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This year, the 4-year-old footwear brand Larroudé transitioned its business to a new model that co-founder Ricardo Larroudé calls “direct-to-demand.”
Under the new model, Larroudé controls all of its inventory in-house. Similar to drop-shipping, it ships products directly to customers as soon as an order is placed, whether through a direct or wholesale channel. Products are shipped from Larroudé’s factory or warehouse. Larroudé’s retail partners include Bloomingdale’s and Saks Fifth Avenue.
For Larroudé, the model took months of work to prepare.
“We ran a sale in July to sell through all of our products so we could start from zero,” Larroudé said. “I had to build a factory [in Brazil] and hire a lot of people to centralize the whole supply chain, as well as transition all of our wholesale accounts to marketplaces. This was one of the busiest work years of my life.”
The brand has grown without any outside investment, selling hundreds of thousands of pairs of shoes and becoming profitable.
“Whatever cash we’ve had has come from our sales and nothing else,” Larroudé said. “That’s helped the brand grow at a steady, sustainable rate because it’s meant we haven’t chased anything that didn’t make sense. … You can’t just spend money on marketing and think you have a brand.”
Along with streamlining the brand’s operations, the move to “direct-to-demand” has proven a win-win, from a pricing perspective, Larroudé said.
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“Everyone who is in business buys for one and sells for two,” Larroude said, referring to the fundamentals of profit-making. “But when you consider the whole supply chain and everyone trying to make a profit, it goes from one to eight by the end of it. By cutting all of that out, the client gets a much better product and the margin is better.”
Larroude’s experiment comes at a time when the fashion industry at large is experimenting with more vertical integration to protect against a sometimes unpredictable supply chain. LVMH, one of the largest companies in the world, announced this year that it will invest in more in-house production. And even smaller brands are going there: Los Angeles womenswear brand Buru reported the benefits of vertical integration on its growing brand this year.
