Why read this:
Find out how launching a best-selling product is like hitting the lottery...in more ways than one.
Learn some simple but powerful strategies for understanding your customers better, and creating better financial forecasts for your direct to consumer business
Earlier this week, my mother in law asked if I had seen the Rowing Blazers Black Sheep Sweater made famous by Princess Diana in the 80’s. I had—I’m a huge fan of Rowing Blazers, the brand that partnered with original manufacturer Warm and Wonderful to bring this iconic piece of knitwear back to life.
My MIL is a stylish woman, but also more of a traditional bricks and mortar shopper, while I’m an eCommerce-loving DTC Twitter stan. When a cultural trend emerges suddenly with such a broad, intergenerational reach, I think it’s worth taking a break from my future casting schedule to dig in.
In this edition of the newsletter I’ll use Rowing Blazers’ Black Sheep Sweater to talk about the ups and downs of the “hot item” (garmento slang for runaway best-selling product).
What is this sweater, and why is it so popular?
Princess Diana first wore the “Black Sheep” sweater in 1980, about a year before she married Prince Charles. As we now know, she had started to uncover the truth about Charles’ ongoing affair around that time and almost backed out of the wedding.
A lot has been written about Diana’s personal style and her use of clothing to communicate with the public without saying a word. This sweater was one of her most overt sartorial smoke signals, and the original sold out the first time she wore it.
The sweater was reissued this October by its original manufacturer (Warm and Wonderful) via a partnership with modern luxury brand Rowing Blazers. The reissue was part of Rowing Blazers’ first collection of women’s clothing, which was inspired by Princess Diana’s personal style. Diana was chosen as a FW 20 muse because she “...perfected the high-low mix, blurred the lines between menswear and womenswear, and always dressed with a sense of humor.”
These are all ideas that have been bubbling up in fashion and pop culture over the past several years:
Recent #Megxit drama has drawn comparisons between Meghan Markle and Diana—both their tumultuous relationships with The Palace and their senses of style.
The idea of communicating one’s inner thoughts through clothing has gone mainstream in the digital age. We’re all our own paparazzo and the world has a 3 second attention span, so you better make it BOLD and MEMORABLE.
Diana herself has recently emerged as a runway and street style muse.
So it comes as no surprise that the reissued Black Sheep Sweater sold out within a week of launch in early October. Then season 4 of The Crown dropped on Netflix—“The Diana season”.
The Black Sheep Sweater and its counterpart, the “I Am A Luxury” sweater are now offered on pre-order. The original inventory sold out, but you can still purchase them if you’re willing to wait until early 2021 for delivery.
These two styles became “hot items” for Rowing Blazers, resulting in broad PR coverage and contributing to rapid year-on-year sales growth.
The Double-Edged Sword Of The “Hot Item”
So, you’re a small but growing consumer brand who has been fortunate enough to produce an unprecedented hit product that becomes a cultural phenomenon. Now all that’s left to do is sit back, stack paper and sell to a PE firm, right?
Not quite. Consumer brands pray for one of their SKUs to take off, but a “hot item” confers the same “benefit” as winning the lottery. You need to manage the windfall carefully, or you could end up even worse off than before you found the golden ticket.
Hot Items bring runaway revenue growth and brand awareness, but they also bring a flood of new customers to the brand that can fundamentally alter the nature of the customer file. The “hot item” crowd can quickly eclipse a brand’s loyal customer base in size, and it’s a mistake to assume that both cohorts have the same values, motivations, and tastes.
These customer file dynamics have implications for marketing, inventory forecasting and financial planning. When you have a “hot item” on your hands, the brand has two primary concerns:
How do you accurately account for the behavior of these new customers when planning for next year and beyond?
How do you leverage this new, high contribution margin revenue in a smart way that will enable future profitable growth?
Let’s examine question #1 in the context of the Rowing Blazers Black Sheep sweater.
What should we do with all these new customers?
For the sake of example, let’s say that Rowing Blazers’ eCommerce business did $8M in revenue in calendar 2019. Due to the success of the Black Sheep Sweater, they are now on track to do $16M for calendar 2020.
In this example (not real numbers!) the business has doubled. So how should the Rowing Blazers team forecast sales and inventory for 2021? The knee jerk reaction in retail is to “comp”, i.e. forecast next year’s sales to be at least $16M.
But let’s step back a minute and examine the assumptions underlying that forecast. We should really be asking: how many of the Black Sheep Sweater customers can we reasonably expect to return? And outside of those customers, and our loyal base, do we expect awareness and demand for the Rowing Blazers brand to accelerate due to the “Black Sheep Bump” or return to earlier levels?
We want to run some numbers that will allow us to put some parameters around the ever-nebulous “fashion risk”:
Question: How well did the “hot item” resonate with your existing customer base?
Reason: If an item resonated with your core customer, it is more likely to bring in a similar type of customer that will behave along the same lines as the core.
Run the Numbers: What percentage of existing customers who purchased in the last 12 months bought the Black Sheep sweater?
Question: How “bought in” to the Rowing Blazers brand are the new customers who were acquired via the “hot item”?
Reason: If new customers love (and can afford) a broad sampling of what the brand offers, they are more likely to return in the future.
Run the Numbers: What percentage of the new customers who purchased the Black Sheep sweater purchased something else from the assortment, either in their initial order or in a subsequent order? Bonus points - what categories did they buy from?
Question: How likely are the new “hot item” customers to come back, compared to other recent new customers?
Reason: If the new “hot item” customers behave like the existing customer base, you can apply your “business as usual” forecasting methodology (assuming it is accurate).
Run the Numbers: What percentage of the new Black Sheep Sweater customers come back for a second purchase within 15, 30, 45 and 60 days, and what do they buy? How do these rebuy rates compare to all other new customers acquired during the same time period?
Crafting The Forecast
The Diana theme was carefully chosen; it aligns perfectly with the Rowing Blazer ethos of modern prep unmoored from classism and exclusivity. Diana was chosen as a FW 20 muse because she “...perfected the high-low mix, blurred the lines between menswear and womenswear, and always dressed with a sense of humor.”
For that reason, I’m willing to bet that success of the Black Sheep Sweater served as a gateway to brand discovery, and Rowing Blazers’ new customers have a higher likelihood of returning than most brands who experience a similar spike in awareness.
You’re forecasting year on year retention rates of each annual “class” of customers you acquire...right? You can use these to provide an initial forecast for how much of next year’s revenue will come from returning customers.
In our hypothetical scenario let’s say that on average, 30 of every 100 customers the brand acquires each year (n) come back and purchase the following year (n +1). Of those 30, 25 come back and purchase the year after that (n + 2).
Let’s assume the Black Sheep sweater brought in 10,000 new customers in 2020. We can then assume that 3,000 will return in 2021, in addition to whatever other customers the brand acquired in 2020. You can project the revenue these returning customers will generate. Any other revenue you’re forecasting for the business will have to come from acquisition.
This is a VERY simplified example; step one of a multi step process. But many brands get themselves into hot water when they assume that most/all of the customers they acquire from a “hot item” will come back. When those sales don’t materialize, you wind up with major inventory backup and, eventually, aggressive clearance activity.
Let’s say that you run the numbers and your “hot item” customers don’t seem to have a high likelihood of returning to the brand. You then have two choices: alter the offering to bring more of them back, or pull back next year’s revenue forecast.