Clothes outsell computers online.

The NY Times reports that for the first time, clothing has sold more online than computer hardware and software. Specifically, in 2006 apparel in general sold $18.3 billion vs. $17.2 billion of computers, peripherals, and software. Given that the online sales of clothing are only 8% of all clothing sales, there’s still a lot of room for growth.

Why do clothes sell well online? One would expect that without the ability to try clothes on and see them up close, people would be hesitant to buy. Here are a few reasons why:

1. Standardization: Companies like the Gap and Land’s End standardize their sizes, fabrics, and styles so that once a customer knows what they like and what fits, they can feel safe buying from a website.
2. Easy returns: Zappos.com is a great example. Shipping is free, both ways. I recently used them to buy a pair of sneakers. I ordered three pairs I like on the site. I got them shipped for free. I tried them on, kept the pair I wanted and shipped the other two back for free. No questions asked.
3. Customization: Online it’s possible to allow customers to customize their products. I’ve talked about NikeID before and to me they are one of the best examples of mass customization. A customer can customize shoes or other products and have them delivered to their door, all for roughly the same cost of buying Nike’s mass produced shoes. Land’s End has been doing the same with custom clothing for years to great success. Another company called Threadless allows users to design t-shirts and submit their designs on the site. Then, the entire Threadless user base can vote on the best design and the company prints and sells the winning designs. They have been incredibly successful by combining apparel retailing with online communities, an unlikely combination.
4. Better interface: Websites have dramatically imrpoved their interface, allowing customers more flexibility in their browsing activities and providing better tools for viewing the products. Gap.com famously shut down its website for a few weeks last year to redesign it using Ajax technologies. The result is a fluid, seamless shopping experience that is more like the one customers have offline. Land’s End uses a technology called My Virtual Model that allows users to design a virtual doll that looks a lot like them and then dress it up with clothes to see how they look before they buy them.
5. Prior experience: Customers have been buying clothes from catalogs for decades. Publishing the catalogs online instead of on paper is pretty much the same. Reasons #1-#4 above are what have attracted even people who have never bought from catalogs to buy clothing online.

Not quite a replicator yet. And the dangers of predicting the future.

I just read an article in the NY Times about 3-D printers. They are basically machines that take digital three-dimensional plans for anything and then create a physical, solid object out of them. I didn’t know these things actually existed, but apparently they have been used in the industry for years, though they are very expensive. The article talks about efforts by one company, Desktop Factory, to bring the cost of a 3-D printer low enough that it can be bought for the home.

Granted, the solid objects created are made of a single material, nylon powder, and look like dull, grey toy parts. But let me project a little into the future. As these printers get better and better, and why shouldn’t they, the could end up solving one of the major hangups of online retailing: the lack of instant gratification. Unlike digital products, which can be acquired immediately online, physical products have to by shipped, which takes time. Sometimes, a customer wants that new basket ball right away and will choose to go to a physical store to get it, instead of ordering it online. But what if the customer could simply “print” the basket ball at home? Maybe something like this (from Wired, Issue 14:12, December 2006):

I also know the danger of making future predictions, like this one from the NY Times article:

“In the future, everyone will have a printer like this at home,” said Hod Lipson, a professor at Cornell University, who has led a project that published a design for a 3-D printer that can be made with about $2,000 in parts.

Sentences that start with “In the future, everyone will…” are dangerous. Between 1966-1967 the following predictions were supposedly made in The Wall Street Journal:

By the year 2000:

• Man will land on Mars
• Cities will thrive under huge climate controlled domes
• Travelers will fly from New York to Tokyo in under 2 hours
• Commuters will strap rockets on their backs and jet to work, or at least commute in small two-seater flying automobiles
• There will be 200,000 computers in the United States

Need I say more?

Dell may change its direct sales model.

Michael Dell sent a memo to Dell’s 80,000 employees on Wednesday saying that he is considering changes to Dell’s strict direct model of selling computers (read about it at the NY Times). Dell’s direct model is one of the most talked about business models of the last two decades. Dell used IT and efficient networks to integrate its entire supply chain so well, that computers were produced only when they were ordered, lowering inventory costs and eliminating the need for costly, unreliable demand forecasts.

Today, however, Dell is facing declining sales and revenues, partly because laptops are much harder to build on-demand when they are customized, and therefore must be built in advance.

In his memo, Michael Dell, who recently took over the helm at Dell again, writes that

The direct model has been a revolution, but it is not a religion.

This is a long time coming from the company which has refused to change its way of selling despite its economic woes. This doesn’t mean that the direct model is bad. It’s still an amazing model that when done right, for the right products, and with the right partners in the supply chain, can be extremely cost efficient.

What’s important is that no business model should be treated as a religion, to borrow Michael Dell’s words. A business model should be seen as an organic, adaptive, flexible tool a company uses to create business value. A dogmatic approach to any business model is doomed to fail as the company’s environment (both external and internal) inevitably changes. A true visionary CEO will constantly reevaluate her or his company’s business model and adjust it when necessary.

Otherwise, by the time change comes, it may be too late. I hope that’s not the case for Dell.

It’s an on-demand world. Just ask Lulu.

In today’s highly networked and increasingly modular environment, on-demand services and products are no longer a luxury.

You want to customize your own Nike sneakers? No problem. Go to NikeIDwhere you can customize your shoes (albeit with a finite, but large, number of options). Your individual choices will automatically be communicated to the production facility in Asia which has been upgraded to be able to produce pair after pair of customized shoes that can be shipped directly to their buyers. And all for the same (or slightly higher) cost as a mass produced pair of shoes.

This is the reversal of that other Industrial Revolution effect: mass production. But more on that on another day.

A company I discovered this week that does on-demand services and products in publishing is Lulu. The world of publishing has long been dominated by the publishers. They decide what should get published and how much of each product should be published. Consequently, they also control the marketing, pricing, and all other traditional processes for bringing a published product to the market. And the product can be books, music, movies, you name it.

Why is that? Well, there has never been an easy way for the content producers (writers, musicians, film makers) to publish their material on-demand (i.e., only for the number of customers that want to buy it). Partly because they couldn’t know what the demand was unless they first published the product and then saw how many customers bought it. And the physical publishers themselves needed to capitalize on economies of scale, so they would only publish a minimum number of product copies.

Today we have solved both problems. Publishing technology is flexible, digital, and modularized so it can publish one or one million products without a difference in cost. In the case of books, imagine the difference of printing a book that had to be manually typesetted and printing one that is in digital format that can be easily sent to the printer’s digital storage. And if your product is available first in digital format, then you can figure out the demand for it before you actually physically publish it.

Lulu does exactly that. A customer can publish any product (book, music CD, images, and so on) for free. Yes, for free! Basically, the customer uploads the content on Lulu’s servers and then waits to see if someone buys the product. Each time someone buys the product, one copy is published and shipped. Lulu only gets paid a commission if a product is sold.

 Lulu’s founders were also smart to realize that once you provide the basic service for free, you can increase your revenue source through value-added services. And they provide some of those, including a number of author marketing tools. They also know that if they help budding authors sell their books, they’ll make more money. So, they’ve created a marketplace on their site for third party services, such as editing, proofreading, translation, etc.

The question of course remains: if Joe Blow publishes his self-described masterpiece on Lulu, will anyone buy it?

Does it matter? Lulu makes money even if only a single copy is sold. Don’t you think Joe Blow will buy at least one copy himself to show off to everyone?