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SJ Summit Preview: Natan Reddy of CB Insights Talks Creative Margin Solutions

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Today’s trade uncertainty, labor concerns and inventory challenges are all vastly different headaches with one thing in common: their ability to stress apparel, footwear and textile margins to the point of failure.

As senior intelligence analyst at CB Insights, Natan Reddy tracks emerging startups and trends, using data to tease out insight about the dynamics of the industry, as well as who’s investing in the space. And, according to Reddy, there are a lot of inventive sellers in the industry learning how to successfully navigate these margin pressures by turning to new technologies or just rethinking their logistics.

Reddy will share research and insight at Sourcing Summit New York on Oct. 17, where he’ll provide a look at what other companies are doing—and doing well. We checked in with him for some new perspective on these age-old challenges.

Sourcing Journal: What’s contributing the most to a startup DTC’s margin pressure?

Natan Reddy: One of the trickiest things for a DTC startup to undertake is the idea of verticalization and having a full handle on your supply chain. If you are trying to execute a very particular product for a client base, it’s a lot of work, especially when you’re dealing with apparel that’s usually coming from places far away.

Some of the research that I’ve done lately has focused a bit more on sort of that push and pull between the idea of importing apparel and materials from Asia, where you suddenly get locked up in issues to do with tariffs, timing, lost shipments and whatnot, to eventually going toward more of a localized model that’s reliant on new types of technologies, whether it’s 3D printing, 3D knitting or something else.

So when I see certain margin pressures within the apparel space, [it’s]: How do you execute a product that your clients are looking for, and actually do it in a timely manner, have track of all of that in your operations, and have that full visibility of your supply chain? That’s a lot. That’s where a lot of companies can come into trouble if they have sort of a mismatch of what they’re doing versus what they should be doing because it’s usually a lack of understanding or visibility.

SJ: What are some of the more creative methods you’ve seen when it comes to direct-to-consumer startups handling inventory management?

NR: One startup that I found really interesting that’s attacking the inventory space specifically for DTC apparel companies online is Happy Returns. Essentially, what they do is they provide an easier route for customers of DTC online brands—who would have no other way to return products other than by mail—to return those products in store. According to their data, and other data I’ve read, people do actually like the opportunity to return things in person because they often find it easier than having to repackage and print out labels and return it by mail.

Happy Returns also has a pretty easy user interface that when somebody goes to a partner returns store and tries to return something, the clerk at that store can return it in under 60 seconds. And what Happy Returns does is partner with these other brick-and-mortar locations to aggregate the returns of different online brands, which they then ship to Happy Returns’ distribution facilities. Happy Returns then aggregates all of those returned items by particular DTC brands and ships them back to those original brands and retailers, usually saving money on a per shipment basis.

I find that sort of model, especially when you’re dealing in the returns logistics space, to be interesting because a lot of these DTC brands, especially in the apparel space, don’t have any sort of brick-and-mortar operation [and are] going to be dealing with higher return rates than a traditional retailer would normally.

SJ: How can apparel customization help companies reduce their return rates?

NR: Adidas has created two Speedfactories, one based in Atlanta and one based in Germany, and they’re testing out different levels of customization. They’ve created city-specific shoes, so they have a New York, London, Paris and Tokyo running shoe, and each shoe is a little different from the rest. So, for instance, the New York shoes have more lateral support because they’re designed for running on more sharp terms because of the grid system here.…So each of the sneakers have a slight change depending on the geography of the city. They’re able to come up with these changes by studying veteran runners in these cities and looking at their running styles and the issues that they encounter in their respective cities.

It’s not full personalization, but I know that Adidas is using the same factories to test out more intense levels of customization. Manufacturing complete custom shoes at scale is really challenging…and there are some major barriers right now. But the idea is that if you manufacture a shoe that is custom-made for a person on-demand very quickly, or same-day deliver it to them, you would, in theory, be able to reduce return rates because A: That was a novel experience that people are less likely to return something from them. B: You sort of circumvent all the issues to do with size and fit.

When I think 20 years down the line about what could be possible, you could have a 3D-printing on-demand custom manufacturing device or robot, or a mini factory in the back of a store that could produce a shoe for a customer on demand.

Hear more from Reddy on the Sourcing Summit New York panel, “Margin Outlook: Raw Materials, Labor and Inventory Levels.” Visit our event page for more info and to buy tickets.

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