Secondhand apparel sales are going to be more disruptive for specialty fashion retail than Amazon or the fast fashion players like Zara and H&M, according to Scott Galloway.
Galloway, speaking via video link at the NewsMediaWorks’ Inform conference in Sydney today, warned specialty retail is about to endure the same decline that department stores have suffered at the hands of fast fashion and Amazon.
“Retail’s new disruptor is the resale market,” he said.
“It’s going to be bigger than fast fashion, and think about what fast fashion did in terms of wealth creation and disruption in the specialty retail apparel market.”
The NYU Stern professor and founder of L2 (which was acquired by Gartner) argued that fast fashion has been more disruptive than Amazon in the US apparel industry over the last decade, but there are signs that market is slowing down. He highlighted the stock price of Inditex, which owns Zara, has been flat over the last five years and H&M has shed 70 per cent of its value.
“The new disruptor in retail, the new gangster that’s going to create hundreds of billions of shareholder value is the second hand resale market,” he said.
“The second hand market — that is, you wearing other peoples’ clothes — is expected to be a bigger business within nine years than fast fashion.”
The market is being driven by young people, who are comfortable with second hand resale clothing in part because it’s more sustainable and more affordable, Galloway said.
In the US, the big players in the resale market include the RealReal, which listed in June, as well as marketplaces like Poshmark, which connect buyers and sellers.
“I think this is arguably one of the most disruptive trends in specialty retail apparel we are going to see for a long, long time,” Galloway said.
More broadly, retail in the US is bifurcating into two cohorts, Galloway said. On one side is Amazon and a handful of winners versus everybody else, whose future doesn’t look so bright.
“Retail is really a tale of two worlds. In the US there is basically retail and then there’s Amazon and a few small winners in between that probably get a disproportionate amount of attention.”
He issued a warning that while it’s still early days, competition in the form of Amazon has arrived in Australia. He showed a slide (pictured below) of the growth in monthly site visits to Amazon versus local retailers Woolworths, Coles, Chemist Warehouse and eBay from April 2018 to August 2019. According to the Section4 data, Amazon is up 55 per cent, while eBay is down 22 per cent.
“We’re seeing a dramatic increase in the number of people who are starting to investigate the great white shark of retail online,” Galloway said.
“Amazon has access to the cheapest capital in the history of our modern economy. And is basically essentially taking 100 per cent oxygen in the form of reinvesting 100 cents on the dollar and their customer experience,” Galloway said.
He singled out Target and Walmart as retailers with the scale to make massive investments in fulfilment, technology and supply chain to land counter blows on Amazon.
“As a result of storytelling, the massive reinvestments, the focus on supply chain, the click and collect, Walmart has attained what every company hopes to attain and that is they have recognised they need to reinvest profits in the consumer experience.”
“The stock has gone up, despite the fact that they’ve had to take their profits down, because the marketplace realises the vision and fighting and making the requisite investments is a long term winning strategy.”
Galloway highlighted three characteristics of the winners in retail: offering an incredible retail experience, investing in supply chain agility, or going vertical in terms of developing a proprietary product which they distribute themselves.
He also highlighted the importance of recurring revenue for retailers and investing in human capital.
“The retailers that are succeeding are creating a better in store experience by investing in human capital.”
“I think the over-investment in artificial intelligence is not going to pay off for all but the most sophisticated technology firms.”