Fashion Industry Macrotrends with Paul Raffin


Paul Raffin, Emily Lane, Bret Schnitker


March 29, 2022


Emily Lane 00:09 

Welcome to Clothing Coulture, a fashion industry podcast at the intersection of technology and innovation. I'm Emily lane. 

Bret Schnitker 00:17 

I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward 

Emily Lane 00:21 

and discuss solutions to real industry challenges. 

Bret Schnitker 00:24 

Clothing Coulture is brought to you by Stars Design Group, a global design and production house with more than 30 years of experience. 

Emily Lane 00:35 

Welcome back to another episode of Clothing Coulture. Today. We are coming to you from the beautiful Hollywood Hills in Laurel Canyon. Feels really wonderful to be here, doesn't it Bret? 

Bret Schnitker 00:46 

It does. It feels great. Yeah, 

Emily Lane 00:47 

so we have a pretty exciting conversation lined up. We've been talking about a lot of massive shifts that we've been experiencing in the fashion industry. We've had the rise of E commerce, you know, looking at last year $469 billion in sales in this industry and really looking at 2022 The expectation is that it's going to cross 1 trillion we've had since the pandemic athleisure increase about 84%. And you know, things like the metaverse has come into almost a daily conversation brick and mortar 

Bret Schnitker 01:21 

makes sense I'm in my pajamas. 

Emily Lane 01:22 

And we look amazing digitally don't we?! And then of course, you know, the challenges with brick and mortar. And so you know, knowing that we don't really want to talk about these macro trends that are hitting the industry. We reached out to some of our close friends to find out who the expert is that we wanted to have this conversation with. Our good friend, Kenan Duffty, really brought a wonderful resource to the table we are joined by Paul Ruffin. Welcome to the conversation 

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Paul Raffin 01:49 

so much excited to be here. 

Emily Lane 01:50 

So Bret, why don't you share with our listeners a little bit about this amazing career of this resource that we have 

Bret Schnitker 01:56 

Yeah, I'm amazed you know, coming from retail myself many years ago, I kind of departed and started Stars after that. But I look at your history and the wealth of information that you must have gained being CEO and President of all these kind of legendary organizations and the diversity you know, J Crew, Li and Fung sourcing organization. Express, Fret Linen, 

Emily Lane 02:22 

One of your favorites. Varvatos! 

Bret Schnitker 02:24 

Yeah Varvatos, always love Varvatos. People have always politely said You know, I've been in the business 10s of years, you shared a similar trajectory over that many years. And I think being at the helm of all these different organizations, and looking at kind of how we did business years ago, and then what's happening today to change all those dynamics. It must be an interesting time. 

Paul Raffin 02:47 

It really is a very exciting time in the fashion industry. There is a certain The emperor has no clothes aspect, especially post pandemically now because brands and companies who were not future thinking and progressive enough to invest in their digital agenda, or truly understanding what consumer engagement requires, which means being agile, understanding customers generally move faster than brands do. They may be left in the dust. And some of the tried and true methodologies that I employed that I was taught by great mentors like the late Marvin Traube, the progenitor of the experiential retail model, retail as theater. He was an amazing man way ahead of his times. Certainly Les Wexner. Victor and William Fung, as you mentioned, you know, phenomenal people even working with John Varvatos, a good friend and associate of mine, the common denominator there is really pattern recognition, and not just the internal patterns of your business, which can tend to be an overuse strength, because you can see it, it's empirical is non debatable. We sold 100,000 units of this particular product last year, let's do it again next year, it's much more important to weight that pattern recognition exercise to the consumer, and truly understanding where the consumer demand is moving, what the lifestyle changes our culture is posing to them. Because brands that don't do that are going to find themselves in the dustbin of irrelevance. And I think we're gonna see more and more of that happen. But that's an exciting changing of the guard, where some new brands now or cropping up to take that new mantle on what 

Bret Schnitker 04:30 

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A big shift, you know, because I remember being in retail and obviously the the groups that you worked with, you know, we kind of dictated fashion for our consumer, we would say, here's our styling, we're saying that this is hot, go buy it and drive that. And you know, I'd say maybe five, six years ago, the whole conversation about consumer driven economy became pretty evident in the market and it continues to gain a lot of momentum. And I think for that traditional retail model, it creates a lot of complexity. Actually when, you know, we apply these dated, I guess, thinking when we set up planning, open to buys things like that, because we would always look in the rearview mirror. 


That's right. And you know, again, the dirty little secret is that most apparel manufacturers and brands plan off an Excel spreadsheet and they have difficulty finding sales, attribution and forecasting sales attribution. Because you don't know is it coming from an influencer? Is it coming from ecommerce is it coming from my brick and mortar store windows? Where is demand coming from, and I think the guessing wrong, that mismatch in a $350 billion fashion apparel industry is generally estimated to be about $100 billion a year where it's the wrong product, the wrong quantity in the wrong place at the wrong time. Of course, that's fueled the off price industry, whether it's outlet stores, or TJ Maxx, the waste involved in that is now really the center of attention, especially with sustainability becoming such an important topic. But more importantly, it's really understanding what does the consumer really look for from a brand. And it's not just the things we wear, it's the values that that brand represents. And I think the old fashioned methodologies that you and I are both familiar with, Bret created a lot of obsolete inventory, because we again, just forecast incorrectly, we were seduced by the initial margin of producing products in mainland China and Vietnam and India, etc. But we never really focused as much because it wasn't on our cost sheet, the cost of the markdowns, 

Bret Schnitker 06:37 

That's right, I remember the first thing I was told as a buyer 10s of years ago, many 10s of years ago, is you either over by or under by you never buy the right amount, never think you can buy the right amount. And it was always this kind of law of odds, you know, you were a great buyer, if you did more right than wrong. And then you know that that result in inventory that you mentioned, I mean, even today is compounded pretty dramatically by the rising costs, you know, overall, we're seeing about a 7% increase in quote, transient inflation. But when you break all these things up into individual categories, our industry is hit pretty heavy at about 17 and a half percent increase. We got rising, you know, logistics, raw materials costs, labor costs, logistics are out of sight. So I think you know that it's very interesting, that unknown component of managing that residual inventory that just wipes out a lot of profit 

Paul Raffin 07:32 

It does and and then you've got the perception of value from the way the consumer looks at a brand. And I've always been a big believer in the benefits ladder, you know, technical, functional, ultimately, emotional, emotional benefits is really where that intangible value is that a consumer is willing to pay up. You see a lot of luxury purveyors now, like Chanel, do we return increasing prices significantly because of supply chain disruption, raw material costs going up labor costs, etc. And they're tacking on 25% increases? Because they've got the pricing power 

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Emily Lane 08:09 

And their consumer is okay with that. 

Paul Raffin 08:11 

Yeah, cuz they're emotionally to them. Oh, my God, a new Chanel bag. It's the what is a reflection of their own life and their lifestyle? 

Bret Schnitker 08:18 

If that's like a fraction of the 1%? What happens with the rest of the people? And then you throw in the Gen Z mentality about the importance of sustainability? And all those conversations, how do you think brands large or small today kind of manage all of those challenges? 

Paul Raffin 08:33 

Well, I think listen to certainly Chanel's and extreme a you're gonna see a culling of the herd as it were, with respect to all the mediocre product, that's fodder as it were for the system. You know, it was Forever 21 It's pretty much gone. And even H&M is trying to reboot, you know, my experience at Express with fast fashion where you would stack it high let it fly on a promotional formula, it was already built in, we knew we were never going to sell a lot of it at full price. All that. So I think going to the side, and people are really trying to put in position products that approach a customer's true desire to engage with that brand things that they'd be proud to wear. I do think less is more. And it's always been you know, we'd look to Europe. It's a it's a European mentality by a few very good things. Yeah. As opposed to just a closet full. And that closet full of stuff that people really don't wear that often gave rise to Rent the Runway and other models because they're recognizing the fact that the old rules no longer apply 

Bret Schnitker 09:37 

With America being the consumer nation that it is do you think the less is more model will take hold? 

Paul Raffin 09:43 

I do because I think apparel as important as it is as an expression of your own personal creativity and kind of a communication device has faded in its relative importance versus experiences. And of course everyone's talked about that. But if you have X amount of discretionary income, and remember, listen, I came from a day in the 70s, when Bloomingdale's on a Saturday afternoon was a place to go as if it were a singles bar. I mean, that's where everyone went, right? No one does that in department stores anymore. Certainly. And with the advent of E commerce, it's so easy to facilitate your shopping experience without having to go into a store. 

Bret Schnitker 10:27 

So omni channel today, isn't that kind of a dated term? Hasn't it completely kind of evolved from you know, that original concept? 

Paul Raffin 10:37 

Yeah, I think omni channel is antiquated, because between, you know, ecommerce, social media, brick and mortar, the metaverse which will ultimately represent a fusion of the physical and, and virtual 

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worlds. It's just commerce. And and it used to be, you'd have a division that would handle your E commerce business, a division that would handle your brick and mortar, and they were separate. And they were, you know, kind of their own pillars. Now at all together, However, what's interesting is that you've got 

Bret Schnitker 11:07 

Saks Saks. That's exactly. 

Paul Raffin 11:10 

Yeah, you know, I think is a financial play to unlock value for their investors versus, you know, when they separate ecommerce from brick and mortar retail stores. Does the consumer benefit from that, you know, consumers looking for a seamless experience. Yeah, I think it's yet to be seen whether Saks can successfully pull that off? 

Bret Schnitker 11:31 

Is this kind of a play to say, hey, look, we're going to be winding down our brick and mortar and, you know, hoping that the commerce picks up enough volume and traction, you know, they've got so much money invested in real estate, you know, and 

Paul Raffin 11:43 

yeah, they're unlocking the real estate value frankly, and whether it's sell the real estate, lease it back for the physical locations that they want to maintain. Yeah. But I think I heard may be correct. There are something like 250 different services agreements between those two entities and Saks. I mean, seems confused, it's so confusing as to how two organizations can, again, to the ultimate consumer pose, one, because they don't care about the fiscal division of those entities, they just want to be serviced. Yeah. And, you know, if you walk into a Saks Fifth Avenue store, and they don't have what you're looking for, does that salesperson then you know, seamlessly transition you into their e commerce platform and maintain the sale. 

Bret Schnitker 12:27 

The costs and the advent of, of Amazon ease of experience, you would think every other retailer should be kind of trying to follow that model where, you know, if it's not available in store, it's immediately shipped to you overnight, or whatever. And it seems the disconnect seems somewhat interesting. 

Paul Raffin 12:44 

And that's a part of the cost formula that is really expensive, is figuring out that the services that Amazon has treated us all to Yeah, they're now the expected standard to apply those to a department store or even worse, a brand that's traditionally been doing wholesale business, and now wants to set up more of a direct to consumer effort. The capital expense and investment necessary necessity, necessary, theirs is really huge. 

Bret Schnitker 13:11 

And the infrastructure, I mean, Amazon has built their own fleets basically, we saw this last holiday, FedEx, UPS, massive surcharges and in the ability to deliver long delivery delays that have never been 

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experienced before because of this massive increase in, in E commerce. People sick, frankly, with COVID. Not many workers on the road, you know, all these issues compounding are really putting some headwinds into the the you know, the move toward, you know, ecommerce outside of Amazon. I mean, Amazon's an interesting position, because they've just the foresight in Hey, we're building our own kind of, you know, entire fleets and not relying on the typical small parcel carrier that, you know, yeah, it's really an explosive growth 

Paul Raffin 13:57 

Yeah you know, for brands, strong brands, it's a cultural change to to go from, you know, take a Nike, for instance, who now has, I don't want to say 65 to 70% of their businesses now direct to consumer, they've, they've really started to pull back on their wholesale channel distribution, because they find it's not the most potent way of engaging the customer in the Nike brand. But the cultural change that has to take place in order to really understand the responsibility, you have to sell the customer on a direct basis, versus delivering 500,000 units to Macy's distribution center. That requires a completely different operation inside the company itself. 

Bret Schnitker 14:41 

Yes. Especially the expectations of people on the receiving end. Yes. So when we talk about the evolution of the physical store, because we've been mentioning Saks, who mentioned all these people, what do you think this is going to look like in the future? You talk about experiential retail, everyone is talking about how to recreate shopping malls to be exponential. You know, customers want to go in and have a good time. And by the way, pick up some items, you know, what are you seeing happening and 

Paul Raffin 15:08 

It's been interesting I just took note that Rebecca Minkoff's company was just sold, not for very much money, but they they made they had some difficulty coming through the pandemic. They were one of the small companies who were at allegedly the leading edge of technology, in the retail selling by the physical environment, whether it was a smart fitting room, etc. I also remember seeing what Burberry did in London, I went right after they opened and was fascinated by their smart fitting rooms where you could push a screen all of that hang the technology on the wall to dazzle the customer and make us look like we are a very progressive brand, I think is going by the wayside. I think technology should be there in a much more subtle way subliminally to serve the customer and serve the environment transactionally but not overwhelm it. So I when people ask me, you know, what's the most experiential retail store you've seen? I keep coming back to Eataly used to live in Flatiron before I moved here. Luckily, I'm here in Los Angeles transition. Yeah, that the Flatiron Eataly box is a fascinating exercise in what I call food wrapped in socialization, because I their conversion rate must be 90%. Plus, defy anyone to go into that store and not participate in buying something but you see, you know, young, old, whatever, target audience, they put their phones down really beautiful meal over a glass Brunello di Montalcino and socialize with each other, you know, that human aspect and that connection and then are able to take a piece of that experience home with them with some of the best curated Italian products in the world. So I think that's an analogue for how I knew certainly Nike has attempted to do some of that in their stores 

Bret Schnitker 15:14 

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Not with Brunello, though, might be buying a lot more now. Yeah, exactly. 

Emily Lane 17:07 

Well, it definitely makes sense. You know, we're, especially, you know, coming out of the pandemic, we didn't get a chance to have human connection. And so now we're in this place where the experience means so much more. So I see there being a very specific need for in store to have it be very experiential, we've spent a lot of time behind computers over the last couple of years. So digitized interior space, I think, can compromise that personal touch. However online, that's where I think your technology can really play a key role, you know, AI creating a customized experience for 

Paul Raffin 17:43 

That's right. And that's CRM, it can't be a one size fits all proposition. And we've all been, you know, subject to just email blasts coming from every brand we, you know, visit frankly, everyone's being retargeted. But that individual CRM message because they know your purchase pattern, they know what you like, you know, they they tailor it for you with the use of technology. So you're right, it's kind of an interesting contrast. 

Emily Lane 18:10 

Mm hmm. Absolutely. I get like how many emails 300 Junk emails each day from brands I've shopped at in the past and you know, you just delete most of them so really making sure that that message is tailored to the individual customer can 

Paul Raffin 18:26 

Lululemon is a brand that's done the experiential store format really, really well because they've invented a community. I mean, they have access to community who really is loyal and the pre store opening yoga classes that they give and of course their product is it does the technical, functional emotional ladder really, really well. It's a no other than that one little yoga pant mishap, right? Yeah, they recovered from that and now you're seeing so many of the competitors attempting Aloe Athleta they're they're all nipping at their heels trying to get the market share. 

Bret Schnitker 19:04 

I would say every brand you know, we talk a lot about technology and fashion on this podcast. And you know, you look at Lululemon and some of the successes this kind of community kind of approach yoga, you know, classes things like that, but at the same time then buying Mirror you know, actually purchasing Mirror company because that's the technology so people can launch it at home I've got that at home. I think I've used it three times sadly but it's an amazing program. 

Paul Raffin 19:36 

That's a Peloton-like headline. 

Bret Schnitker 19:37 

Yeah, exactly. And, you know, I think everywhere there's this whole conversation about you know how to incorporate technology without it really working against you. You mentioned those kind of in store, you know, smart mirrors where people could put things on we were having a conversation with Sharon 

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Lim at Browzwear and we've been doing 3d design for For many, many years, and one of the evolutions within browser was this kind of like smart mirror technology, you can stand in front and it would drape the garment on an in focus groups that they had. It worked kind of shockingly, in reverse, they actually saw themselves exactly as it would in bright light. And it was reversing the sales because, you know, we kind of when we're in a dimly lit, trying, you know, fitting room, you tend to think and the music's going and all this. And when people are actually sitting in front of some of these things, and just seeing the stark reality of their body type. They're actually seeing kind of some more negative results, 

Emily Lane 20:39 

Well, you can talk yourself into, if you like, the fabric, if it feels good, you can kind of talk yourself into it, if you can, if you think maybe it's not the best, like you're like, Oh, I'll take the garment home and then decide, you know, if you see it purely digitally, and you're seeing this, you know, image that you're like, 

Bret Schnitker 20:56 

oh, so something that's kind of sexy, makes you look good, but also, you know, provides the accurate information for, you know, fit decisions as we move more online. You know, I guess the statistics are somewhere between 20 and 40% exchanges and returns, which is an outrageous expense, 

Paul Raffin 21:14 

That's a huge expense, that net to gross factor is punishing. Because, listen, and it is technology can aid in with respect to speed and accuracy. This industry, especially fashion apparel is antiquated, it's way too slow. It takes Why does it take six to eight months to make a sweater, it really doesn't. But that's the way 

Bret Schnitker 21:20 

No it just takes six to eight months to ship the sweater and get it here. 

Paul Raffin 21:39 

And then you have to deal with a factory in China who likes to have their sales pipeline full. They don't want to be rambling for business. You know, the automobile industry did a just in time manufacturing led by Toyota and the Japanese manufacturers many, many years ago, least two decades ago, apparel is really slow to follow that and I think technology is going to aid the better forecasts and the digitalization of the entire supply chain from concept through manufacturing and forecasting, assortment optimization, inventory management, all the way to the store environment, knowing what stores how stores should be configured, and assorted in specific markets, all the way to the CRM, you know, campaigns that will individually address a specific consumers. That whole breadth of activity is a major beneficiary of the technological revolution that we're all witnessing. It's just that it's expensive. Yeah, and you've got to have a very specific it agenda in order to know how to pull that off 

Bret Schnitker 22:39 

Well, and you've got to have a lot of components, people components signing on to that where we agree with that were Stars as part of a beta team of a company out of Silicon Valley called Silq. And it is that full transparent supply chain from beginning to end. And just pulling all of those components together, you know, it's going to be an interesting couple years. 

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Paul Raffin 23:03 

Data scientists now are being hired by smart apparel brands, because they recognize you know, the, in the past that pattern recognition exercise that we would seek to do with, study the consumer, study your competition, study your own internal patterns, try to put it into a big bowl and create some sort of a position you want to take regarding the brand, the product you're gonna bring forward to the marketplace. Now, there's so much more data available that's coming into that funnel. So what should you regard versus what should you not regard at all and trying to sort through that I think the merchants role has got to be augmented by the data analysis that frankly, they need some support in doing, so smart companies are bringing in that type of assistance and support 

Bret Schnitker 23:51 

So when you look at you know, all this experience all these changes the marketplace and kind of your evolution, you're you're now kind of giving back you're working with small startup companies using all this experience. What are you seeing happening out there with with with some startups that are exciting? 

Paul Raffin 24:07 

Well, it's definitely embracing the technology aspect and understanding that there are new ways of bringing product to the market and it's funny the whole mass produced aspect that apparel that the bloom is off the rose with the Forever 21's and the H&M and the big box you know, just jam a lot of inventory that'll push model is giving way to things that are I don't want to say artists and because that there is that as well, but that's at the upper end, 

Bret Schnitker 24:35 

We call it the rise of the boutique brand industry. 

Paul Raffin 24:38 

Yeah and a little more boutique 

Bret Schnitker 24:40 

buy with niches. 

Paul Raffin 24:41 

Yeah. I mean, my fear for the industry is that listen, because the culture right now is having important conversations as far as gender fluidity, inclusivity, body type, etc. I see a lot of brands attempting to be involved in that conversation on a very broad basis, the risk they have is that you can diffuse and dilute your overall image and what you represent to. So it's interesting to me and again, it was a very controversial topic. But you don't see plus size models walking down a Chanel runway, however, on a more democratic brand like Victoria's Secret who was taken out to the woodshed, and their zeitgeist was clearly declared to be over. Yeah, they had been forced to reboot to include the body, you know, the body consciousness aspect, the gender aspect there first a transgender model, that's part of their their new marketing campaign. And I just would caution brands that if you're trying to be everything to everyone, you're really nothing at the end of the day. Yeah. That doesn't mean you should be 

- 1 0 - 

disrespectful to the subsets of people who are bringing this consciousness raising to the cultural conversation. But I just find it interesting again, how some brands are being really pilloried in the arena of social media, when they don't do that. And other brands have kind of riding above it without that type of critique. 

Bret Schnitker 26:13 

It's a complex landscape with all those conversations going on. And I think, you know, startup brands, especially younger startup brands, they really do want to address a lot of these social conversations are going on, in addressing each one of those conversations to your point, there's, there's an expense to that there is a, you know, there's a SKU creep, there's a size creep, and, you know, understanding who your consumer is that's coming to you is really critical. You know, that's where that whole consumer driven conversation is important, you know, is that particular consumer coming to your brand? Therefore, if that's got a good ROI, if there's a good engagement from a community level, then it's a good decision. But if it's not you, again, you know, looking at your DNA and and who your consumer basis is. 


And universal standard is probably the poster child for that type of an approach where they're offering a woman from double zero to size 40. Yeah. And so the size six consumer who participates in that brand clearly loves and attaches herself to the values that that brand stands for, as a result of that. inclusivity. And I think back to your question about startups, and these Gen Z millennials who are leading them, because I've probably worked with 25-30 of them at this point. The Hey, Boomer aspect of that, yes, real. I think unfortunately, boardrooms and executive committee suites are populated by a lot of boomers who are still hanging on to the old push model. And the old No, this is the way we've always done it. And I'm sure these conversations go on inside even Ralph Lauren, who's had to you talk about master of theme had to evolve rather quickly be before losing relevance. But I think Gen Z and millennials will prove to be a class of consumers who truly hold values as being as important if not more so than the quality of the product that they're wearing. 

Emily Lane 28:11 

I think that's a actually a really beautiful transition in the industry. I agree. Thank you so much for sharing all of your insights and your years of experience are 10s of years of experience with us today. 

Bret Schnitker 28:26 

And you're having fun, absolutely. 

Emily Lane 28:28 

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Fashion Industry Macrotrends with Paul Raffin