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How the Darlings of DTC ‘Challenge the Status Quo’

Stanley Szeto remembers a time when direct-to-consumer and digitally native brands were the exception to the rule—far from the retail ruling class that they’re quickly becoming.

In his keynote address at Thursday’s Sourcing Summit New York, the executive chairman of Lever Style noted that today’s consumers feel more empowered than ever to reject brands that no longer serve their needs, turning instead to the companies that offer them the choice and convenience they crave.

Szeto recounted a moment that completely revolutionized his thinking about the state of retail. A Lever Style U.S. sales representative approached him about working with a new brand with an unorthodox business model.

“She said, ‘How about this company called Bonobos?’ and I remember very clearly saying, ‘Bono-who?’”

The sales rep explained that the selection of garments in the brand’s Guideshops are just for trying on; customers are fitted for their selections in store, and then their custom-sized garments are ordered for them.

Szeto found the concept “groundbreaking.”

That moment would precipitate a massive shift in Lever Style’s strategy. The factory collective—which had been servicing large brands like J.Crew, Banana Republic and American Eagle Outfitters—became enraptured with small brands that dared to break the mold with innovative new products and compelling value propositions.

Now, the majority of the company’s clients are DTC brands, Szeto said, naming Stitch Fix, Mizzen & Main and Black Tux as current partners. Lever Style also works with dozens of smaller brands that are still working to find their stride, he said.

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New Fundamentals of apparel sourcing and supply chain successThe fashion industry hasn’t always been on the cutting edge of innovation, but Szeto believes DTC brands could represent the way of the future, replacing industry stalwarts who resist changes in the market.

“This is not a sunset industry—it will continue to have slow growth. But there are sunset companies,” Szeto explained. “If you’re wedded to old ways of doing things, you’re going to be a dinosaur.”

Direct-to-consumer brands “are in a position to fundamentally serve the consumer better,” Szeto added, because of their ability to dial in on specific solutions to real consumer problems.

Szeto cited Peter Manning, a men’s clothing brand for consumers who are slight in stature. The brand’s clothes are crafted for men of smaller stature, providing attractive, proportionally tailored clothing for men who have struggled with straight sizes.

“DTC brands can serve small niches, and they have focused marketing capabilities,” Szeto expounded, adding that the idea of mass customization has become incredibly important to today’s consumers.

In a similar vein, Lever Style client Bonobos has about 200 waist and length combinations for its men’s trousers. Department stores couldn’t possibly stock all of those sizes, he said, as it would be a nightmare to manage across hundreds or thousands of stores.

As for how the company manages the unique demands of DTC businesses, which deal with much less inventory than mass-market brands, Szeto said it requires flexibility on minimum order quantities—and “flexibility and agility” when it comes to product range.

“The goal is to be a full wardrobe supplier so that customers can work with us on everything that they need,” he said. In the supply chain, that means versatile production and multi-skilled workers.

Lever Style has product development capabilities as well, to support brands’ often small design and product teams.

While the shift to producing for mostly DTC brands has forced Lever Style to evolve as a manufacturer, Szeto believes that growth is necessary to propel the manufacturer into the 21st century.

Of the industry newcomers, he said, “They test things constantly to see what sells and resonates.” That leaves less wasted inventory on the table at the end of a selling season, and results in more targeted, efficient selling.

Szeto has also found that an influx of entrepreneurs from outside the fashion world has provided a trove of valuable and unexpected perspectives.

Katrina Lake, founder of Stitch Fix, launched the company out of her apartment while studying for her MBA at Harvard. Her business acumen and creative thinking catapulted the startup to success, though she had no fashion credentials. As of Feb. 2018, Stitch Fix was valued at $2.1 billion.

“People who don’t have a set way of thinking of how this industry should work… In a way, it’s very refreshing because they are willing to accept new ideas and challenge the status quo,” Szeto said.