Vape shop owners could take a few cues from retailers in the fashion industry.
By Steve Hong
It’s been a tough few months for some clothing retailers. J. Crew is paying dearly for alienating its core consumers with bizarre styles. Macy’s has announced it will shut down 35 to 40 stores due to cannibalization of brick-and-mortar sales by its online channel. And adding to American Apparel’s legal woes with its CEO is its own operational inefficiency. The company has been cash flow negative since 2013. However, there is one store at the mall that is always in style, keeps its core customers coming back, and is doing it with startling efficiency. As a result, its profits are up 26 percent for the year.
Fashion retailer Zara is unique in the industry because it can take products from concept to store shelves in three weeks. With capabilities like these it can adapt rapidly to the ever-evolving consumers’ needs and tastes. In 2008, the Spanish brand overtook Gap, that other shopping-mall stalwart, as the largest fashion retailer. Whereas Gap focused on wardrobe staples with a preppy, static style, Zara focused on introducing up-to-the-minute imitations of runway fashion to provide customers with high style at low prices.
Much like Zara, vapor manufacturers tend to cycle through product iterations rapidly. For instance, if a tank model sells well then version two and a mini-version won’t be far behind. The upside of this agility is twofold. First, the general quality of vape products has improved steadily through frequent iterations. Many of the initial problems that were common in open-system devices just a couple years ago—leaking tanks, weak vapor, difficulty in changing wicks, etc.—have been addressed if not mostly eliminated.
At the same time, hardware and e-juices have evolved to provide more consumer satisfaction. You want a tank that provides just the right amount of airflow for the way you inhale? You want a 50-watt battery that fits in your shirt pocket? You want e-juice that tastes like it was excreted by a mythical creature? It’s all available at your local vape shop.
However, without appropriate channel coordination, this fast turnover comes at a cost. One of the biggest challenges that distributors and retailers face is contending with the constant flow of new products. In an ideal world, these channel partners would have the right products at the right time in the right amount, selling out just in time for the next wave of new products. But as it is, they often don’t know which products to invest in, have trouble buying them at wholesale and are often left eating the cost on outdated inventory when consumers have moved on to the next new thing. All of these problems lead to economic waste, so the market is not as efficient as it could be.
What can vapor learn from Zara?
One of the criticisms of the vapor industry as an investment is that it is hard to build a brand to take significant market share. There are low barriers to entry and not much enforceable intellectual property, and thus products tend to be copies of each other. Zara faces a similar market environment in fashion but focuses on distinguishing itself though capabilities, not product. By anticipating consumer demand, producing and distributing products rapidly, and adapting as needed, Zara has built an industry-leading brand.
Zara can better deal with distribution challenges because it is vertically integrated, with all production taking place in-house. Near-constant communication from the retail level to headquarters is a key component of its operations. That’s great for the future Andrew Carnegie of vapor, but, as it is, the vape industry is highly fragmented both vertically and horizontally. What are the keys to Zara’s success, and can they be replicated in the vape industry? Here are three issues to consider:
Responsive supply chain
Zara’s supply chain is optimized to get new products on store shelves as quickly as possible for two reasons. First, Zara’s core consumers know that products inspired by the latest styles from major fashion houses will be available at their favorite store. Also, constant rotation of styles keeps customers coming back more frequently to see what’s new. Continually changing product serves as a kind of marketing in itself.
While vapor brands produce new products rapidly and are able to generate buzz online, anecdotal evidence from distributors and retailers suggests that the vapor supply chain often doesn’t link up. Many buyers don’t know where to get the latest products or to source a steady stream of the best brands. This confusion often leads to lost sales.
Forecasting and intelligence gathering
For vape retailers, knowing what to purchase is a major challenge. They can’t buy and stock every new product that hits the market because of their limited budgets. But without reliable demand forecasts, purchasing decisions are a gamble. Sure, it’s got buzz on, say, the E-Cigarette Forum, but will that prosciutto-flavored e-juice be a hit at the local vape shop?
Contrast this uncertainty with Zara’s operation. The retailer does extensive market research and forecasting to make educated guesses about what will sell in upcoming seasons and how many to produce. As well, the company has a communication system that allows retail managers to interact directly with designers to link customer feedback and ordering needs. With this system, designers and producti2on departments can adapt rapidly to the marketplace.
Outsourcing vs. in-house
Part of Zara’s success is due to a strategy that Amancio Ortega, the company’s co-founder, employed early in the Zara story. While most clothing manufacturers around the world were outsourcing production to Asian contractors, he continued to use in-house and contracted production facilities in Spain and Portugal because the advantage of rapid communication between designers at the Spanish headquarters, alongside the production facilities, was more important than saving on labor costs.
It could be said that Chinese device brands like Aspire and Kangertech also have this advantage because managers, designers and manufacturers are geographically close. However, Western brands that white-label China-made products may be more susceptible to delays in new product development because of their distance from the manufacturing facility.
As the industry matures, brands will not just distinguish themselves as innovative products but also for their operational efficiency in getting them to market. As Zara shows, by keeping the flow of information with the channel—and, by proxy, consumers—open, companies can do both.
Steve Hong is the founder of Roebling Research, a boutique market-research firm dedicated to the vapor industry. For details, visit www.roeblingresearch.com.