Stance CEO Jeff Kearl did not pull any punches in his keynote address at the SIMA Surf Summit last week.
The basic message was consumer and retail models are changing in radical ways, and industry retailers and brands need to adapt to survive.
The wide-ranging speech covered a lot of topics – over-distribution, discounting, the internet/e-commerce/and social media revolution, and the tension between wholesalers and retailers in the industry.
“We need to talk about things that are difficult and that are changing in our industry,” he said.
The main question the industry needs to ask itself is this: why are there more surfing participants than ever before, yet the industry’s margins and customer base are eroding?
That fact is especially troubling, he said, because the industry has a fantastic millennial audience that has disposable income to spend.
The answer is that industry brands and retailers have become disconnected from the millennial customer, he said.
Jeff cited the Piper Jaffray “Taking Stock of Teens” study which surveys millennials about their favorite brands. No industry apparel brand cracked the top 25, he said.
“You could argue on that data alone that we have become disconnected from the millennial customer,” Jeff said.
He also provided several examples of new business models from outside the industry that are totally changing the way consumers interact with brands and the way brands sell to consumers.
The goal of the speech was to have the industry think about ways it can operate differently in this new world and to learn from other companies outside the industry that have been successful.
Having Some Fun
Jeff opened his speech by poking fun at topics that people told him to avoid in his speech, including:
• Does SIMA add value to the industry?
• Should there be age limits or term limits for SIMA members because some of them are getting quite old?
• Why Hurley boycotts SIMA
• Why Vissla is missing from Surf Summit
• The “insane” account receivable balances that some manufacturers are carrying with some of their retail partners.
Brands Need to Stand for Something
Jeff then got down to business, citing the need for brands to have a clear message about what they stand for.
He gave the example of some brand mantras in the industry such as: Hurley’s “Microphone for Youth”; RVCA’s “Balance of Opposites”; and Neff’s “Forever Fun.”
He questioned whether Volcom’s “True to This” is more expansive than its previous “Youth Against Establishment” message.
However, he thinks one of the biggest challenge lies with the authentic surf brands in the industry – Quiksilver, Billabong and Rip Curl.
If you ask the average millennial about those brands compared to Hollister, the vast majority cannot detect that Hollister is synthetic, Jeff said.
So if you stand for authentic surf lifestyle, is that enough?
“How big can that be?” Jeff said. “I don’t know, but it’s worth asking the question.”
Jeff talked about Stance, which realized it did not do a good enough job in the beginning explaining that the brand celebrates self-expression and originality.
That dawned on them when Stance signed basketball player Dwayne Wade, and Stance’s social media feed filled with negative comments from the “skater haters,” who accused the brand of selling out. That was because they thought Stance was just about skateboarding instead of something larger, Jeff said.
New Go-To-Market Models
Jeff provided several examples of the way newer companies are going to market. For many of them, wholesale is not the primary focus.
The personal health care company Honest Co., which stresses ethical consumerism with its non-toxic household items, started out with a direct model, and eventually added a few large wholesale partners.
However, that company and several others don’t view wholesale as a distribution channel, but rather as a means to acquire customers.
“They are not going into wholesale to make money, they are going into wholesale to introduce customers to the brand with the idea to take the customers direct later,” he said.
He also cited examples of consumer companies that started as direct online businesses and are now opening stores in prime retail locations to complement their online business, such as Warby Parker and Bonobos.
Data shows that the e-commerce growth that is happening is coming from the wholesale piece of the pie, not from company-owned retail stores, Jeff said.
And with margins so much better for brands to sell goods in their own stores and online compared to a multi-brand retailers, people should expect more brands to sell directly in the future, Jeff said.
Getting in the Millennial Flow
One the biggest messages of Jeff’s speech is that the industry – whether manufacturers or retailers – need to fish where the fish are.
The average 17-year-old is shopping on their phone.
“Whether a retailer or a brand, if we are not there, we are losing money,” Jeff said.
That is the biggest reason that the industry is struggling despite the increase in participation, Jeff said.
“We are not in the flow” of millennial shopping habits, he said.
Jeff believes that brands and multi-brand retailers can still coexist, even with brands increasing their direct business. The key is that prices have to be maintained, especially since 57% of millennial shoppers check prices on their phones, Jeff said.
“We as manufacturers and brands have to figure out a way to maintain price,” he said. “If we are undercutting our retailers on price, it is an unfair playing field.”
Differentiate or Die
Jeff noted that brands in the industry are mostly masculine and mostly lifestyle-based, which means the industry is not reaching all the consumers it could.
The brands are also priced within 10% of each other in most categories.
He noted Skullcandy dismissed Beats when it first entered the market because the headphones were priced at $300, which at the time that was a small slice of the overall market.
But that high price lent the brand a certain cachet, especially with pop culture icons, and Beats went on to become a raging success, eventually selling for $3 billion.
“You cannot underestimate the strength of price positioning,” Jeff said. “We need to ask, what are customers willing to pay for certain features, including brand equity?”
He also showed photos of boardshort walls that demonstrated just how much the industry’s products look alike.
“Someone sent a memo to our industry about the band that goes through the middle of our boardshorts,” he said.
Having goods that look the same and are priced the same is a problem, Jeff said.
The Good News: Industry’s Social Media Reach
Jeff gave some examples of new companies that have grown quickly thanks to social media.
American Giant did a big social media advertising campaign saying it made the best hoodie ever and that it’s so popular, it keeps selling out. They sold $65 million worth of hoodies in the company’s first 12 months in business.
The Dollar Shave Club, which spent $10,000 to make a shoestring yet very funny video about its product and company, got 40 million views on that video. That propelled its sales to $175 million within four years. The company recently sold to personal care giant Unilever for $1 billion.
The good news is that the industry does a pretty good job on social media, Jeff said, though he thinks it can even do better.
“We are an industry that is flush with content,” he said.
Social media is the beginning of the funnel of the millennial flow, and if you are not in that flow, you are missing out.
Instagram Shopping on the Way
Instagram will soon be adding a new shopping feature where users can tap on an image they like and buy it directly from the brand.
“Instagram commerce is a big deal, and it is coming,” Jeff said.
Other companies are using texts integrated with Apply Pay as a shopping tool. That will make it easier to compete with Amazon, which gets the lion’s share of e-commerce sales because its check out is so easy, Jeff said.
Other New Models
Online stylist service StitchFix uses an algorithm to predict what clothes a customer will like, a system that is constantly refined over time based on customer feedback. Founded in 2011, the company now does $700 million in annual sales.
Bonobos has opened small stores in key markets that allow customers to try on goods to get the right fit, then the products are shipped from a central warehouse for free. The stores do not carry a lot of inventory, instead offering great service and custom fitting. Their process cuts down on returns and helps match supply and demand.
Everlane, a direct-to-consumer clothing company, offers “radical transparency” about how the product is made and how much it costs to make each garment. In some cases, it lets consumers set the price.
Not all the examples Jeff gave were direct businesses. He did call out Supreme, a multi-brand retailer that drives demand with a scarcity model. New, limited edition goods are dropped once a week, and customers line up on those days.
Scarcity is also the secret to the success of the Anti-Social Social Club, which sells limited edition clothing via an Instagram feed. Started by an ex-Stussy employee, Jeff cited an example where the Anti-Social Social Club sold $3 million in goods in one hour, all via Instagram.
“He is in the flow of the millennial spend,” Jeff said.
Stance’s Future Distribution
Stance will launch new products with the following distribution model in the future:
1. Instagram Direct
2. Stance stores
3. The very best Stance wholesale partners around the world
Stance views its best wholesalers as an extension of Stance’s own stores.
Stance is willing to invest in the stores, and to help drive traffic to stores. Since customers are already being served well in those shops, Stance won’t open stores nearby.
But it may open stores in the future where Stance customers are not being served well.
Done correctly, he believes brand stores can complement key wholesale partners and both sides can see increased sales.
Love for Roark
One industry brand that earned high praise from Jeff during his speech is Roark.
The brand’s storytelling via the fictional character Roark who travels the world is truly unique, he said.
“Nobody else does storytelling like this,” Jeff said. “This brand could be big if properly capitalized and merchandised.”
It also has the potential to be a great social media brand because it offers a story to follow. Jeff can see the brand eventually expanding into women’s using the same model.
“Brands telling stories that lend themselves to social media is something we all can adopt,” he said.
Mixed Reviews
I heard mixed reviews of the speech during the summit. Some people really loved it, and some people hated it.
Some believe Jeff spoke the truth about the changing consumer even though the topics are touchy – they liked that the speech dealt in reality instead of trying to whitewash the industry’s problems and the larger disruptions in the retail world.
Others felt the speech was very pessimistic about the future of multi-brand retailers and questioned what the industry can learn from brands like Lululemon and Under Armour, which Jeff talked about during the speech.
