Consumers always manage to stay one step ahead of retail, but it’s up to brands to figure out how to deliver what shoppers want.
New business models, from resale and circularity to the sharing economy services, are in high demand among millennials, Gen Z and conscious consumers mindful of their impact on the earth—and on their wallet.
Secondhand players like ThredUp, The RealReal, Vestiaire Collective and others have eagerly cashed in on the craze for high-quality pre-owned goods, for example, growing by leaps and bounds as consumers minimize their belongings and strive to buy responsibly.
Resale has even supplanted the long-hot off-price sector as the fastest-growing segment of retail, according to PC Chandra, who leads global operations for Diane von Furstenberg in addition to advising social and sustainability-minded venture firm Alante Capital, speaking an event hosted by Inturn and Boston Consulting Group Tuesday.
“Yes, off price grew 16 times since 2015,” said Chandra, who’s cycled through Macy’s, Accenture, Ralph Lauren and a number of direct-to-consumer brands throughout his 10-year career in fashion and sustainability. “But there’s a market cap there.”
As of now, there’s no market cap in sight for on-demand, circular and resale innovators competing for dominance in a “highly fragmented” sector, he added.
The Ellen MacArthur Foundation says there’s $1 trillion at stake by 2025 for circular supply chains that reuse and recycle goods, highlighting the tantalizing opportunity for growth in this sector. And consumers, who took to the streets around the globe to advocate for government and corporate action on the climate front, are in the driver’s seat, Chandra said.
“Now there is that motivation on the consumer side, the consumer will reward you for being sustainable,” he explained, emphasizing the demand not just for sustainable products but business models, as well.
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As brands cast about for relevance and growth, many will jump at the opportunity to donate product to curry favor with eco-minded and socially conscious consumers, Chandra added, while others will be “putting raw materials back into the supply chain.”
But how exactly can brands catch up to where consumers already are?
That all depends on the company, its capabilities and whether there’s a competitive advantage at stake, he explained. If they want to court today’s distracted shopper, apparel brands would be wise to survey the landscape of emerging business models, “see who’s setting the pace,” and ask: is it time to build that capacity, partner with a provider—or even make a strategic acquisition?
Clothing rental technology provider CaaStle has managed to position itself as a desirable partner for fashion brands eager to launch their own subscription rental programs. And the turnkey flexibility of the CaaStle platform found a willing partner in teen retailer American Eagle Outfitters, which earlier this year launched a $49.95 monthly plan that gives customers access to three garments at a time.
It’s a smart move to court the Gen Z teen trying to maintain a fresh wardrobe but whose parents probably aren’t willing to shell out on a new outfit each week, says Chandra, who credits AEO’s global brand president Chad Kessler for “turning that brand around.”
The rest of Kessler’s “Gen Z build, partner, buy playbook,” as Chandra puts it, includes AEO bringing an Urban Necessities sneaker resale shop-in-shop into its SoHo store, where consumers who might typically have a low average unit retail value can shop for kicks selling in the hundreds and thousands of dollars.
Customers visiting the SoHo flagship can also customize their new jeans purchases on demand, distinguishing their denim with splashes of paint or picking out a colorful jacron to emboss with their name or a witty slogan.
The teen retailer’s partnership approach makes bottom-line sense for a company of its moderate resources, Chandra explained.
Nike, on the other hand, is known as a deep-pocketed innovator, and that’s why it has built its way into rentals and what could be a precursor to resale, he added.
Over the summer, the Oregon athletic wear brand debuted Nike Adventure Club, a monthly multi-tier subscription rental program that lets parents swap out sneakers for the rapidly lengthening pedal-pushers of young, growing children. The plan gives Nike an inroad into the growing popularity of the access-versus-ownership model, which makes even more sense for children who quickly age out of apparel and footwear.
Nike has also tested a concept similar to Adidas’ Speedfactories, which crank out customized, city-specific product and play into the on-demand opportunity, Chandra said.
But to glean some clues into Nike’s potential next move, “you have to follow the patents in this industry,” he explained. When the sportswear maker filed patent and trademark applications for CryptoKicks in April, the industry was abuzz with the notion that Nike could be launching its own cryptocurrency. And while that possibility is by no means off the table, Chandra sees CryptoKicks not just as a traceability ID put into every sneaker to “gamify” wearing Nike gear but also as a way to control product authentication.
“If you own authentication,” Chandra explained, “you category kill the ThredUps and The RealReals,” which dominate the product verification aspect of the resale world.
“For someone like Nike who is known to be innovative and can afford to be…the path to competing [with] and overcoming those DTC brands has just been to build a better boat,” he concluded.