Getting customers to take home bags of new fashion brands is harder than ever.
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Fashion startups used to be about fashion. If it fit well, was priced right, and looked great, you had a winner. But now, before consumers consider these things, a brand has to get the consumer’s attention online and that makes the business much more complicated.
Getting noticed online is about values. Consumers want like-minded brands about things like sustainability, fair wages, and other personal values, and that makes acquiring new customers more expensive, more complicated, and more demanding than ever.
A new study from Syte, a product discovery platform, has data showing just how much harder it is now.
Almost half of online fashion consumers use direct debit (where they don’t search but type the URL or website name). Since consumers go directly to a site, no amount of Google advertising words or SEO will get there. Even before a brand starts looking for new customers, almost half of the market is unavailable.
Even if a brand gets a consumer to enter the URL, there is only a 3% chance of a sale. This is higher than if they reach a brand’s site in another way. If they come from a paid Facebook or Instagram ad, the chance of a purchase is less than 1%.
More than 80% of online fashion consumers shop from a mobile device. Even if a brand entices a consumer to shop on their site, the consumer is likely to be distracted because they are doing something else while shopping.
Data says fashion shoppers on mobile spend nearly 20% less time shopping compared to desktop users. They also view fewer pages and spend less than on desktop, 30% less, and order fewer items.
With consumers on mobile devices and shopping while distracted, capturing their attention is harder than ever. This means that more messaging is required and this leads to higher and higher customer acquisition costs.
And it’s not just fashion. Syte report data for jewelry and home decor has similar data.
All these changes in consumer behavior make consumers harder and more expensive to attract and when a brand finally gets them, they spend less.
How was it different before?
Anthony Choe, founder and managing partner of Provenance, an investor in consumer brands such as Dagne Dover, Marine Layer, Knot Standard and MeUndies, explains that the years 2014 to 2021 were completely different for young brands starting out. At that time, capital was much more available than it is now, and marketing, especially on Facebook, was much cheaper and more effective. This environment allowed startups to establish a strong customer base at a reasonable cost.
Now Facebook is no longer ascendant, capital is harder to access and online marketing is much more complicated. The campaign you run on Facebook is different from Instagram and again different from Tik Tok. The human and financial resources to develop and manage these disparate channels are much greater than previously required.
In those early years, you could build significant businesses just by being online. Today it is more difficult. Having physical stores and being wholesale is now more necessary than ever to create awareness and eliminate marketing clutter.
Many investors are now wondering whether consumer product startups can aspire to become multibillion-dollar companies like Ralph Lauren and others did many years ago. Choe and many other investors I’ve spoken to think they can’t.
They believe that the world is more fragmented now and that makes it less likely to get big. Choe believes that a successful consumer brand should now be thinking about a revenue goal of $250 million, not $2.5 billion.
how they do it
When I see brands that are successful now they have these characteristics:
multichannel. Gone are the days when being online only made a brand cool and desirable. Brands now have to choose between numerous channels including wholesale, their own stores, their own website, online marketplaces and AmazonAMZN or WalmartWMT membership and each of these channels has numerous permutations.
A clear voice. Online marketing is full of clutter and getting noticed is expensive. Successful brands now often have a unique way of reaching their consumers that allows them to avoid the high cost of online marketing.
Some brands use channels as a strategy to get noticed, such as being in large, well-known multi-brand stores or having their own storefronts in high-traffic locations. Some use influencers. Others use the same message as the outdoor brand Cotopaxi whose fundamental mission is to fight poverty.
It’s the product, stupid. Of course, the product can never be second-rate, this is basic for any brand.
But after a brand has great products, it is not true that “if you build it they will come” because they must first know you are there.
The numbers should work. In the past, it was fine for brands to spend more than they earn, but investors now want profit.
Two numbers are key: gross margin (revenue minus actual product cost plus shipping) and customer acquisition costs. Generally, you need to have 30-40 cents left over after deducting these costs, and if there isn’t, it will be difficult to be profitable.
Getting the rest right won’t matter if those two numbers don’t work. Investors are now more discriminating. If the path to profits isn’t clear, they’re not game for endless rounds of funding to get there.
What the future holds
In a word, the future is: uncertain. No one knows which social media channel will dominate next and how much it will cost to use it for marketing. No one knows what will happen with shipping costs and supply chain issues (although next year looks promising). And nobody knows what’s going to happen to the economy and whether we’re in a recession or going into a recession.
Uncertainty makes people risk averse. Investors are more reluctant to invest and consumers are more worried about spending. Marketing costs are likely to continue to rise and the importance of having a single voice or channel for consumers will become more important for the foreseeable future.
A few things we know: The era of outsized marketing budgets that pour money into marketing to increase scale is over. The likelihood of building a multibillion dollar consumer products business is lower. Consumers will continue to want more than just a great product and will only buy it if it’s convenient, priced right, and expresses a value that aligns with what they believe.
Reader, if you’ve made it this far, I’m sorry to say that the end has no better news than the beginning: it’s harder than ever for new fashion and related businesses to land new customers, and it’s not getting any easier anytime soon. .
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