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BirdsEye View

the importance of timely innovation - a real life story

 Twenty years ago Liat and I were visiting Barcelona when we saw numerous stores named DESIGUAL. We had no idea what that meant, and entered a store to explore. The place was a clothing store, and it was unique. The walls were covered with social responsibility messages, as were the clothes themselves, which were invariably brightly colored. There was a vibe about the place and about the clothes.

We bought some tops, and, in time, Desigual became my brand. Nearly all my tops come from that brand. They are funky, unique, rarely seen elsewhere and (almost) timeless.

There were Desigual stores everywhere we went, in every major European city and across the US. It was easy to drop by and quickly assess the inventory. My brand concentration intensified over time, and the brand ubiquity was an important factor.

With a completely differentiated proposal from its competitors (characterized by bold colors and bold communication), Desigual experienced rapid growth in the 2000s. In 2009, the company had a revenue of 300 million and in 2014, when it reached its peak, it had tripled its size, bordering on one billion euros. They grew non-stop, with stores sprouting everywhere.

Reaching one billion became the most repeated mantra by the company. I was unaware of that, as a consumer, but I absolutely recall Dick Kovacevitch’s mantra: “You don’t get better by being bigger; you get bigger by being better”.

Roughly seven years ago stores began closing. It became obvious. Desigual dropped from 5+ stores in any major city to one flagship. It was noticeable because the Desigual’s online experience was very difficult. The online inventory was not robust, returns were virtually impossible, and there were no specials or sales.

And then sales started to slump. In 2014, Desigual sales began to falter and in 2015 sales fell to 933 million euros, down to 600 million in 2019. The Company’s capital suffered a further blow when a PE investor pulled out.

The founder still felt that “Desigual still makes perfect sense in the world” he said. “We bring to the market things that other brands do not offer, we allow people to be different,” he said; “This is our DNA: turn ideas around.” 

Desigual had a unique product and a strong brand. Physical distribution expansion was rapid and wide-reaching, enhancing brand identity and building a loyal customer base. The product was compelling and different, and the brand continued to deliver on that promise. But, as customers’ buying behaviors changed, Desigual failed to adapt. It stuck to its strengths – ubiquity, unique store experience, and a unique product line.

Customers remained loyal to the brand, but high operating costs put it at a disadvantage relative to its competitors. Desigual had competitors, despite its unique product line and message, because fashion (and customers) are fickle. And because customers’ buying behaviors shifted (through the Amazon Experience effect).

Desigual found itself with a strong product line for older customers, but perhaps not so much for the next generations of shoppers. Its distribution was antiquated, and transferring the special store experience to digital channels was extremely challenging.

Banks across the country are experiencing various degrees of this story. They have wonderful products, fantastic customer connections, superb service, but the world is moving past them. The current customer base is loyal and can sustain the company profitably, but customer acquisition and overgrowth are a major challenge. 

Declining sales spoke volumes of the predicament of Desigual. The choice was crystal clear: transform the business or perish. The company decided to embark on a transformation plan. I believe too many banks are in a similar position to Desigual. Transformation, not mere change, are essential to long-term sustainability. And, like Desigual, the major elements to the business aren’t all “broken”. There are MANY excellent elements to banks which have not modernized to-date. The question remains, are they enough for long-term prosperity.

Desigual concluded they must change. Their business revolves around five pillars, which sound very much like banking…

Product: “Desigual lives by, for and through its product, is the way we add value,” says Meyer. That is the biggest challenge facing the company: “How do we get relevance in new things?” AB: Banking products have not changed dramatically, and might not require much change in many institutions. Yet, as product complexity is simplified by savvy competitors, our perfectly serviceable products become cumbersome and less attractive, especially to new customers. We have created our own barriers to entry for new customers, and we must tear them down.

Brand: The Desigual brand is evolving while the product does. In this sense, in 2019 the company introduced a new logo, “which expresses a different way of doing things”. "The new logo is a statement in itself,” says the founder. AB: Brands have always played a role in banking, and will become even more important in the digital world. There is huge brand proliferation digitally, and more are created daily. Finding the brand voice in this clutter is a difficult challenge, which often cannot be effectively supported by the traditional brand the bank grew up with.

Distribution: “The distribution channels are the medium with which we connect with our audiences. We have to modernize the distribution network”. Desigual now works with nine distribution channels, has around 500 points of sale. “Physical stores must continue to exist, one thing does not go against the other: online and offline are the same thing,” Meyer said. AB: This is our greatest challenge, something we have struggled with ever since ATMs were created. We have duplicate channels with their own cost structures, and we keep layering those costs without much relief. We should all watch how Chase has leveraged digital tools to improve both the customer experience and operating costs. None of us needs to become Chase, but positive operating leverage and cost advantages are important tools and essential foundations for future prosperity.

Sustainability: Companies like Desigual believe that they must collaborate with others in order to survive. Social responsibility is an integral part of the message and the company’s fiber. AB: Some banks, such as FNBO, have brought new thinking (and technology) to partnerships, thereby leveraging other businesses’ salesforces to co-market their products. Banks have done so with Universities for generations. We need to get better at this and innovate collaboration with other sales forces to better leverage our production facilities and improve customer acquisition costs and numbers. 

A great place to work: This is the fifth pillar, the Meyer’s passion. AB: It speaks for itself.

Desigual’s transformation plan will last “two, three or four more years,” according to Meyer. At the same time, considering the pace of change systemically, Transformation is an eternal challenge. "The world is in a difficult time: consumers change interests, the way to access brands changes, new, non- traditional players enter the sector, and the online world takes hold", he explained.

The future, according to Meyer:

"People want relevance, experience". “Young people look for fashion with purpose and brands that make it different.” “In fashion, you depend on the desirability and how the market accepts you.” The Company’s goals have changed to reflect new market realities. “I cannot say that we aspire to be a company of 800 or one billion; now the important thing is to be relevant,” said Meyer. Once we complete our transformation we will be able to grow again.

Banking isn’t that much different. A compelling product and a loyal customer base aren’t enough to sustain our industry in the future. Like Desigual, we are facing new entrants which are not burdened by “old think” or costly infrastructure and customization. Relevance is the name of the game for the medium term, and our industry should develop laser-focus on that mission.