Cutting out the Middleman - ISAORA
Is direct-to-consumer the future of retail?
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“We control our own destiny,” says Marc Daniels of ISAORA and rightfully so. Some would feel that having their brand stocked at over 150 of the world’s leading stockists would be enough to forge a stable path but this wasn’t enough for Marc and Ricky Hendry, the two founders of ISAORA – they wanted more.
When you think of brands that straddle the line between technical performance and fashion, Stone Island, its Shadow Project line, ACRONYM, NemeN and ISAORA probably come to mind. They pride themselves on the way they treat fabrics, utilizing cutting-edge technology and innovation so that functional garments can integrate themselves seamlessly into your wardrobe without sticking out like a sore thumb. However, while you can innovate in the way you create your products, technology has also allowed brands to advance in other verticals. Little over a year ago when ISAORA announced its plans to go direct-to-consumer, it showed a progressive nature that may have shocked many. Fast-forward a little and you see a plethora of brands operating on this DTC (direct-to-consumer) approach not just in the technical/fashion area. Brands such as Killion and Mott & Bow have also come to realize that the contemporary consumer is not the same kind as they were a few years ago.
Marc goes on to explain how radical yet calculated it was at the time: “Every year we had grown quite well and expanded our reach. Before we even started, we had this aspirational list of accounts. As time went on, up until the very end, we were in so many of these stores that we had wanted to be in. Sell-through and everything was good so in making the move, we had to give all that up. Seemed a bit crazy at the time, but I think we felt like it was the right thing to do, the modern direction of where things were headed. Ricky often says that the clothes we make are forward-thinking and advanced in their materials and construction, yet we were playing in a business model that hadn’t changed in ages. If there was anyone that should be ready to make a significant shift, it should be a brand like us, where when it comes to the product, it’s very forward-thinking. It was scary, but we jumped in.”
The Changing Landscape
“The consumer is starting to realize that these direct-to-consumer brands are for much better value than they will find through wholesale, through stores in many cases.”
Like its fully seam-sealed, micro-backed and highly water-resistant technical running jackets that do it all, ISAORA also applied this same philosophy to the business side of things. The New York-based label developed the preliminary stages in creating their own enterprise. Understanding the basics and the reasons behind DTC is simple but “it’s not really mass-realization yet. The consumer is starting to realize that these direct-to-consumer brands are for much better value than they will find through wholesale, through stores in many cases. Just in terms of the markup structure, we and any direct-to-consumer brand are able to offer the same product that would be sold in the stores for, in many cases, half of the price. In a very competitive industry like fashion, that value proposition is quite powerful.” explains Ricky.
While in a traditional business model, you sell to distributors and other retailers or online stores at a wholesale price, you’re giving up a margin for them when they mark up to the retail price. Let’s say it costs $5 USD to produce a tee, you’re probably going to sell at wholesale for around $15 USD to $20 USD when it’s going to be sold to the end customer at around $40 USD. This will give you a return of $10 USD to $15 USD profit while the retailer you sell to will attain roughly $20 USD without the risks of production costs. Therefore, if you go direct to the consumer, you’ll theoretically earn a gross profit of $35 USD. Aside from the potentially higher earning you might acquire from going directly to the consumer, there are even more aspects you can control with your brand opting to do this. You can control the retail price while maintaining the quality you desire without navigating through wholesale so for example, a product that cost $600 USD before, could then be more competitively priced at let’s say $450 USD, without the rules in place with wholesale markups.
Furthermore, there are many more elements that come into play when you’re working on a wholesale approach compared to DTC. Marc explains, “From a nuts and bolts perspective, when you’re dealing in a wholesale environment, one of the benefits in our view, perhaps you don’t realize until you don’t have it, you have orders. You get orders and then you produce based on those orders. You create your production buys based on those orders. We had always sold online and always calculate based on what we sold last year, we can expect to sell x amount. We never had the benefit of data from the store for the money that we knew was coming in from the stores. So now we basically make our own buy. We come to make the edit, sit in a room and we go with it. It’s not blind, we were able to look at the data from the behavior and people’s purchasing habits and make educated guesses, but still a nerve-wracking process.
The New Retail Experience
“To work within a wholesale environment when you’re an emerging brand is very difficult because you really have no leverage and there’s no real loyalty towards you.”
Converting from a traditional method of getting your brand stocked to a DTC model isn’t easy though and all that work building up relationships with buyers can go down the drain. “I think that there was a little bit of nervous tension between Ricky and I when we had to tell the stores that we had been working with and had supported us for a long time, and that we had good relationships with. The stores we had the better relationships with I think were actually a lot cooler with it. They were like ‘times are changing, go for it, if there’s anyone that should do it, I think you guys can pull it off.’ If you ever change your mind, if you ever come back, give us a call. I think we felt there was a little anxiety, but it wasn’t going to change our minds. It’s always nice to end on good terms and I think it’s important to note our switch to DTC; I don’t want to say it’s a short term thing, we just felt like we could be a lot more efficient in our growth and in building our brand. This time we did that and it’s not that wholesale doesn’t have its benefits, it creates brand awareness and more eyeballs are looking at your stuff. It’s just that to do both, it’s very very difficult. To work within a wholesale environment when you’re an emerging brand is very difficult because you really have no leverage and there’s no real loyalty towards you. They’re not incentivized to present your brand the way you want it, it’s how they want it,” shares Marc.
Having your brand displayed in the best stores around the world does have its advantages though. Brand awareness, free marketing to a certain extent, as well as simply having a physical space to display your brand identity and vision certainly is a plus and the duo behind ISAORA recognize it as they are confined to the online sphere. “Right now, it’s a communication platform, creating the best content we can and making sure the product really sings but it’s an obstacle. We’re thinking about whether it’s to open the studio once a week or once a month, pop-up or whatever. It’s definitely something which I’ll figure out,” explains Ricky. Marc adds on that “40% of the business comes from repeat customers. As time goes on, their average order increases. We look at that and think once people get the product in their hands, they are more often than not really happy, come back and buy more. There’s always that, customer lifetime value and all that stuff. We’re a new business so we don’t know what that lifetime value is because they just keep buying. That really is something you never had visibility into in our former life. It’s good.”
The Future
“Still, for a lot of people, if you show them a thousand dollar jacket and you show them the same jacket for $500, the automatic assumption is that, the thousand dollar jacket is of better quality.”
As we edge into the future, we should expect the retail environment to drastically change with the advancement of technology and the mindset of the average consumer will inevitably change. Ricky understands this in explaining that they still have to navigate the way of thinking: “Still, for a lot of people, if you show them a thousand dollar jacket and you show them the same jacket for $500, the automatic assumption is that the thousand dollar jacket is of better quality.” Marc shares the same sentiments and can see how it will play out where “cheaper, historically has meant inferior. If it didn’t have a brand and you put on a jacket, it’s a nice jacket, but it didn’t change the way you felt psychologically and that was because of the combination of the price, and the fact that the cheaper brand didn’t try and build a really cool brand. They’re just trying to deliver product that was really well-priced. Our goal is to do both and I think that over time, it won’t become such a weird thing that we have to explain to people. Sometimes we do it better than others and it’s the constant balance, we don’t want to be the value play, we want people to put on whatever it is and have that ‘je ne sais quoi’ feeling you get with a brand that, it’s not really about it being expensive or luxury, there’s that something and that’s really important in our view. Consumer’s emotional attachment to it.”
However, as we adapt to the changing environment and slowly but surely, our perception changes, ISAORA will have laid down a solid framework to enjoy a stable future in the cutthroat industry that is fashion retail. Without the need to operate on how retailers demand, the fledgling label can focus on what it personally wants to do and we were treated to a little insight for its 2015 fall/winter line – an infrared down where the feathers are treated with a compound of highly thermo-reactive minerals that convert body heat into infrared energy and transmits it back to the wearer. You could argue that if this had to go through a wholesale platform, it would lean more to a novelty item. “It’s not gimmicky, it’s got real integrity; I think that’s a good embodiment of all the brands that we try to present” explains Ricky.
Sadly, this kind of ingenuity still isn’t ready for the consumer’s mind in 2015 if it were to be showcased at one of the most prestigious stockists. We have all fallen into the trap where we think that more expensive means better and this innovative technology should warrant a higher price-point for it to be worth buying. We’re not sure whether this mindset will ever change due to the fickle elements of human nature but one thing is certain: ISAORA is in control of its own destiny.
