Fashion industry veteran Brendan Hoffman has a new venture, and this time he’s focused on inventory monetization and increasing profit margins for brands and retailers.
The new idea is called P180 and it recently made its first investment in Elyse Walker for elysewalker Borrow, with new partnerships forthcoming. P180 works with companies using CaaStle‘s business-to-business technology.
Here, Hoffman discusses the goal of P180, plans for Elyse Walker, and how other brands and retailers can improve profitability by adding a borrow, or rental, platform.
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Sourcing Journal: You have an extensive fashion résumé from CEO stints that include Neiman Marcus Direct, Lord & Taylor, Bon-Ton Stores, Vince, and most recently Wolverine Worldwide. When you look back on those experiences, what are the two or three most common inventory problems that you see?
Brendan Hoffman: I think that the transparency brought on by e-commerce has put enormous pressure on gross margins because once it’s marked down somewhere it is effectively marked down everywhere. That was not the case 15 years ago when a consumer would have to go from one store to another to compare pricing so there was less pressure on the retailer—or brand—to discount an item if they were getting good sell thru at the current price. This change has pressured gross margin percentage as items are not at full price as long, or even at first markdown [due to early] promotional activity.
SJ: With all the focus on back-office operations and inventory management, why do those inventory problems still exist?
BH: They exist because we have not embraced the technology and data as much as we should to inform decision making on price and yield optimization. We are an industry that is inherently optimistic about the performance of the next season and have always favored art over science, or instinct/intuition over data, which delays hard decisions around inventory management.
SJ: You are now a co-founder of P180 with CaaStle (Clothing as a Service) founder Christine Hunsicker. What is the premise behind P180 and who are your investors?
BH: P180 is a ground-breaking new venture set to transform the profitability of apparel brands and retailers. P180’s core mission is to invest in or acquire industry leading brands and retailers that stand to benefit from CaaStle’s innovative technology and make them more profitable through a variety of decision points during the product lifecycle enabled by our rental platform.
P180 represents the next stage of our shared commitment to drive positive change in the retail industry. By combining traditional methods of building brand relationships, merchandising, and curation with CaaStle’s technology and methodology around one-time rental and subscription rental, P180 can enable best in class brands and retailers to expand margin and drive the next transformation of the apparel industry. We can also bring scale to smaller brands that will benefit from P180’s partnership with CaaStle around technology, logistics, digital marketing, etc.
SJ: P180 recently invested in luxury retailer Elyse Walker. Will most investments be minority stakes or will P180 consider outright acquisitions? What is P180’s investment criteria?
BH: We are open to any structure that makes sense and will be flexible given the situation.
SJ: Tell me about your plan for Elyse Walker. Is P180 focusing on just the digital operations?
BH: As Elyse says, they thrive in the dressing room. Their store productivity is off the charts. We are complementing this success by partnering with them on their e-commerce business and launching elysewalker Borrow on the site to reach a new customer, enhance the Elyse Walker digital journey, and drive additional profit margin.
SJ: How can P180, using the technology of CaaStle, provide apparel firms with a higher recurring revenue stream? Tell me more about improving garment monetization?
BH: Ever since my time running Neiman Marcus Direct I have been focused on the omnichannel customer. What was true then is true now: the more channels you can engage a customer with, the more share of wallet you will get. I see rental as another channel within the omnichannel experience. It will likely attract a younger customer, which is important to all brands.
By adding Borrow and utilizing CaaStle’s technology, you free yourself up to make better decisions during the product lifecycle to raise profitability. Knowing that you have Borrow to address your slower selling inventory allows you to not need to markdown items as aggressively, whether that be from full price or once they are in the markdown cycle.
It also allows you to look at your return policy differently. Once something is marked down, you can limit returns by instead allowing customers to Borrow the item at 20 percent off the list price. Importantly, a substantial portion of the customers who Borrow an item end up purchasing it, which we believe demonstrates the viability of this new path to driving transaction volumes.
SJ: And is the premise for P180 using CaaStle the same across fashion and retail? What are the kinds of adjustments that can be made to account for variations in product availability? How can the technology help companies sell more at full price?
BH: There are some nuances that are different for a retailer of multiple brands and categories, such as Elyse Walker, versus a mono brand but the fundamentals are the same. You are using data to inform decisions around yield management to increase profitability. That also allows you to be more aggressive with your upfront planning to try and drive regular price knowing that, through the CaaStle technology, you have raised the floor for your liability.
SJ: It appears that more retailers are offering rentals. We’ve also seen some of the models that are subscription-based, like Le Tote, go by the wayside. Looking ahead, what are the trends that you are seeing? And which ones do you think will have some staying power?
BH: Rental is here to stay. We are living in a fractional world, whether it’s Uber or Airbnb, etc. It is natural that clothing is a part of that ecosystem. Having a 20 year old daughter, I see the way that she and her friends engage with brands and think about clothing, and its different from 20 years ago.
That being said, CaaStle is different from other sites [because the] focus is on increasing profitability through the entire product lifecycle. The most profit you can make is by selling items at full price [and] that will always be our goal. The technology around rental just unlocks better decision making that otherwise would not be possible.
