Outsourcing Becomes a Rock Star for Jay-Z’s Clothing Line | Article

rap star uses outsourcing for retailSince its inception, Rocawear.com has handled its menswear line in house but licensed its women’s, children’s, and accessory lines to others. Then, in 2001, Rocawear.com got an offer it couldn’t refuse: Iconix Group bought the brand for $204 million in cash and $20 million in stock.

Rocawear.com, whose driving force is Jay-Z, the hip-hop star, knew brand better than anyone. So it became a licensee.

At the time of the sale Rocawear.com, which has no retail stores of its own, had six staffers managing its e-commerce sales. “Our business is manufacturing and selling clothes to retailers,” says DeMichael, so e-commerce was out of its bailiwick.

Yet the company knew its customers, young urban buyers, wanted an online purchasing option. “We wanted to grow the business and investigated the best way to do that,” says Ronnie DeMichael, CFO and COO. The company found managing the brand in house was “becoming too difficult, especially the logistics.” And since retail is seasonal, staffing was becoming a challenge. “We never knew how to staff up when we had an influx of business,” DeMichael recalls.

Rocawear.com’s provider choice was eFashionSolutions of Secaucus, New Jersey, an e-Commerce service provider to global fashion brands; it outsourced the entire online sales process from creating the Web site to fulfilling the orders. “They have done everything perfectly,” says DeMichael.

Outsourcing made the brand “mo’ money,” to quote a Jay-Z song. The outsourcing partnership grew the brand from $600,000 in sales to $10 million in seven years. “They doubled our business the first year they took it over,” says DeMichael. And in today’s plummeting economy, sales are “up dramatically” over last year, reports Ed Foy, CEO of the provider.

The benefits of putting merchants in charge

“We put merchants in charge of their businesses instead of the technologists,” says Ed Foy, who began his own fashion career at Macy’s and Calvin Klein before starting his own fashion Web site in 1998. He says too often the technologists run the e-commerce solution. The result: they mistakenly create the wrong merchandising platform.

That was the problem at Rocawear.com. The provider set to work. “We streamlined the basics,” says Foy.

First the provider revamped Rocawear.com’s Web site. “The shopping cart worked properly,” says DeMichael, somewhat incredulously. Rocawear.com had put its clothing on mannequins before taking digital photos of its clothes. eFashionSolutions substituted real models. “There was a dramatic improvement in sales,” says Foy.

Then the supplier addressed inventory. Currently Rocawear.com has 150 different SKUs. Instead of buying all of them every month, eFashionSolutions “figured out what to buy down to the skew level,” recalls DeMichael. Foy says the partners now plan what to purchase every six months.

The supplier suggested presenting items as part of a collection instead of as individual items. Its call center used cross-selling techniques; together the two strategies have increased the size of the average transaction from $60 to $110.

The supplier also “got seasonal products on line faster.” Foy says it took the in-house staff four weeks to get an item online, long after it went on sale at the department stores. “Now we can introduce an item simultaneously with the department stores,” he adds. “Fashion is all about now.”

These two changes helped sales dramatically. Repeat visits jumped from 10 percent to 60 percent a month.

Mark-downs are swift if there is no activity on an item.

Improving customer service

Next, eFashionSolutions introduced a new method of customer service. “The goal is to give Rocawear’s customers many ways to get in touch with the business. The customers have to feel they can connect with Rocawear instantaneously because they can’t talk to face-to-face,” says Foy. Now eFashionSolutions’s call center answers the phone in 30 seconds.

Then came building a strong loyal affiliate network. eFashionSolutions gave its affiliates promotional codes on more than 3,000 items. Its computer systems were able to ferret out the most loyal affiliates, data it shared with DeMichael and his staff. “Together we made these customers our priority,” says Foy.

Advertising was the next concern. The two established a set margin for their gross return on advertising. “Before, Rocawear.com didn’t have any metrics, so they didn’t have an advertising budget,” says Foy. “Now we analyze our return on a weekly basis. We use our analytics to figure out what to do.”

Foy explains online retailers have to understand online advertising, which is a different animal from print advertising. Because of available metrics, retailers like Rocawear.com can budget based on their return on investment. “We know what we make on every dollar we spend,” he reports.

In addition, online advertising is more forgiving. “If we picked the wrong jean to advertise, we can change it immediately. You can’t change the picture in a print ad,” Foy explains.

Finally, the supplier tackled the fulfillment end of the business. He made sure what Rocawear.com offered on its Web site was available in eFashionSolutions’s warehouse. When Rocawear.com handled e-commerce in house, it took four days to ship an order. Today, if an order comes in before 3:00 p.m., eFashionSolutions ships it out that day. “Sales went up because customers got their goods three days earlier,” he says.

The supplier’s processes increased the fulfillment rate to 99 percent from the high eighties, according to Foy.

Service level agreements include inventory levels. But the important ones deal “with how to act as a partner,” says DeMichael. An important part of the outsourcing arrangement is coming up with new marketing ideas. “Together we try to find ways to get our customers excited,” says the COO.

Suggestions for improving sales in a declining economy

Today “merchants understand margin compression and must learn how to be creative in hard times.” Foy says retailers must get back to basics. “You want to dribble the basketball instead of trying to shoot a three-pointer,” he says.

When it comes to online advertising, he says retailers need to “test, test, test. Then they know what to invest in.” He says his outsourcing clients have online budgets ranging from $15,000 to $100,000.

This year his customers are maximizing the use of video sites like YouTube and MySpace. “That wasn’t happening last year,” he reports.

He says, to compete, retailers may have to add perks like free shipping even though that may erode margins. He thinks high gas prices will drive more shoppers online, but then shoppers have less money to spend than last year.

Lessons from the Outsourcing Journal:

  • Clothing manufacturers can sell more clothes online if they outsource it to a specialist with domain knowledge, proven processes, call centers, and warehouses. The results can be dramatic: in this instance sales went from $600,000 to $10 million in seven years.
  • Outsourcers can provide analytics that help retailers make business decisions from what inventory to buy to where to place advertising dollars.
  • Fashion is all about now. Providers have to speed up the process to help their fashion customers compete with the retail stores. That means picking up the phone within 30 seconds and shipping the same day.

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