Embodee recently spent time with Thomas Davis, global head of e-commerce for PUMA, to discuss changes and challenges in the apparel industry. Here, in the second of two installments, are excerpts of our conversation.
Embodee: How does mass customization fit in from your perspective?
Davis: When you start thinking about a diversified product strategy in terms of more SKUs, more colors, and more options, you start running into liability. Meaning, you have to front load cash flow to pay for inventory/product that might sit on shelves for weeks if not months before it’s purchased and your return on the investments is recouped. It’s the long-tail game. When you’re trying to keep your margins high and your turn ratios high, it’s a very difficult one to balance. Creating lots of inventory that sits on shelves all over the world is just basically money sitting there that can’t be allocated toward other business-enhancing projects. The turnaround time on product is probably a year lead time for some companies. That’s a long time to tie up money, especially when there’s no guarantee in the world of fashion.
You're taking physical bets on what the trend or the style will be a year from now, and who knows whether Jay-Z comes out with a new record, Justin Timberlake does something, or Taylor Swift wears a pair of PUMAs in her video. It’s serendipity to some extent (or really good product placement---hah). So when I start thinking about those kinds of constraints I start to look at on-demand products. What’s better than being able to create something on demand and eliminate those upfront risks?
To develop products, colors and/or styles that may mean nothing to the customer a year from now, you end up with excess product. This is what happened in 2008 when we hit the recession and companies were left with shelves full of product which needed to be liquidated. The only way to push that amount of excess product is to flood the market and discount like crazy. That is not sustainable from a business perspective. So I start to look at on-demand or mass customization as a plausible solution for a company like PUMA, which answers a lot of our financial challenges. But it allows the consumer to dictate freely what he or she wants.
That’s liberating for a business owner and also creates desire from consumers, which gives us a great competitive advantage---provided we do something really cool for the brand, that’s PUMA-fied, that the consumers love. I see that as a pinnacle piece of our strategy going forward, and I think it will be so in the retail industry for years to come. Look at the entrants into this new paradigm: Threadless, Zazzle, NIKEiD, miadidas, New Balance, Timberland, Converse, etc. etc. The list grows every month. It’s happening in myriad industries as well, so it’s not just limited to footwear and t-shirts. More examples: Shutterfly, ForYourParty.com, L.L. Bean, the lists go on. Remember Dell Computers? Designing your own computer system was a breakthrough.
I'll fully admit that PUMA is late to the game. We only recently launched PUMA Factory, our first crack at online customization. Currently, it’s live for the U.S. and Germany. We believe it’s still in “beta” stage, and over the next few months we will determine if we’re on the right track operationally as well as from a presentation point of view. The opportunities are amazing if we get the block and tackling done.
People pay a premium for customization. They expect to have to wait for it to be made, so the immediate gratification may not be there, but it’s still quick and it’s individually driven. Dare I say, a younger generation? They want to stand out, they want to be unique, and that’s just in the U.S. Once you start going global with these ideas, your ability to function with less risk---less cash flow volatility---it’s potential, it’s plausible. It could be fantastic on so many levels for the brand, like PUMA, as well as for the customer.
It still needs to be proven, but I think you’re seeing companies like the NIKEiDs of the world going this way. I think you’re seeing the Zazzles having done really well. Threadless. There are the big retailers trying to do it like H&M or even Zara. This is the way you can close that timeline to market. I think it’s the future---part of the future---of retail at least. I think it has to be.
Embodee: You mentioned young people. They have an expectation that they should be able to order on demand or customize because they’ve grown up with that option in other arenas. Almost everything they do is customized whether it’s music or pick your topic.
Davis: I completely agree. My nieces and nephews are in their late teens and they’ve never known anything different, and that’s only going to become more amplified globally. Their expectations will include the ability to customize as a standard, not an exception. It’s going to get to the point where everything is a showroom. You’re seeing stores go out of business because they try to overstock. I think they should be embracing the showroom aspect and let people customize. “Here are three basic colors in the store, buy them if you want, but if you want the new shiny toy---insert your product---in purple and chartreuse, order it customized and we’ll have it for you next week.”
The question is what companies are going to truly embrace that? If you’re buying a year ahead, you can support putting product on a boat and letting it ship from China to the U.S., and that takes six weeks. That’s all gone when you go to this model, you’re just speeding up the processing chain, but it is completely doable. This may be a reach, but Ford was the first to create the assembly line for cars. This was a drastic and radical step almost a 100 years ago. There is nothing stopping retailers, like PUMA, from making a radical shift in the production pipeline if it will not only solve a company’s cash/investment challenges but (even more importantly) satisfy the customer’s want and need.
I think there is an old adage that says something like, “The customer is always right…" This is truer now than ever in the world of customization.
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(Here is the first installment of our conversation with Davis.)