Where are the Footwear Disruptors?

Braided Sandal design sketch by Robert Klein, 2019

I was thinking about how life changes with each disruption and why some industries have disruptors and others do not. Amazon, Facebook, Tesla, Uber, Twitter,... Where are the footwear and apparel disruptors? I’m not using the term disruptor in the original sense coined by Harvard, but instead using it as most people do, to mean “to create and deliver a new and innovative product or service offering, obsoleting existing technology and players, creating a shift in market share and a wave of new companies.”

People tend to resist change, staying with what they know and understand. Unfortunately for them, today’s change is big - self-driving cars, 3D printers creating artificial hearts, drones delivering packages.

George Bernard Shaw said, “all progress depends on unreasonable men.“ It’s much easier to continue the status quo, the accepted way to do things versus changing. Even in times of war or natural emergency, many people won’t evacuate or change course, despite the warning signs. Leading change requires a lot of work, going against the current, working with people who don’t understand the concept fully, who cannot see the potential yet, as their vision is limited by today’s rules. It also takes a lot of money and great fortitude to rebut the criticism, doubters, and naysayers, to stay on course, to keep pushing forward, even though the course may need to change multiple times on the way to market to accommodate new needs and data points.

Mark Zuckerberg pinched his idea from the Winklevoss twins and created what is now the world’s largest social media platform, earning over $22 Billion in profit for 2018, yet it took 5 years, until 2009 for it to finally show a profit. Today in 2019, with over 2.3 Billion active monthly users, including over 50% of all teens, nothing seems to be able to stop Facebook’s growth, even stories of security breaches, and the shameless selling of user data without the permission of its users. With 68% of all Americans using Facebook, over 70% of users visit daily. More than profits alone, Fb has created an incredibly powerful community that it can use to deploy virtually any plan it chooses to embark on. That’s powerful.

In the footwear space, few brands have the power of Facebook. Only Nike comes to mind as the largest seller of athletic footwear and apparel in the world. They have the most to lose and to gain from a major disruption in the footwear or apparel space. Lululemon, Sketchers, Adidas, perhaps Tom’s, are all threats to Nike, yet just about any company can disrupt this space with some money, talent, vision, strategy, and fortitude.

Facebook is not the only one who executed successfully on a disruptive idea and took the market by storm. Amazon now accounts for about half of all online sales, and while many people will blame Amazon for killing traditional retail, it still accounts for only about 5% of total retail sales. So then why the gap? I’ll reserve that for a future article.

As of the end of 2018, Amazon earned a respectable net profit of over $10 Billion, yet like Facebook, it was not always a pretty picture for Amazon. After its 1997 IPO, it took Amazon 6 plus years to turn a profit, including 12 years to recoup its cumulative losses. Jeff Bezos must have received a lot of advice to shut down the business on many occasions, and from more than one advisor. Even Warren Buffet was a famous naysayer, stating that he didn’t understand Bezos’ vision nor the execution of the business. Good thing he shut down his critics and stuck to his vision. Amazon is likely the most powerful force in business today, having pushed out of the original books store concept into many categories of products. Amazon is now mainly a services provider with Amazon Web Services, Fulfillment by Amazon, Prime, Amazon Fresh, Amazon Pay, Kindle, Music, Video and more. The Oracle of Omaha is finally a believer.

Amazon realized early on that it needed to vertically integrate in order to execute on its unique business model. It had to own what made it special. Highly efficient warehousing with robotics picking and packing operations, logistics and delivery services and more, has enabled Amazon to have a huge advantage over competitors who rely on 3rd party suppliers for these critical-for-success services.

Yet the story gets more complicated – if Amazon had not deployed its Amazon Web Services (AWS) over 10 years ago, they would be showing quarterly losses for up to an estimated one-third of all quarters. AWS provides the cushion for spending and expansion where needed. Normally, all parts of a company’s business are not profitable at the same time. I‘ve worked for more than one company with several divisions. As one division was hot and very profitable bringing in big revenue numbers, other divisions would be down, and the next year, that would change, so having a mix of products and services can be key for weathering storms and enabling long-term success.

For scale, Amazon employs over 500,000 people with half of all US households being Prime members, spending $1400 per year on average versus just $600 for non-Prime members. If Amazon were a footwear startup, attempting to disrupt the footwear space with new technology, would they have made it this far? How many years of losses would they have been able to endure before honing their process, supply chain and technology to a point where profits outpaced expenses? How would they have later diversified? Is there a footwear company, either established or a new startup, ready to take on vertical integration to control quality, expenses, the customer experience, and faster turnaround times like Amazon did? Of course, the company would also need a disruptive idea, but ideas are cheap and can be found everywhere. Perhaps it's the vision, people resources, financial backing and fortitude that's required. Easier said than done!

Using outsourced non-local development, component sourcing and production, requiring an extensive network of foreign suppliers, each with their own lead times and costs, creates a nightmarish list of logistical problems, delays, and uncertainties, all of which are fatal in the fast-paced seasonal environment of footwear and apparel. Is the solution an on-demand manufacturing model to eliminate obsolete inventory associated with predicting demand 3-6 months out? What about the benefits of eliminating debilitating air-shipping costs caused by delays in foreign factory manufacturing? In this case, neighboring countries, such as Mexico, Dominican Republic, etc. would offer significant advantages over Asia as a sourcing partner, but still not as good as having facilities locally where travel expenses and turnaround times are close to zero. Startups often talk about burn rate and runway, how much time they have until funds run out. Going local offers a high level of control over time and cost.

Just as most companies typically consider which non-critical items can be outsourced to lower costs and get a better handle on resources, an equally if not more important question needs to be: "Which items are key to the company's competitive advantage, and need to be vertically integrated?" Rather than being scared away from big capital expenditure and investment figures, create a few scenarios to uncover the production volume and timing where the numbers work. How long, realistically, until the business can scale to that sustainable, profitable size? Are you funded until you can get there, and if not, what can be done to alter the plan or to get funded to execute on this plan? What does the business look like if you don't move in this direction?

Moving to a vertically integrated model may be the best and only path for any disruptor, especially in the footwear space. Zara proved this successful in apparel, using advanced data gathering tools to detect, evaluate and respond to shifts in customer preferences. Controlling its material and color offerings with flexible small-batch manufacturing enables it to quickly adapt. Still, I believe they don’t attempt to manufacture their own footwear, choosing instead to focus on apparel, treating footwear as an accessory by using private label factories, but here again, footwear is not their innovation, so using outside resources to develop and buy private label works.

I’ve worked with some smart entrepreneurs who had great disruptive ideas, and in all cases, their charismatic personalities, marketing acumen, industry connections and high level of intelligence were impressive but not enough. A high level of vertical integration is needed, which means domestic manufacturing, closely monitored warehousing, solid customer service, and more, local to the market where the product is sold. This goes way beyond a risk mitigation strategy to address trade war issues between super-powers. The need to develop, test, reiterate, fix, pivot, execute, gather data, test again, deploy, and so on, happens faster and more predictably under one local roof, not out of site across dozens of foreign suppliers, where quality, timing and cost issues abound.

Of course, shoe companies can continue on their slow path to organic growth, lose or gain market share based on how well they shopped the trends and interpreted them for their customers that season, but any company wanting supernatural growth will need to look into disrupting the market to redefine the latest “got-to-haves”, and drive demand by owning new technology and a way to deliver their offerings better and/or faster, to build a community and movement with few to no competitors.

Who are your favorite innovators? I believe that Nike is the leading footwear disruptor, the leader not only in terms of market share, but also in their ability to innovate and disrupt their own space with Flyknit, Flyweave, Nike Free, and other great developments that have steered the industry in new directions. Obsessed with innovation, Nike is endlessly curious about our world and how to make it better and this drives them to improve the state of the art. With deep pockets, they can take their innovation process to any product category, but still, there is room for others to disrupt, innovate and create new and better footwear products and services. Dr. Scholl’s and Aetrex has done a great job with in-store foot measurements for custom orthotics and footbed inserts. Sketchers has done a great job expanding on Nike’s super lightweight EVA bottoms, with super-lightweight comfort athletic shoes of their own, many of which also use woven uppers. What do you think? Who are the next disruptors? Is vertical integration necessary?

What are you projecting and how is that working out?

In my last blog post, Should the Captain Row alongside the Crew? I discussed the dark side of having a manager get involved in the work. Here it is in case you missed it. http://www.shoesuccess.com/robs-blog/2019/4/30/should-a-captain-row-alongside-the-crew

The end of that post started to get into morale killers, so let’s continue that lovely string.

Just as a pair of mirror finish high heel platform peep toe pumps projects an air of modernity, assertiveness, and power,  a pair of furry loafer slides projects a relaxed and casual persona, where chic can also be cozy and comfortable without looking like your grandmother’s frumpy double gore casual shoe or woven lace-up.

So then, what is being projected by someone who takes every conversation private, outside the purview of others? Is it one of mistrust? A security clearance issue? Or is the person being thoughtful by removing the noise distraction and not sabotaging other’s work?

What about when someone is always on their cell phone, either texting, Facebooking, or whatever they’re doing. If at work, this is a clear sign that they don’t want to be at their job. I’m not talking about the occasional phone task, but instead when this is happening several times per hour. Do they realize that others sense their lack of interest? They may call it attention deficit, but really, they are more interested in one thing over the other thing and too clueless and self-absorbed to not realize they are projecting this bad message to others around them. Perhaps they don’t need or want the job…

What about the manager who doesn’t put their phone to silent mode and it constantly rings, interrupting the work? Message and outcome? This wasn’t much of an issue in the past when mangers had closed offices, but in the open shared office environment, this can be a huge distraction.

We’ve all seen parents ignoring their children by being consumed by a phone.  Message to the kids and onlookers? The outcome to the kids? The occasional call isn’t an issue, and parents need to do more than focus their exclusive attention on their child 100% of the time, but when its an ongoing thing, or their child needs more attention than they are getting, we see bad behaviors as an attempt to compete with the phone for their parent’s attention…

One of my favorites is when all 5 people in a meeting have their phones set on the table in clear view. Are they all expecting a very important call?  Not likely. Message: nobody wants to be there, and they are hoping their phone rescues them from this painful meeting. Outcome: minds wandering and a lack of focus and progress.

What about the person who is always talking about how their life sucks, how bad things are, that they wished they were doing something else instead? Message? Poor me, I’m a victim, I have bad luck and I never get a break, I don’t want to be here, I’m in a rut.  Outcome? The person stays in the rut and attracts other like-minded people while pushing away people who take accountability and responsibility for their actions and situations.

What about the show-off, the one always bragging about how great they are, how smart there were when they did whatever they did? Ok, we all got the message, you’re really smart, wow, we’re so impressed…now can we move on and talk about something else?

What about the snarky, rude, sarcastic personality? Not only do they think they are smarter than everyone, but they also have no patience. This is NOT a personality well suited for a manager, coach, leader, who’s main role is to serve as a catalyst and support agent for growth and positive change for people and companies.

Let’s dig a bit deeper into the snarky personality:

Unfortunately, the snarky manager sends the ill-fated message to any and all unfortunate enough to be in earshot, to be on guard and careful what you say, think and do since you will likely be attacked with insults either to your face or behind your back. This is a tragedy, as meaningful change usually requires unguarded, honest input and the not-so-obvious questions and devil’s advocate style comments that prompts the resetting of perspectives and the generation of fresh thinking and ideas. Anyone can easily grab low handing fruit, and connect the dots that are visible to all, and this will get you, well, to the place everyone else is going. Nowhere special.  Progress requires initiative, passion, and perseverance, all things that are dashed by an abrasive personality and hostile environment. So then what’s the message and outcome of the snark? Watch what you say and do, since you will be judged and exposed as the idiot that you are. This message pushes good people away while those that have already checked out a long time ago tend to hang in there and endure the torture. Who would sign up for that?

Considering that most people want to enjoy how they spend their time, and that companies generally want to be the best (most efficient, profitable, fastest, etc.) at whatever they are doing, or at least to carve out a nice existence for their customers, employees and shareholders, they generally desire to deliver great experiences, products, and services to ensure a bright future with a high level of earnings and profit. This would lead one to believe that creating a positive work environment where all are supported to be their best, would be one of the highest priorities for any company.

From another perspective, replacing an employee costs as much as one-half to about two times that person's annual salary (according to Gallup), and considering that nobody wants a job that could make them sick with stress working in a hostile or verbally aggressive environment, you would imagine that companies would go the path of a positive work environment, in order to keep their costs low, attract and keep the best people, and to bring out the best in their people.

I’d love to gain others’ perspectives on this issue - please share what your company is doing to enable the best outcomes, or if nothing comes to mind, share an example of an incident where certain behaviors projected a message and created great or less than ideal outcomes.

-Rob

Improve, Replace or Retire it

Did you ever notice that many of today's problems, issues, and poor performers may have been great or at least decent solutions once upon a time, but today somehow, they just don’t seem to work so well? Previously great or good enough can turn into currently poor. Just as people need to refresh and retrain, products also need to be improved to remain relevant and have a chance at continuing to be great.

Perhaps coworkers or a supplier assures you that the product was once great, so why mess with something that’s not broken? Perhaps you used a leather article that wasn’t ideal or dealt with a tannery with late deliveries or quality problems. It was a small manageable problem in the past…so you kept going with it due to limited resources or you just ran out of time and chose to work on bigger issues.

So now it's back and it's a bit worse this time...perhaps much worse.  

Once great, now just OK... but not poor enough to be an easy drop. Some would say its easy money, it’s selling, but is it converting enough customers into sales, or are you losing sales because you continue to hold onto an old style that is no longer great by today's standards?

It could be a part of the product. Seemingly small issues that don't seem to be central to the product are easy to put aside as not worth the time investment to optimize. ...after all, why focus on issues that will give incremental gains, versus focusing on obviously bigger opportunities, right? Perhaps the product is too heavy, and you’ve not lightened it but the competition has caught up and now theirs is lighter and better than your product. Your customer will know once she tries on both.

All elements of a product are interconnected components in an assembly. When taken all together, it creates one product experience. The weakness of any one piece reduces the effectiveness of the whole system. True some parts are more instrumental than others (a last versus an aglet) but it pays to approach each component with the same rigor to eliminate weak links and to establish a consistency of design intent, performance, and quality in the finished product. This creates a great product and affirms what the brand is all about.

Other times, its simply time to retire the product and replace it with a much better product in every way, one that leaps over competitors causing them to scramble to catch up. Be assured that if you don’t proactively improve or replace those that have fallen behind, your competitors will replace it for you with their own improved products.