday, 2-year-old The House of LR&C, Russell Wilson and Ciara’s fashion brand, announced that it attained B-Corp certification. 

Regarding the recognition and its importance to the company, Ciara, co-founder and creative director of The House of LR&C, told Glossy in an emailed statement, “We were determined to build a sustainable fashion house that catered to style while also positively impacting the planet, so we gave as much attention to how we make the clothes as we did to who will wear them and what they look like… While it takes time, resources and a large financial investment, this distinction is a part of our core values of love, respect and care, and a necessity for our people and our planet that you simply can’t put a price on.

Therese Hayes, LR&C’s chief sustainability officer, offered more insight into the company’s sustainability efforts and B-Corp-first approach in a Zoom call on Wednesday.

To what extent did targeting B-Corp status from the start of the brand, versus later, work to your advantage?
“It’s very difficult for a large, publicly-traded company to go back and say, ‘These used to be our margins, but they’re going to be this in the future.’ By starting out with the ideas in mind of sustainability, becoming a B Corp and becoming a public-benefit corp, we [were able] to create a sustainable mindset. We’re operating on a parallel path, saying: ‘It has to hit all of these things: It has to be fashionable, it has to be something that the consumer wants, there has to be a market need, it has to make sense from the business point of view, and it has to be sustainable.’”

And this requires buy-in company-wide, correct?
There is absolutely no way to do this without buy-in [across the company], and that’s partly because B Corp is so comprehensive, [factoring] governance, workers, community, environment and customers. And it’s not only about [making considerations] holistically across the company, but it’s also about recognizing that there will be areas for improvement in the future… One of the advantages of B-Corp certification is that, once you put that on the door, anybody coming to work [for you] knows that’s the case. And people want to work for a company that is a B Corp and has stated very publicly, ‘We’re about more than profits.’”

“Celebrity brand” and “sustainable brand” aren’t often one and the same…
“Early on, we said, ‘What are some of the best brands out there, and what are they doing?’ There are celebrity-based brands, brands that are sustainable, brands that have an amazing business model, like Lululemon, and brands that are reaching in and connecting with their community… And we took a page from each of those. If we’re not around as a business with a good business model, then we won’t be able to [influence] change. It needs to be more than fashion.”

Is there a fashion community where insiders like you are sharing their sustainability processes and progress?
“Sustainability is a place within any industry where competition doesn’t exist – because, at the end of the day, we all want to be around. And we differentiate in many [other] ways. We’ll know we’re successful when we don’t have to talk about [sustainability] as a separate thing – and when you don’t need to be B Corp, because that’s just the way you do business. So we want to contribute to that by sharing what we do. We talk to other companies that are on this journey. We talk to other companies that want to get on this journey. My prevailing message is always to just get on the road; don’t wait.” 

What would be the industry impact of the pending Fashion Act, as you see it?
“[The coalition behind the Act] hit it on the head by touching first on brand transparency. It’s: ‘Show us what you’re doing.’ The next thing is [making brands address], ‘Where do we have the most impact?’ And that addresses greenwashing – because people will say, ‘We’re doing a really good job over here,’ but it might not be an area where they’re having an impact. The third thing is making the reporting something that people can understand. You’ll no longer be able to make up your own standards in your own language. I hope brands look at it and go, ‘This is our chance to actually do this.’ And really, that horse has left the barn. If you don’t do it, you’re a dinosaur and your days are limited.”

Stats to know

Inflation rates are in favor of people working from home. From January 2021-January 2022, retail data analytics firm DataWeave tracked the prices of 36 apparel retailers and 38 footwear retailers, including Target, Macy’s and Neiman Marcus. According to its findings, reported on Tuesday, skirt prices have increased most significantly among fashion categories, at 31%. The category with the next greatest price increase is sandals, at 12%. Meanwhile, shirt prices remained flat.

“The sharp increase in the skirt category was likely driven by the higher-end and luxury market.Krish Thyagarajan, president and COO of DataWeave, told Glossy. “Looking at item-level data, we saw that luxury brands are driving [apparel] inflation. For example, Eileen Fisher had unusually steep price changes, [at 32%].” Michael Kors increased its prices by 28% and Calvin Klein boosted them by 24%, according to the company.

Quoted 

According to reports, nearly $500,000 worth of Hermès bags and Cartier watches was stolen from The RealReal’s Madison Avenue store on February 20. 

Regarding the immediate impact on associates and any subsequent efforts to combat such incidents, Courtney Hawkins, vp of retail at The RealReal, told Glossy: 

“The safety of our employees is our top priority, and our security team’s actions ensured no one was harmed. We regularly evaluate and enhance our safety measures to ensure the safety of our employees and our community, and we continue to work closely with local and federal law enforcement to prevent the trafficking of stolen goods. Through LeadsOnline – the country’s largest online investigation service – we give police departments nationwide full visibility into our inventory, including details like serial numbers, photos, and date and location of consignment that can help prevent the sale of stolen goods.”

What we’re reading and hearting

Fashion supports Ukraine: In a Glossy story earlier this week, Melissa Moylan, creative director of trend forecasting company FashionSnoops, predicted that the fashion community would make “more gestures” in response to the Russia-Ukraine war during Paris Fashion Week, as opposed to Milan. That’s proving true. Starting on Wednesday, fashion’s largest companies began ramping up their public support for Ukraine, largely through social posts and charitable donations. Among them: LVMH, Kering and Balenciaga, the latter of which (again) wiped its Instagram clean save one post featuring the flag of Ukraine and a link-in-bio to donate to the World Food Programme assisting people in the country. 

The power of a PWT: Since Prada’s fashion show in Milan on February 24, the fashion world has been hailing the white logoed tank top it debuted on the runway as the must-have fashion item of the fall 2022 season. It’s not the first time a tank top has made such an impact – during Net-a-Porter’s seasonal trends presentation for spring 2022, the company’s senior market editor Libby Page called out Loewe’s own logoed version of the style, saying, “I didn’t realize a tank top could feel so desirable.” She said that Net-a-Porter bought into three versions of the £250 ($325) basic for the season. And, since the Prada show, Bottega Veneta revealed a plain white tank as part of a look that, some say, launched “a new era of simplicity.” 

A case for the physical invite: Days before Balenciaga’s fall 2022 show, set for Sunday, it’s already among the most-buzzed-about events of the season. That’s thanks to its standout invitations, which fashion insiders started to receive and post about on Wednesday. They came in the form of cracked iPhones engraved on the back with the invitee’s name and the show’s information. An included slip of paper reads, in part, “This is a genuine artifact from the year 2022. It is nonfunctional and to be used for display purposes only. This document certifies that this device is real. The damage is … not artificially manufactured.” 

Barbie and DTC fashion collab: Barbie and fashion have a rich history. Prior to the Barbie x Balmain collaboration, launched in January, there was a Barbie fashion show honoring the doll’s 50th anniversary at New York Fashion Week in 2009, a CFDA tribute award given to Barbie in 2019, the list goes on. Now, Barbie Instagram account @BarbieStyle is launching its first product collaboration, in celebration of Women’s History Month. It’s linked with six female-founded DTC brands on a fashion and beauty collection launched on Wednesday. Among included products: a pair of pink floral mule platforms and a matching clutch by Larroudé. Mattel will donate 5% of the collection’s proceeds to the Barbie Dream Gap Project.  

Inside our coverage

A new location for NYFW?: The New York Fashion Week routine of borough-hopping all day, every day, could be coming to an end. During a Glossy+ Talk immediately following the fall 2022 iteration of the event, Grace Rowe, senior director of production at NYFW producer IMG Focus, contemplated consolidating a day’s shows to one part of the city, largely in the name of making the event more sustainable. “We need to come together around choosing [show] locations… I love the idea of a Brooklyn day, for example, and trying to centralize [the event] in one area. Sustainability, in general, is the way of the future for everything we do.” 

Models as fashion brand founders make sense: During the latest episode of the Glossy Podcast, supermodels Josephine Skriver and Jasmine Tookes discussed getting their activewear brand Joja off the ground. “We’ve spent the last 10-11 years of our lives in trial-and-error with so many different brands’ clothes,” Tookes said, reflecting on her decade of modeling. “We’ve tried every brand,” Skriver added, before suggesting that Joja could become the single focus of her career. 

The battle of the metaverse fashion weeks: It’s the IMG-CFDA NYFW calendars clash all over again. Now, multiple fashion weeks with various takes on the idea are sprouting up in the metaverse, with Crypto Fashion Week and Decentraland’s Metaverse Fashion Week among them. The former provides a showcase for digital designers, while the latter focuses on digital styles by well-known fashion brands, like Dolce & Gabbana. MFW’s approach may seem in conflict with metaverse ideals, but with related concepts being so new, it could easily prove more effective at gaining fashion fans’ attention.

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