**UPDATE August 2022**,: We have rolled back the change to alter our full-price model and returned to our roots. We did so because, after a few months of tinkering and further discussions with the community, we came to a conclusion that raising the full-prices and abandoning the business model and approach that made Archibald stand apart wasn't the way to go.
Furthermore, with the way things have gone in the broader economy in 2022, we are seeing a considerable increase in the costs of raw materials and wages, effectively meaning an increase in the prices of products. Increasing mark-ups has twice the effect, and if Archibald was founded to enable more people to access and enjoy true quality and better-made, longer-lasting items, then the change made in January 2022 and abandoning the model we set out to build in 2014 isn't the way to go - particularly not now.
**We have collectively felt uncomfortable ever since we made the change, and here we are, unwinding this change and returning to our roots.** It might seem a bit erratic, but these seem to be the mistakes necessary.
It is easy, particularly during challenging periods, to lose sight of the raison d'etre, and in overthinking the problem and overengineering solutions in the past year, it seems we have done just that.
The Buyers Club is still in play, and we still see a way forward for membership, and we will continue to work to develop it to find the right structure.
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Dear Archibald Community,
I have some rather big news to share. We have taken some important decisions that will change the core business model of Archibald London going forward for the best. Our fundamental values remain the same; our mission statement is to offer supreme quality from the best artisans in their respective fields at prices that don’t conform to the typical retail model or markup. We exist because we think more people should have the ability to access these wonderful items and own less of better. However, the business model we have been operating under for the past seven years simply doesn’t work in the world and marketplace right now and needs to be updated accordingly.
For those of you who have experienced some of my other detailed and (at times, ill-advisedly open) blog posts and messages to the community, you will be used to the type of in-depth explanation I am about to give for the above decisions which are outlined in the body of this memo. They are all fundamentally important to the survival of our brand and in protecting the value of our artisans and the products they make. This is my way of remaining transparent with the community we have worked to build so everyone is aware of what we are doing and why.
Archibald London set out to create something that has never successfully been achieved: a direct-to-consumer luxury brand that offers outstanding quality with products that rival all other high luxury labels, for a fraction of the price. I know I have written endlessly about what I have been trying to do, and the truth is over the years we have done a lot to try and make it work. But the time has come to admit we have been pushing the boulder up the hill. The concept has from day one been approached with a heavy degree of skepticism all around and rightfully so. The power of a fashion label, the symbolism of a logo, the story a nearly unobtainable price-point tells… these are all strikingly difficult points to compete within the luxury sector for a brand like ours. There is an automatic assumption and urge to ask “what’s wrong with it”. Consumers have been conditioned to value and look for these points first when deciding where to spend their hard-earned extra.
Furthermore, it is not just high-fashion and the luxury sector we must contend with, we are also hit from the opposite side of the industry. Most other direct-to-consumer brands generally operate within the entry-level realm, and some of our price-points also fall within the same range as contemporary fashion lines. So while the quality of what is being offered by our competitors in these sectors is substantially lower, the cost of their inventory is substantially cheaper, and the mark-ups applied to their products are substantially higher, yet it looks like we are all on the same level if you look at price-point alone. Even if our quality is 10x what the rest of the contemporary and direct-to-consumer industry is, consumer perception automatically weighs and judges (even if subconsciously) our products to potentially be at the same level. It is impossible for someone to know the intrinsic value of something Archibald London makes without purchasing and wearing, feeling, and testing it themselves.
We spent years fretting about the price points of the high luxury players and the price points on the opposite end as well. In setting our own prices, our solution was to sacrifice margin in many instances where the cost of production was exceedingly high to try and be more competitive with everyone. We thought if we offered quality for the lowest prices, then people would come. But as stated above, unless someone has purchased from Archibald London, they don’t fully recognize why we are different. We can’t show you our quality on a computer screen or mobile device. We can describe the story and rich heritage behind our materials and craftsmen, but ultimately the effect is not the same as being able to touch and evaluate in person. And without that ability, we tend to fade into the background of all the other noise.
It is important to note that due to our lower production volumes as a small brand, the cost of making items is sometimes higher for us. We don’t do any mass production. We make single product runs of items, sometimes as low as six units for example. We sell down to the piece with higher-end products like our shearling and leather jackets, and we do not place re-orders until we have actual orders from customers. Even for our shoes, our highest volume category, we place orders in small batches with our craftsman based on the exact sizes and colors we need to fulfill. As such, offering all of these items at such a low markup (as has been our business model to date) doesn’t highlight how special these pieces actually are or reflect the amount of effort our artisans put into every item they make. Our current prices don’t reflect the quality of our cashmere or leather or account for the small details like our horn buttons or platinum plated brass hardware. Even though our items are made by master craftsmen with superior materials and detailing, we realize we have priced ourselves in a way that devalues the DNA of our products and our partners who make them.
Over the past seven years, we have tried many things to make the current business model work. We started with eyewear, and then made the decision that the success from this single concept had far wider-reaching potential applicable to many more categories. We expanded and explored new craftsmen, materials, and products. We utilized crowdsourcing ideas to design a sneaker. Then there was our most recent and successful campaign, Archibald, Naked. It first began out of frustration from a lack of traction and was then re-started in a bid to protect our community of artisans during Covid. Now, finally, Naked has helped us envision a new direction for the brand with our Membership program. But even still, something has seemed a bit off.
We turned a critical eye inwards and explored every piece of our infrastructure to analyze where we were going wrong. We needed to pragmatically consider what we could do to affect the change needed to push our brand forward. To that end, our conclusion was that we needed to move away from the original business model of Archibald and adjust our entire approach to pricing.
After almost 8 years, I am finally prepared to throw in the towel. Not just because our historical approach to pricing causes issues in the underlying narrative of the products we offer, but because the entire approach was flawed from the start. While we thought it was at the time, it isn’t the most disruptive or efficient business model possible (because we have technically found one more disruptive), and most importantly, it does a disservice to the products we offer and the people who make them. Does this mean we will be applying the same mark-ups of traditional retailers to our products? Not quite.
Archibald will still offer a fairer price point at full price and still provide unbeatable value for Naked members.
The mathematics behind this move is as follows:
We effectively mark up most of our items by 1.8 to 2.2x for our pricing. As we deal only with direct sales once all variable costs of fulfilling an order (packaging, logistics, merchant fees) are accounted for we are left with a margin of say 38 - 48% for our business per sale without contemplating any overheads to the business. This is particularly low for retail and also leaves us quite openly exposed, as it did this past year when inflation and supply chain issues ran rampant and both operational and manufacturing costs increased substantially. We do not have live systems that can update the pricing accordingly just yet, so sudden shocks can have a terrible effect on the remaining bottom line if any.
There are some products for which the margin actually goes all the way down to 28%, and this is in the case where we purchase products from other producers who have their own brand at what is effectively sold at their wholesale price. We offer these products in a bid to increase the offering of Archibald. The part no one ever reveals is that these are the same suppliers to many other luxury brands. But instead of adjusting their margin to accommodate for the fact, these aren’t their own-produced items (therefore carrying a higher cost than necessary), luxury brands simply run these supplier-produced items through their own pricing model and brand them as their own. IE we may offer the exact same product as a luxury fashion house, from the exact same producer who supplies them, at a vastly lower price.
The lowest mark-up we have encountered in luxury retail is as follows:
A product is made for x (eg: $100) It is sold to retailers for 1.4x (eg: $140) It is sold by retailers to customers for 4.2x (eg: $420)
The highest we have encountered in luxury retail is as follows:
A product is made for x (eg: $100) It is sold to retailers for 2.75x (eg: $275) It is sold by retailers to customers for 8.25x - 9.65x (eg: $825 -$965)
Therefore, we will be going with a markup of 3x the cost for most of the items under our new, revised pricing model. As we deal only with direct sales at the moment, this will allow us closer to a 60% net margin at full price after accounting for variable costs associated with a sale and therefore the final prices we sell at (though still lower) than prices offered by traditional luxury retailers, are not SO much lower than they are doing a disservice to the product and puts us in a healthier position as a company. It will also allow us some breathing space to offer items through other distribution channels which will also serve to improve business for the men and women who make the items we offer.
This also means that the membership model we have recently launched is increasingly attractive. We feel it is the future of Archibald London. Through our Naked program, not only can we offer pricing no one else can, but we can cultivate a community that helps us grow this idea to achieve its full potential. To that end, in order to make the process work effectively, we will be adding a small blanket of “protectionist” margin to some of the Naked prices to allow for necessary business costs.
The original version of Naked was started with the spirit of cutting down our overheads to the bare bones and excluding any coverage for the administration, staffing costs, warehousing costs, and other costs associated with a sale. Consequently, due to some errors and/or unforeseen variables, while calculating original Naked prices, we actually lost money on many items sold. It was quite a considerable amount. As learning lessons go, it was a very valuable one, which is why we are taking a more thoughtful and dexterous approach this time to ensure our new model is sustainable. With our focus shifting towards building the Naked membership portion to sit as the main mechanism through which people shop at Archibald, we will be keeping a close eye on things. You will notice prices changes often which will reflect the changes up and down according to how our cost prices are affected.
We also understand that in order to make Naked membership work, we have to provide a good reason for customers to join and stick around. We need to make our product offering refreshing and enticing, which means expanding our assortment both within existing categories and venturing out into new ones. We mean to do so in the most efficient way possible and have taken a page out of the playbook used by brands who crowdfund production using a“built-by-you” initiative. We will be calling ours “Backed by You,” and it will be a mechanism through which our team can design and create samples with our network of craftsmen. We will only put an item into production if we reach a certain number of pre-orders, or “backed bids,” that cover the minimums for a specific design. The minimums will vary by product; one item might require one order and another might require twenty. This method is not just more sustainable, but it also ensures we are working with the community (you) to understand and create the items you want.
“Backed by You” will be very important because we greatly value your (community) input. Archibald London has been around for a while now, and many of you reading this message were among our first adopters. You likely purchased with us at full price at some point in the past seven years, and you have seen us go through all of our iterations. This is a moment where I would like to pause and thank those of you who fall within this category. You all recognized something in us that most others didn’t and still haven’t, which is why we are making this final evolutionary change to raising prices and putting a stake in the ground with our Naked membership program. We believe it will be our future.
In considering all of the changes detailed above, we considered everything from a cohesive 360-degree view and approach. To ensure we could facilitate “Backed by You,” and also finesse our entire customer service process as it is a paramount part of any business and will be an even more critical touchpoint for our membership program, we spent a lot of time creating and putting new systems in place. The team is very small at the moment. In utilizing these new systems we are managing to maintain minimal overheads while remaining as efficient as possible. We are still able to bring you a top-tier consumer experience that will even be interactive through a private user dashboard created for you on our website.
So that’s it, the next roll of the die.
Let’s see if this works.
