Lauren Sherman: Going Direct to Consumer – Well Made E41

Lauren Sherman is the Chief New York Correspondent of the Business of Fashion. On Well Made she’s talking about what’s working and what’s not in the evolution of retail. From Amazon to Allbirds, the former Forbes reporter and Editor-at-Large at Fashionista, covers why and how people are spending their money on fashion. We wanted to talk to her about all the vertical commerce brands popping up and how traditional retailers are adapting to go direct-to-consumer.

On the podcast, Stephan and Lauren talk about how traditional retailers can take their brand online (4:49), how digitally native brands can succeed in physical retail (21:15), and the ongoing tension of shipping and returns in the ecommerce experience (10:30). They ask if brand identity matters (20:35) and why microbrands can win big with marketing (37:23). Finally, Lauren gives her take on where each retail model is headed (25:24). Full transcript below.

You can follow Lauren on Twitter.

Also mentioned on the show:

Header photo by Phil Oh via Fashionista.

Stephan: You're listening to Well Made a podcast from Lumi about the future of ecommerce. I'm your host Stephen Ango. Lauren Chairman, welcome to the show.

Lauren: Thank you. Thanks for having me.

Stephan: You're the chief correspondent comma New York, at Business Of Fashion. What does that mean?

Lauren: It means that I am not line editing other people, so I am writing and reporting and doing kind of our big picture stories, especially for things based in the US. The company Business Of Fashion is based in London and we have a pretty big team there. The team in New York is tiny and I was employee number one here in the states and so my coverage is mostly US based. I do do some stories based around European companies, but the idea is that I'm driving the coverage and writing and reporting our big stories and taking the lead on those here in the states.

Stephan: Yeah, Business Of Fashion if people don't know is just a great publication. I think you do a lot of great work in the whole world of fashion, but also direct to consumer. You also talk about other companies like Amazon and the big conglomerates. Is there a particular area that you tend to focus on more than others?

Lauren: One of the reasons I like working here, I was a freelancer before this and I am an idea's machine and I could find a story in anything. And so one of the reasons I love BOF and decided to come on full time with them is I get to write about a lot of different things, but I would say my two big areas of expertise are kind of high fashion and luxury goods and also bit retail. So while most reporters would not write about Victoria's Secret and Louis Vuitton, I can do both of those. I'm very high/low, just like the way people dress these days. So it's how people spend their money, especially in terms of clothes. Sometimes I cover beauty and that's essentially because we don't have a full- time beauty person. So we all pick up things. But really I'm thinking about how people spend their money on clothes and so that could be from Forever 21 to Fendi and so that allows for a lot of different stories within it. It's broad, but what it comes down to is that idea of why do people buy this stuff.

Stephan: So we're going to go through a few of your recent stories, but before we jump in, what got you into this as journalism or this as an area of interest?

Lauren: Yeah. So I wanted to be a journalist from a very, very young age. I'd say eight or nine. It was that job, you know, when kids are I want to be a baseball player or what have you. I would say I wanted to be a journalist. I really wanted to be on Good Morning America and I love Joan Lunden. In high school I developed an interest in fashion and realized that if I wanted to be a writer I could write about fashion. That was a job. And so from then on I never really went off track. What did change was when I moved to New York in 2000, end of 2005, I got a job at Forbes.com as an assistant news editor and had no interest in business. I was always okay in math in school, but I just never considered going into finance or anything like that and didn't know how the stock market worked, nothing. But I got a job there so I took it and realized really quickly that, that part of the industry was very undercovered and also really, really interesting. And so I just decided, well, there aren't that many people writing about this stuff. Why not make it my area of expertise? So I just spent a ton of time learning about how businesses work and have been doing that for the past about 10 years on and off. I've had different jobs. I've worked at Consumer magazines, I worked at Trade Publications. I've freelanced for every single publication under the sun and when Business Of Fashion was hiring more people and raising money. I had known the founder Imran for quite some time and I just felt like the right fit. It was kind of the job that I've been training for the last 10 years. More than that now I think it's more like 12 or 13.

Stephan: One of the things I'm fascinated by when I read everything that you're writing is that a lot of times in some of the recent pieces that you wrote like, "Six Tips for Taking Your Brand Direct to Consumer"(https://www.businessoffashion.com/articles/professional/6-tips-for-taking-your-brand-direct-to-consumer). Which is one I want to jump into, is coming at it from almost the opposite angle from what we do at Lumi because most of our customers and the people that we work with every day are digitally native and they're trying to figure out how to take their brand to retail for the first time. And when you see it from the opposite perspective of these big, big retailers, big brands who are trying to figure out how to go direct to consumer. These are very similar problems but coming at it from different angles. So I'd love to jump into that piece and maybe you can explain what inspired you to write it?

Lauren: A lot of the wholesale model, wholesale retail is dead. It doesn't exist in the way it used to and direct to consumer. Whether you just call that direct retail or specialty retail has always been a better model in some ways because the margins are greater. The difference is, especially a lot of our readers work at these really high-end fashion brands that they don't know how to sell to a human. They know how to sell to a buyer who works at a department store and that pitch is very different than the pitch you give to the person who's actually buying the clothes. And so there's a disconnect between a lot of these traditional brands and the customer, they just don't know how to relate to them. They know how to make a motion on a runway or in an advertising campaign. But a day-to-day interaction with someone is something that's so foreign to them, so it's hard and it's also a lot of money to go direct and just as it's a lot of money if you're a direct to consumer brand to open up physical retail. You have to lose millions of dollars in many cases depending on how big of a brand you are in order to bring more of your business direct in and out of that wholesale channel, which is just not working anymore. And so a lot of these companies, even if you're making $50 million dollars a year in sales, you might not have enough money to invest to really make this work. And so the idea for the piece was to just give people some semblance of what are the first steps I can take to make this happen. It could take them 10 years and time is running out for a lot of these brands. So the idea was simply, I mean a lot of our coverage is we're really looking at these pieces as service journalism and trying to- We're a paid service and we want them to get as much out of it as they can. So the idea really was to just inspire people to kind of take the first steps. And we had two good examples of more traditional brands that have done it pretty successfully. I thought they offered some bare bones, scrappy ways to get in there. I think generally what people see is the more places you are on the web, it actually really helps to drive traffic to your own site. I have a friend who launched a shoe brand based in LA and she's in a couple small to mid sized retailers and is doing her own direct sales, but she's gotten so much direct traffic and quite significant direct sales because maybe they're out of one size in one retailer. They don't have the same color way. So there is a sense of, and I think I mentioned that in there, you do have to provide variety. That doesn't necessarily mean just- You know in fashion a lot of retailers will say, offer us in a quote unquote exclusive, which could mean you know, a pair of shoes in a different color or a silhouette of a dress that no one else has. And you know, I think sometimes that works and sometimes it doesn't. You have to be mindful of how you approach it, but generally I think, especially for these smaller brands, it's just about brand awareness and offering as many kind of avenues to get to your product as possible.

Stephan: Yeah. So jumping into some of the ideas that you suggest. I'm curious, do you find that these big retailers or big brands have a hard time because they haven't done fulfillment before themselves? Because they're selling in pallets of a product as opposed to individual items? Or is that not an issue that you see as much?

Lauren: That is a problem, especially for the independent brands. I mean they do fulfillment in a different way in that they have to deliver to the retailers and retailers will have specs on the kind of hanger you send it on and if you don't send it on that hanger, you get a markdown, they charge you for it. So, it doesn't really matter what size of a brand you are in that way. You have to get the product to the retailer's warehouse in the way that they want it. But in terms of dealing with a customer directly and say, in returns and things like that. Yes. It's a lot of these people have never dealt with it. A thing we talk about constantly is the free shipping thing. You know, if you're a small brand, it's really hard to offer free shipping. And sometimes I think, oh I just bought some stuff and it was free shipping over 100-bucks. And I just thought, oh it's so annoying that I have to pay that 10 bucks. And a lot of times mid size retailers or brands will say 10 percent off your first order and it's essentially paying for the free shipping the first time. But we just had a piece run, my colleague Sean Tall, wrote it about customer service in the age of Amazon and there's so many nightmares even with big brands and retailers because consumers are just so used to everything getting to them in two days and it being perfect and if it's not perfect, you get a full refund. And so I think for a lot of these smaller independent brands or even kind of mid sized fashion or apparel brands, it's a shock of how much money all of that cost and how much you have to kind of bake into your budget for that

Stephan: One of the tips that you gave was 'stack don't silo'. Can you break that down for me?

Lauren: Yeah. So one that's crazy about the way the apparel industry works, but it's just the way it is, is that it's a very silo-ed business. So if you work in marketing, you may never speak to the people who work in technology. If you work in or- The biggest thing at apparel retailers is merchandising and design tend to not speak a lot or if they do, they butt heads and merchandising are the people who, say you work at J Crew and you're a merchandiser, J Crew, your team, the merchandising and buying team are buying the product for the stores. So even though it's a direct to consumer brand, they have people who work that say, okay, I need this amount of product for my Santa Monica store and this kind of product because we sell more men's than women's or what have you. And so there's always this kind of balance between the retailer and the designer, the merchandisers and the designers. And at some brands that works really well. And I'd say that tends to be the more successful brands, but when there starts to be a challenge between those two, where the merchandisers perhaps dictating the design too much? Or The design is ignoring what the merchandiser feedback is saying. That's when brands kind of get into trouble. So, the idea is there's not as much of that cross communication as there is with tech companies or just generally startups and the way modern companies work. And so the idea for that was you really need to get your people talking. I know a lot of mid-size brands where they may have their own stores, but the whole people, the buyers who work with the wholesale accounts don't ever talk to the buyers who work with the direct stores. So, there's not a lot of communication within the different departments at these companies. And so another big thing for many years was they would hire a digital team to manage consumer email marketing and to manage ecommerce and they were sort of separated from the rest of the company. And clearly that doesn't work because digital is everything and more and more of these companies are understanding that. But there's still this sense of that being another, a different thing. And I think it's to the detriment to a lot of these brands.

Stephan: I have to say the concept that you're describing to me is totally foreign in the sense that the big retail brands are not in touch with their customers enough. I just find that fascinating because I come from maybe a younger school of business where that direct to consumer relationship is the way that you get information about what products people want, what you're trying to create in the world. And so I don't understand how they make decisions about what should be their next collection or anything. Is it completely coming from the design side of things?

Lauren: A lot of these really high brands, yes. They don't care. They don't care what the consumer thinks and they say that they do, but they really don't. They have this muse. This can be a big brand. If you look at someone like Michael Kors who has been pretty successful at taking more of his brand direct, this is a very specific example, but Michael Kors is really good at selling clothes to women. He's also an extremely talented designer and in high fashion, one of the greatest that's ever existed, especially in the US. He's an icon of American fashion, but he also can go into a dressing room and sell a piece of clothing to a woman. He does these kind of salons to present his collections with small groups of editors and buyers and it's incredible because he really knows his stuff. I'll go in and talk to other designers and I'll say, what fabric is this? And they won't have any idea, but he's a really good example of a modern way to do things. And there are a lot of higher end designers. Now, granted, these aren't huge businesses. Some of them, Michael Kors is a billion dollar business, but a lot of these designers are doing $20, $30, $40 million a year in sales, so they're not massive businesses. But a lot of them wonder why they can't get things going in the way people shop now, they can't connect with modern consumers and a big reason for that is because they operate in a bubble. I think this happens a lot with super high end brands, but it also happens with mass retailers and mid range retailers who think they know better than they do. You'd see this also at the customer service level at retail that they're not trying to recruit people who are obsessed with the brand. If you have a kind of mid sized brand, you should really try to have people working in the stores who love it and want to wear the clothes, are excited to get a discount. I mean, it's difficult to find that, but it's a huge challenge. A lot of these people just don't think about what the consumer actually wants they think about what they think the consumer wants or what, or what they want.

Stephan: Yeah. I think maybe I just have a very uneducated perspective on the fashion market.

Lauren: It's a crazy business. It's insane.

Stephan: I think maybe I understand what you're saying that maybe for a long time fashion design has driven culture and so it's the job of the fashion designers to sort of create here's the look as opposed to coming from the consumer and asking what do you want? But it seems to me like the fast fashion companies have gone down that path, like the Zara's and H&M's of the world. one of the reasons they've organized their supply chain in such a way is that they can be much more reactive to what's happening and create styles that they're able to sell right away. Does it seem like those companies are doing a better job when they move up to the direct to consumer world because it seems like that would be more part of their DNA?

Lauren: Well, they're inherently direct to consumer, right? So they only sell direct, they don't sell through any department stores, those bigger fast fashion and certainly they're a big reason we're having this conversation. Of course, their ecommerce in general and kind of the unbundling of everything is another big part of it, but they've made it really easy to wear certain trends and not have to wait and not have to go to specific brands. They've democratized the idea of fashion or the idea of style. The thing that I think that most of them still are challenged with ecommerce that is there are several reasons for that. One is that they just were doing really well and thought, well, this is a whole other thing we need to build out. Why should we do that when the stores are still performing so well? And also I think there's so much product. It's hard to shop on H&M.com. It's interesting because they're so ahead in speed to market, but in this way they might've been a little bit behind, but it's certainly a reason that brands are challenged. If you look at an H&M or a Zara though they don't really have a brand and so it kind of- I don't want to get too philosophical, but it goes back to, okay, so does brand actually matter. Most fashion designers and most specialty brands, if you talk to the CEO of Victoria's Secret, I think that she would say- I think she's president, not CEO, but I think she would say that brand absolutely matters. But if you look at what is doing well in terms of sales quarter over quarter, a lot of it is brandless products, so that's a whole other podcast topic I think.

Stephan: Well I want to come back to that in a few minutes. Before we move on, I do want to talk a little bit about that Everlane story that you wrote recently. They've been opening stores, experimenting a lot with that. I also think of Bonobos in particular when I think of companies that have made the opposite move, which is coming from the online world and trying to open up their retail stores. What did you learn about Everlane's physical retail? Do you have a sense of how that's going and what they've done right?

Lauren: Yeah, so I think it's going well because it's two stores. The stores have pretty small square footage and their product is certainly not perfect, but they have kind of hit on something which is that everybody needs replenishment products, so that's t-shirts, underwear, jeans, these are things that you buy over and over and over again. And GAP used to be that for most people. Uniqlo is that for some people now, but they've had their own challenges and I think Everlane has done a really good job about communicating. They have the direct relationship and they really know how to communicate with the customers. So they've had a really successful run this far. Sometimes you see a line out the door of a store and I think in both their San Francisco and New York on the weekends, you will still see one and they've been open for about four months, but you see a line out the door and you kind of think: Ah, that has to be at least a little bit about marketing. You're not letting many people in, when people see a que they immediately want to line up because they think they're missing out on something. But I will say that Everlane had to close its New York store for 10-days, a month and a half after it opened because the floor was so scruffed up. And that's not something you do for marketing. That's because you absolutely have to. And so I do think the stores are performing well and I think one of the biggest reasons is that they experimented with pop-ups and having kind of temporary stores for four or five years before they opened anything permanent below their headquarters. Even below their headquarters in San Francisco, they used to have kind of a pilot store and even before that you could go into this room and look around and shop and I think they had time to kind of get a sense of what their customer wanted and even a couple of weeks ago when they launched underwear, they had a live retail experience in New York that was completely separate from their actual store. It was probably a 10-minute walk away from it. That was really successful and so I think that they understand that those kinds of store's marketing experience and moment. It is important. I think in terms of Bonobos, they certainly were onto something with the guide shops and I think especially for men who bought and tend to replenish and tend to buy things in bulk and all of that. That model is also relevant. And something that I think more retailers should think about. Maybe you have some stuff that you can buy in store and some stuff that is shipped and maybe have a hybrid, but it's an interesting idea. I would say that Bonobos has been challenged in terms of they did sell and they did okay. And they sold to Walmart and now they have the infrastructure of Walmart, but I don't think Bonobos has it all figured out, nor does Everlane. I think what a lot of direct to consumer brands are challenged with is the product and getting the product right and getting that mix of it being a basic thing that people just need and so they'll keep coming back and also being a thing that people just want.

Stephan: Yeah, I'm fascinated by what you see as the long term equilibrium of what's happening right now because we have the mall-pocalypse thing going on. So many of these places are closing down a lot of stores. Meanwhile, we have digital native companies who are opening stores. We have companies who are doing this show room style store. And then we have the traditional inventory model. Do you think in 10, 20-years we reach a certain equal equilibrium with this kind of stuff? Or is it just way too early to say

Lauren: If I thought what should really happen happened. I mean, I think there should be way less malls. Way fewer malls way fewer stores. We shouldn't really have that many stores for most product. But is that going to happen in 10 years? I don't know. It might take 20 or 30. I think it will depend if something really crazy shifts in technology, something equivalent to the Internet happens and changes the way people shop or people move around their cities. But I think, one thing is a lot of these direct to consumer brands, they say they need physical retail for exposure and awareness. And I totally agree with that. But I do think a lot of them are struggling to grow online because it's very expensive to acquire customers, where 10 years ago it was essentially free to acquire customers. So you know, it's a mix of yes you need brand awareness and a physical store can help with that, and also they need to grow because they have tons of investors. I think Warby Parker is one example of glasses or something you want to try on. So I'm not surprised that they've opened so many stores. With Everlane I would assume if you talk to Michael Preysman the CEO, he'll say we're never going to open that many stores. Who knows. He five years ago was saying I'm never opening a store so he may open 50 or 100 stores, but the thing is I don't see how that's a sustainable model. It's just not, it's not the way people shop anymore. Maybe they want to go into a store occasionally, but I think most mall type things, whether that's a shopping center, high end or low end, is going to be more food and entertainment based and there will be one or two physical stores that you go in. And then the other big thing is with wholesale, with multi brand retailers, department stores, that sort of thing. I think that that's going to move more and more towards a consignment model. Your stuff is in that store because it's a really fun store and people like to go there almost as a tourist and you think of something like a Dover Street Market in New York or, it's not really lower end, but in LA, something like a Fred Segal, that sort of thing where you go in and you're almost there for the experience and maybe you buy a couple of things. I think that will still exist, but brands will not use that as a source of revenue. It will be a marketing expense and it's on a consignment model, which means you put your stuff in there and you get paid if it sells and if it doesn't, they send it back to you. And the person who's the holder of the store gets a commission on it and some department stores already operate like that. Le Bon Marche primarily operates like that. They have buyers and they help kind of guide what gets into the stores, but if you go there and you go to one section of the store, the person working in that section actually works for the brand, not for the stores. So I think that's where multibrand retail is going, but I just think right now a lot of these brands are using opening up more retail to drive sales and drive growth, but I don't know how sustainable that is. I just don't think that's the way people shop anymore and I don't know how long it's going to take. It's very similar to kind of magazines you. If you talked to me five years ago, I would've thought way more of these magazines had already folded and they haven't, so I think it's going to take some time and for it all to kind of even out. And again, you just don't know what's going to disrupt in the meantime.

Stephan: Yeah, I mean barring some sort of revolutionary augmented reality thing that or something like that. That takes us completely by surprise in terms of allowing people to try things on in a virtual way or something like that. I do agree that there's a certain amount of wanting to touch and try product, but it just doesn't seem like that is the way that most retail is going to go in the future. And the returns thing is fascinating because I think that there's another company, I forget the name, I think it's like Happy Returns or something like that. They're putting kiosks in different places. Returns as a physical location is kind of a fascinating challenge because for whatever reason consumers sending things back in the mail, it works, but it's not ideal.

Lauren: No, no. And I was a huge fan of Shyp, RIP. Unfortunately, that business model didn't seem to work either.

Stephan: Shyp they just closed recently.

Lauren: Yeah. But unfortunately, there is still a tension there with returning things. Some people don't care, but a lot of people do.

Stephan: What is that tension in your mind?

Lauren: I think just having to do anything where you have to pay attention to how and also scheduling. So I order. I'm a big fan of Matches fashion as a customer. I shop on there quite a bit and they have a really easy return. It's kind of listed out exactly what you need to do and you can go online and just schedule a pickup with DHL. It's a UK based company so they use DHL and they pay for everything too. I mean they have a huge private equity backers so they can afford to eat those costs. But it's pretty easy and I almost would rather just order if I'm trying on jeans or something, order three pairs of jeans from them and the money gets back on my credit card super quickly, that sort of thing. They just make it really simple. I think even Amazon, they're not making it so easy for you to return something. Now with Amazon, there's all these other caveats that, A: You get it so quickly and B: If it's not perfect, I feel like even if you just tell them it's not perfect, they'll just say, fine, we're sending you another one. Again, it's the companies that are really well funded and that can kind of ease those tensions that I think are doing better with it, but if you're a small to mid apparel brand, you're not going to have the funds to kind of do all this extra stuff. And so I guess that's part of what you guys are doing. But yeah, I think it's still a point of tension for customers and they also just think it's hard. That's why click and collect in the UK is so popular. I think like ordering it online and just picking it up somewhere, especially for people who are either car bound or live really close to a high street in the UK, it's just easier than returning in and sending it back. And until all of that stuff is made a bit more simple. I think that it's going to remain a challenge to get customers to completely give up on going in store.

Stephan: Speaking of the challenges, especially for small brands, there's a couple articles that you didn't write but that I thought maybe it would be fun to talk about. One is a few months old now by Alexis Madrigal called "The Strange Brands In Your Instagram Feed" and another one came out a few days ago or weeks ago, "Attack Of The Micro Brands"(https://medium.com/positiveslope/attack-of-the-micro-brands-c0b7835c3633), which was on medium by Scott Belsky, who's actually a chief product officer at Adobe and small investor in Lumi. I'll put that caveat in there. He mentions us in the story. But they're related because they talk about this topic of small brands. The first one by Alexis Madrigal kind of points out that more scammy nature of some of them. I think the one by Scott Belsky is more about the fact that much smaller, less funded companies can present themselves online and through Instagram ads and their website and their packaging. Just like the biggest brands. They can present themselves with an aesthetic that makes it very challenging in a way to tell what is a big brand from what is a small brand and that's a fascinating new world that we're entering. And I think you mentioned at the very beginning of the show, what is brand anyway? Is that the thing that your whole company is leveraging to communicate with your customer? What were your thoughts on those pieces?

Lauren: Yeah, the first one super interesting and an important for I think more for the consumer than for our reader in particular. Obviously it's good for our reader to know about these things but I almost equate it to counterfeit merchandise. Like you need to know about how that all works and if it's detrimental to your brand or not, but it's not day to day perhaps the companies that you're going up against necessarily. I was super interested in the second piece because of the fact that these micro brands are a huge problem for bigger brands and if you think about something, how much market share they're taking away from the bigger brands. Sure, it's not that much, but if you look at GAP the brand and look at its sales over the last 15 years and it's been a real challenge and yes, fast fashion has a lot to do with that. But it's also just that consumers have a ton of options and if you present something in the best light, it is the consumer's choice now. There's this brand based in Los Angeles called Doen and they do peasant blouses and tops and if you presented that brand to a fashion editor 10 years ago, she might've just been kind of like, "Eh, It's really pretty. I like it a lot, but it looks like everything else or there's not really anything special about it". But they have really great art direction and they just have gotten it exactly right. Every single woman I talked to who's kind of in the fashion world is obsessed with it. I don't know anything about their retail sales, but I know that they've been successful thus far and I think I'm sure they've done a lot of Instagram marketing, but I think a lot of it is Instagram stories. If you do a good job with those sorts of things and are able to present yourself in a way that's super compelling and interesting, you really can cut through and you don't need all of the marketing and support of the fashion industry and what you have that you used to need. And so those micro brands I think are really the key to the challenges that we're having in this world right now. Regardless of if you're a retailer or your brand or your $500 billion a year, $50 million or $5 million. Everybody has a ton of choice and it's all easily accessible. And so growing up we would have one or two brands that we loved. When I was first a teenager, Contempo Casual was very cool. It was when clueless was coming out and everybody wanted to go to Contempo Casual and buy clothes or what have you or everybody wanted to go to GAP. You just don't need to do that anymore. There's just a million options. And if you're into a certain aesthetic, Instagram's going to feed up more products that are in line with that. And so I think that's something that, again, going back to this idea of creating an emotional bond with the customer. Some of those micro brands are really, really good at doing that. And so like the author said, a lot of these brands are $10 or $15 million dollars a year. I know fashion brands that have been around for 15 years that aren't that big. The margins are better and they're making more money and they can pay. It's really interesting. I'm not saying that when they get to the next level, it's not going to be hard to grow, but I just think it's hard for everyone right now and you really have to decide what kind of business you want to be, what size of business you want to be, and you have to know that you're competing against everyone. It's not just Zar, it's not just Doen, it's not just St Lauren, it's everybody's competing with everybody.

Stephan: The analogy that I think about and you mentioned magazines earlier, but when I think about what media looked like 30 years, 50 years ago, you had such a limited access to information. When you go to YouTube today and you want to follow people who are in the beauty and makeup world for example, there are literally a million vloggers talking about that every single day. And you can develop a personal relationship with a specific person and they are becoming like this micro brand in the media space. And I think that's what we're seeing here with physical products. Like the products are almost becoming like a medium of expression in a weird way. People, individuals, small groups of people can bring products to market, sell them to a niche audience that really cares about that particular brand or that person or that product. And you can have such a direct relationship. You can really feel like that brand cares about you because they're interacting literally with you. They're answering your messages, they're having that relationship and isn't that more interesting? Isn't it more interesting to have a relationship with someone that cares about you then if a faceless big corporation? So that idea of a brand is I think it's really challenging because for a company like you mentioned GAP or any of these really large ones. What do they have exactly that a smaller company doesn't? They have scale, maybe they can be a lot lower cost because of that. Or maybe they have access to some sort of special resource or like Nike perhaps has a ton of R&D capabilities so they can come out with new materials or something like that. But what is it that a big brand really has that a small brand, doesn't it? Is becoming the new question, I think.

Lauren: I agree and it's really an enthusiast world and everybody wants things that are quote, unquote "very me" like things that are made just for them and it's a world where you can get that. If you're a really big brand and you can communicate that. And I think like a Nike or an Adidas, even though Nike is having its own struggles, but they've been able to do that and maintain that to an extent. And there are other larger brands that have as well. But there are also other smaller brands. If you talk to people about the GAP, everybody loves the GAP I guess, probably over the age of 30 or 25, you have this kind of feeling of emotion towards it. But you have to have something to get the customer to actually buy it. It can't just be this, Oh, I wish the gap was good. It has to actually be good. And so I think everybody just has much higher standards that they have to meet because the consumer is more demanding. Everybody knows this, but the consumers weren't discerning, they're more educated and they know what they want. So you have to be willing to put in the work to give it to them.

Stephan: Yeah. I think in a world like let's say electronics, companies like Apple or Google or whoever it is can continue to do really well because they have a product that is really hard to make it low scale. You can't really make a thousand iPhones. You have to make millions of them to make it cost-effective. But clothing is much more something that you can democratize and that makes it really challenging. You can make it at small scale for relatively good price points.

Lauren: Yeah. Yeah, for sure. And what you're finding at the really high end is that they're making it so expensive. It has nothing. We talk a lot about price value equations, which sounds like marketing BS, but it's really interesting to me. Like how much is someone willing to pay for this and why and at the high end of fashion you'll see the really tippy top brands charging just insane prices because that's the only way that they can actually make money off of the clothes. Because the reason people at that level of buying stuff is because it's so expensive almost.

Stephan: Before we wrap up, I want to talk about your piece about Glossier and "Investors: Beware Of The Beauty Bubble"(https://www.businessoffashion.com/articles/professional/investors-beware-the-beauty-bubble) piece. I saw Emily Weiss speak at Shoptalk recently. It was really interesting. I wonder if they'll put that one up online soon, but it was a great talk about personalization. Kind of goes along with what we're just talking about. You mentioned this bigger trend of that industry growing like crazy right now. What's your take on it?

Lauren: I would love to see that, Emily is so driven and so focused and I've loved watching Into The Gloss develop into Glossier and I can't wait to see what she does next. But I think generally that industry is very interesting because it's really high margins. It's really easy to scale it pretty quickly so you can get to $100 million in sales in a couple of years. Whereas fashion that's almost impossible. It's much easier to scale beauty super quickly than it is to scale fashion super quickly.

Stephan: Can you explain why?

Lauren: The product is cheaper. So even at the high end of beauty, you're going to be spending maybe $40 or $50 for something. And a lot of beauty products are like $5, $6, $7, $10, $20. But the margins on them, I don't want to speak out of turn, a really good margin on like a high end fashion handbag is 60 percent or something. Margins on most clothes just like regular clothes I think is more like 20 or 30 percent. It's really low. Whereas beauty, the margins I think can be like 90 percent. Do not quote me on that.

Stephan: I think it's totally fair to say that because the benefit that you have when you're making something that is essentially a liquid or like a paste. Is that you can make it at a really high quantity. It's not really that different making a bucket of it or making a giant vat of it and yet the labor cost shrinks to a tiny amount. Whereas when you're making clothes, your hand sewing or you're using machines and so you can't skill that doesn't scale, human hands go as fast as they can or sewing machines go as fast as they can.

Lauren: Yeah. And as automation comes into play in fashion, that may change a little bit, but again, you're right. It's just you can just make a lot more and make it and more people are willing to kind of jump in because it's easier to get. And I also think for a long time people didn't think beauty would work online because you want to try and store. But the thing is you can't really try a lot of lipsticks. In Sephora you can, but not at drugstores anyway. So that whole idea of it being weird to sell beauty things online, fragrance is a little different. We have a big story coming up about that, but you know, color cosmetics and skincare and things, it's really the description that you're after and skincare has been a big part of it. So I think it's a big business and it will continue and there will still be investors. What I found in that story was the multiples for which these companies are selling are too high. So the more traditional investors, the strategic groups like the Estee Lauder's, the L'oreals of the world, they'll buy something for a lot of money if they think it's worth it. Like I think L'oreal paid a billion dollars for IT cosmetics. Again, I would google that just to make sure beauty is not my typical beat. But they paid a ton for it. Estee paid a lot for Two Faced. And there have always been a few private equity firms in it, but now there are tons of private equity, tons of venture capital trying to get in. And so I think though the multiples are just going up and these bigger strategic groups are kind of like, Eh, I'm not going to pay that for that. It doesn't matter because I also know how this business works and things are cyclical and everything. So I think that there's simply still a lot of opportunity, especially when it comes to wellness related or food related. Someone was just telling me that Sephora is going to introduce a matcha tea for the first time. So it's the first edible thing that you can buy in a Sephora and I think you're going to see more edible stuff in these places. As you know, people become obsessed with herbs and things in that kind of stuff becomes more mass. And so there's certainly opportunity, but you really have to know your stuff. And also from an operational perspective, I would say, and this is just an observation that most of the people who are making this stuff and most of the founders who are producing the stuff don't know anything about how it's actually made. There's a brand called Beauty Counter that's a mix of, they do, it's kind of like the Avon Lady model, but then they also sell in cool little shops because the brand's nice. They also sell online and then they have a lower price brand with Target. Beauty Counter's obsessed with like what's in the makeup and making sure everything's clean and healthy. And I don't know if the consumer cares that much, but I do think a lot of these brands have no idea what's in that, what's actually in their products. And I think that's something that's a little bit- I might've mentioned this in the piece, but you know, if I were an investor looking at that stuff, I would just want to make sure that the supply chain was okay and I would really do my due diligence. Especially if you don't have experience and you don't have an operations person on your team who does in that business. It's just a business that people don't know a lot about.

Stephan: Yeah. Yeah. It's really fascinating and it's hard to tell exactly where it will top out in the next few years or decade or whatever that they're projecting. I think in the Shop Talk to talk, Shop Talk is a big convention that happened a couple of weeks ago for the whole world of retail. And Emily Weiss was projecting something like the space is still growing at a huge, huge pace. And so obviously they're hoping that Glossier takes a big chunk of that. But there's also a ton of brands that are from all of these small influencers being created every single day, so it'll be fascinating to see how that affects the Sephora's of the world and the big L'oreal and Estee Lauder companies

Lauren: For sure. I think one place I see a lot of opportunity in beauty is specialty retail, some multibrand retail. I think Sephora obviously leads that. There are a bunch of other ones that have kind of emerged. One is called Costs Bar. One is called a Credo that has all natural and you might've seen them in your local market there. They all have kind of probably six or seven stores across the country, but I do think even if it's online, there's not really- Net-A-Porter has a beauty section that's done really well for them, but there's not really another Net-A-Porter or a Matches Fashion of beauty and I think there's an opportunity there for discovery and if you go into Sephora it's, you know, a lot of people love it, but it's not the experience for everybody. And so I think that there's still a lot of opportunity for investors in that space as well in the actual retail and selling of beauty products.

Stephan: Good stuff. Well you have been extremely prolific with your stories lately. I hope people get a chance to check you out on Business Of Fashion. If they wanna follow you, your twitter is, how do you pronounce it? Because if I pronounce it I'm going to sound like an asshole.

Lauren: Me Too. It's lapresmidi. And I do not want to go into why that is my handle, but I'm going to keep it, I've decided. And I am on Twitter and Instagram but I would say that I'm more on twitter.

Stephan: And you do a podcast, which I'm a fan of because it also features your husband who I really enjoy. But you haven't been super active The Needle In The Mass podcast. I hope you guys do some more episodes.

Lauren: Thank you. I hope we do too. We used to do them really regularly and then now it's about every six months, so I'll mention it to him and hopefully we'll have one in the next couple of weeks. He has some fun projects coming up too that I want to talk to him about, but thank you. I appreciate it.

Stephan: I'm a fan. Yeah. Everyone check out Needle In The Mass podcast and Lauren Sherman on all the things. We'll put some links in the show notes, but thank you so much.

Lauren: Thanks for having me. It was great to chat.

Stephan: Thanks for listening. If you enjoyed the show, if you got something useful out of it, I would love to hear what that was. Consider writing a short review. Could be just a sentence long by going to iTunes and searching for Well Made. I want to hear it all. I want to hear good, bad. I want to hear your constructive criticisms. I am just trying to make this show as useful as possible for you. So tell us what you think. That is the very best way that you can support the show. Thanks and see you next time.

You can find this and all future episodes on iTunes, Google Play, and here on the Lumi blog. This episode was edited by Evan Goodchild.