> My guess is that the “back-end” supply chain / software / inventory management problems are just not as sexy as the “front-end” consumer-facing problems, or maybe the consumer-facing problems are just more intuitive.
Absolutely! I wrote MRP systems for a pharma manufacturing in Florida and the kind of stuff I had to do on a daily basis far surpassed the complexity of your breathtakingly-beautiful but typical project-management webapp or customized T-shirt webstore. Let me be clear, complexity has absolutely nothing to do with the merit of one product vs. another. KhanAcademy code could be simple as 2nd grade math but nothing I ever write will ever be as beneficial to the world. However, complexity is expensive, takes time and dedication, and rarely pays off in the short-term.
There is a reason most supply chain software installations run in the millions to tens of millions. Here's an example of something I wrote while ago: A drag & drop scheduler in JS, kinda like Google Calendar that lets you schedule production jobs on different equipment, across different labor teams. When you change a single job on the schedule, it auto-calculates the entire requirement for the entire company. Moving one production job up (say shampoo for customer A) could end up in the company losing $500k because one of the ingredients that went into shampoo for A also goes into conditioner for customer B. This particular item has a lead time of 3m from China. And since order for B is significantly larger in amount, every single day of delay is money actually lost because you bought all the other raw materials for B on credit from the bank and now have to pay interest on it, while it just sits in the warehouse waiting for the raw material to be flown in from China.
Of course, this is something you want to avoid in the planning stage itself. And that's what the software does and warns the user within seconds of making any changes. One tiny bug in the code, say it doesn't correctly factor in the internal lead time from QC (this particular chemical needs to be sampled for microbiological contamination) and you just delay the project by a week. Putting up a pretty website is hard work but it is nothing compared to hiring 20 people to spend 3 months mapping out the multi-stage routings for 500 different SKUs. No tech-VC wants to invest in businesses that require a tremendous amount of operational labor. That's what banks are for.
Every time you see someone announcing a CRUD app written over the weekend you pretty much know that there is hardly any business logic involved.
The example you give is a great one, it only gets more interesting when it is not just money on the line but lives. Think avionics software and the like.
That stuff ranks amongst the most expensive software produced per line of code because of all the audits and certifications that try to ensure that there won't be hidden bugs that somehow make it into production.
Working on a project like that sounds like a lot of fun. I guess there must not be very much money in it though because every company requires custom software, eh?
*If you're good at direct enterprise sales... Most startup guys I know prefer PR, metrics, A/B testing, etc. over this type of meat and potatoes type of work.
Having done a LOT of work in that space (historically), I can assure you it's all SAP, Oracle, PeopleSoft, AS400 and epic quantities of turds. The largest turd being EDI and all sorts of nastyness.
It's not fun. It's actually painful. It takes a special kind of person to do it: Someone who doesn't care about what they do, just the money.
> It's not fun. It's actually painful. It takes a special kind of person to do it: Someone who doesn't care about what they do, just the money.
In large companies, absolutely. But for rapidly growing companies, this is one of the most challenging jobs out there and you really start to care about it on a personal level. I can make one change on the barcode scanners that saves the six warehouse guys over two hours a day. It actually improves their quality of work life by reducing potential for conflicts and blame. You won't get mentions on TechCrunch but you will help out individuals on a personal basis and the company on an efficiency basis.
Unfortunately the money is way better everywhere else for someone with skills to do this right.
Fair point - I'll give you that. Ironically I did a spot with Intermec barcode scanners and printers for asset management on top of Oracle so I understand where you are coming with.
I actually quit because I was the only one who did care. Everyone else was just after vendor backhanders.
"In fashion, trust me, that are MANY problems that need to be solved: a highly antiquated supply chain, non-standard, un-linked computer systems, non-standard sizing that varies even within the same line, inefficient pricing methods."
I don't see why internet fashion companies couldn't take a crack at solving / mitigating at least some of these. For example, there are some sites (like zafu.com - no affiliation) that help women find jeans that fit. They can't change the sizes on the jeans, but I'm not holding my breath for the fashion industry to make sizing any easier any time soon.
I also disagree with her claim that discoverability is not a problem. A lot of people are trying to solve it, but I don't consider it solved for myself (or other women I know). I find the choices in women's fashion to be overwhelming (to say the least), and I'm still looking for the more efficient ways to find clothes I like.
I agree with her overall point that the number of trendy affiliate fashion sites is getting tiresome, but that doesn't mean that they couldn't be developed in interesting ways. It may be true that affiliate sites need to sell a ton more in order to compete with "click-and-mortar" fashion companies, but I'd argue that affiliate sites can also be more innovative, flexible, and forward thinking. If you're not shipping or manufacturing, you can iterate more quickly.
I was actually discussing this very point with a good friend of mine who also runs a fashion startup the other day.
To refine what I said: it's not that discoverability is not a problem, it's that all of the new fashion apps (from Lyst to Fashism to Inporia to Svpply to Google Boutiques) seem to have only increased the "noise" versus decrease it. In fashion, customers pay for the edit: a small, curated collection of products that an editor has determined best fits her customer's profile. To argue that we can somehow replace this very right-brained activity with crowdsourcing or algorithms is untenable.
> To argue that we can somehow replace this very right-brained activity with crowd-sourcing or algorithms is untenable.
For now maybe. Ten years ago if you asked me if I'd spend 2 hours watching a movie because a computer said so, I'd laugh. Netflix recommendations, while not perfect, are still very good. Had I not told Netflix that I loved District 9, it would not have suggested Torchwood: Children of Earth to me. Had it not suggested Torchwood, I wouldn't have discovered that Doctor Who was back on air. Right now I get about 50% of my entertainment discovery done via algorithms. Sure, fashion is difficult and subjective but I don't see it as being any different from music or entertainment in the big picture sense.
Btw, that was a very well-written article. Thanks for sharing.
It is different. When buying clothes people ask questions like "Will my girlfriend think I'm sexier?" or "Will the kids at school think I'm cooler?"
Fashion is a kind of performance -- people see what you wear, after all -- so there's an inherent social dimension that isn't obviously present like it is with movies on Netflix, which you watch in the privacy of your own home.
People, not robots, will win the day when it comes to shopping online.
The core of these recommendation algorithms is often a flavor of nearest neighbor analysis. In this case, the computer is using attributes to find people who are similar to you, and then suggest to you things that they liked.
All the "robots" do is find people who it thinks you would like to emulate. That sounds like the same thing the fashion industry has been doing for decades.
I'm not really opposed to what you're saying, but it does seem to me like you dismiss the big human factor in these algorithms. It's not like it's just a system saying "You bought a red dress last year, here is a list of other red dresses you may like" -- Because the quirky frock she bought for work last year doesn't mean she wants to see cocktail dresses that just so happen to be the same color, or from the same designer, or in the same price range.
Instead, it's correlating prototypical woman A to prototypical woman B based on available demographic data and past purchase history, and suggesting to "A" some of the things that "B" purchased. The emotion and intimacy there was the human act of "B" purchasing clothing that she connected with.
What I'm trying to say is this: it's not about a "match" between the product and the potential consumer.
The who, what, and how of the recommendation matter almost as much as the product itself. Just the fact that I know this recommendation came from a human counts for something, especially if it's a human I trust or respect when it comes to fashion (not necessarily a friend).
e.g., a celebrity wearing a shirt and having it sell out the next day.
Movies are different because their consumption isn't inherently conspicuous. I do it alone and talk about it with friends if I choose, but everyone sees the clothes I wear no matter what.
For example, I can choose to hide the fact that I love Katy Perry, but I can't hide the fact that LVMH made my handbag.
How you dress is a performance, and so the decision to wear something is filtered more rigorously through a social dimension than watching a movie or listening to a song is.
In the context of my most previous reply above -- how would you feel about reccomendation algorithms that pull more visibly from your own social graph -- Friends, yes, but also people you follow on Twitter and Like on facebook.
That seems almost a perfect marriage of my comments on the innate human quality behind a nearest-neighbor algorithm your comments here.
Whether it's a friend or an impersonal algorithm making the recommendation, you're still watching the same trailer before deciding to purchase a film. On the other hand, no amount of precise algorithmic matching of tastes and sizes can substitute for feeling the softness of the fabric and being reassured by your reflection that your bum doesn't look big in it before you buy. The costs involved are quite different too...
I suspect the simple solution to that is to have low cost models in a range of sizes try on each item. Let's say it costs 100$ a per size * 10 sizes = 100$ per item in your catalog * 10,000 items in the catalog = 10 million. Which is within the range of a well funded start-up. So it adds 1k/item and some lead time it's also a huge barrier to entry and probably well worth it.
PS: Don't forget Zappos sells shoes online where fit is both harder to come by and more important.
If I'm in the target market for high fashion, I'd probably list "clothes shopping" as one of my hobbies. I don't; I buy cheap clothes which retailers make minimal profit on. If I was in the market for designer clothes then my tastes wouldn't be price elastic, so saving retailers' costs by substituting cheaply made model videos for the user experience of actually seeing and touching the clothes in a stylish location isn't much of a purchase incentive. By contrast, unless the local Blockbuster outfit offer exceptional advice, actually going and physically picking up DVDs is a mere inconvenience and I'd much rather pay less to skip it altogether.
I'm not arguing it's impossible to sell fashion items online; it evidently is. It's probably also possible to sell wallpaper over the telephone. That doesn't mean the economies of selling over the internet necessarily lend themselves well to disrupting a sector that enjoys massive profit margins through making far more effective emotional inducements to purchase than a photograph and a like button.
I would argue that there is a huge market for people living in Arizona that can't get to any of those high end stores without flying there that still buy 'high end' fashion. The market is fit 34 year old doctors making 300k that don't live near such stores it's really poorly catered to. When a catalog sell 5,000$ dresses based on pictures that look nothing like the customer that's just ripe for disruption over the web.
You could also do the same thing for the mass market, but I don't think the average American really wants to see someone that actually looks like them trying on the clothes. Granted, there are main stream markets other than fat that this could work just fine, baby clothes, teens, big and tall etc.
Yep - there is a huge market for this, one that Net-A-Porter and Mr. Porter dominate (~$200 million in revenue). They take care of the sizing issues with flexible returns and personal stylists. Since 80% of their revenue comes from only 2% of their client base, they can afford to hire personal stylists for higher-volume clientele. Check it out.
I totally agree about the increased noise making discoverability worse. In fact, I have spent very little time on any of the new sites we're talking about just due to sheer exhaustion from market oversaturation. And that's crazy, because I'm probably their ideal customer.They definitely aren't reaching me, and they should be.
I tend to agree with you about curation versus AI, but I am not 100% sure. Years ago I was skeptical that collaborative filtering would ever work at all. As the poster below notes, it does pretty well for Netflix and sometimes for Amazon too. I could at least imagine some sort of AI recommendation system working for the masses, but I doubt it would ever appeal to the highest end customers.
Is this a symptom of startups wanting the homerun rather than building a smaller business around the edit? Seems to me that a business built around an edit fit to a customer's profile takes a personal intuitive touch or time and a ton of data whereas the current crop of fashion apps is throwing everything against the wall in hopes of attracting large numbers (of less discerning) users in the belief that # of users = high valuation (as opposed to the quality of users).
I hate to read startup blogs/news and they talk about exit strategy. What if Jobs, Gates, Page/Brin, and Bezos worried more about the exit rather than building a sustainable business. (I know it's off topic, just irks me.)
What are your thoughts on Pinterest? I use it all the time - recent purchases as a result of Pinterest include a bunch of apartment furnishings, an iPhone case, some new t-shirts, etc. And now when I need something I have started using it as a search engine. I do think it has solved the problem of both breadth of options and targeted results.
Pinterest is one the coolest/simplest site I've discovered this year. I have yet to buy anything straight from it, but I search for styles through it before going out and buying clothes.
So, I'm going to toot my own horn here, because this article is extremely well timed.
(Note: her site is down now, thanks HN! :P)
This line of reasoning is exactly why we decided at Everlane to start manufacturing our own apparel. You just don't capture enough of the value if you exist as a pure discovery layer unless you (somehow) get everyone and their uncle visiting you, looking to purchase, i.e., Google.
The internet does afford you the opportunity to redefine how people shop, but sorry: you're probably going to have to really sell things.
If that sounds rad, come join us and send me an email at jesse@everlane.com
Edit: Just noticed the article is about a month old. So, well-timed, but not timely.
Access my basic information: name, profile picture, gender, networks, user ID, list of friends, and any other information I've shared with everyone.
Send me email
Post status messages, notes, photos, and videos to my Wall
Access my data any time
Everlane may access my data when I'm not using the application [and more....]
I instantly discard the possibility of ever signing up for an account.
Agreed, I was very interested until I discovered the only option to sign up for future notification was nearly complete access to Facebook. I would love to get future invites but it would be great if there were alternatives for signing up.
What were the alternatives? Requests like that are a huge turn-off for me. Ask me for my email, sure. Ask for the ability to post spam on my wall and I've just closed the tab. It may convert alright, but it also drives away potential customers. Why not give me the option to subscribe by email?
I'm guessing it's because you're likely not their target audience. A lot of people are more than happy to let whoever asks have permission to spam their Facebook feed with free advertising.
Why don't you wait until the first time that they user wants to post something before asking for Facebook details. I'm sure you are completely honest, and wouldn't abuse the permissions you've been granted. But I don't like giving out any more personal details (phone #/email address/Facebook profile) than I absolutely have to.
But then I guess I'm not really your target audience either.
Jesse,
Interesting approach, who are YOUR target customers though? What is their shopping profile? I signed up out of curiosity, but never spend $120 on a shirt (I do spend $75 maybe on a dress shirt). I'm not in fashion, just a fan of e-business in general.
This article misses a huge point, it assumes <10% affiliate fees are the end game for these startups. If one of these startups manages to get significant market share, what stopping them from building a supply chain down the line (or acquiring someone who has a good one) and using that to tripple profit margins.
It sounds to me that these startups are thinking "lets not waste a lot of money investing in a supply chain (ala webvan)". The quality of your supply chain might help you drive down costs, but it's going to do little to increase your market share.
The marketing and shop-front are the biggest factors that are going to impact market share, so it makes much more sense to focus the investment in those areas and outsource everything else until you're ready to expand. VC's aren't stupid, they're looking at the bigger picture.
Not really a well thought out article. Here's why -
1) Why should anyone care about solving the problems that the writer of this article wants to see solved?
2) She fixates on the 3-8% that affiliate sites make without considering a few things:
a) Sites make that regardless of where the user actually buys. So if someone comes to your site and decides to buy a jacket you make money whether they buy it from Retailer A or Retailer B.
b) It's usually 10% for fashion sites and once you are driving larger volume you can cut deals for 15%.
c) If you become the decision engine (something Google and Bing are trying to do with their Flight Search and other initiatives in various verticals), then you can easily take over the entire business.
If people are coming to you and you help them decide what to buy - then you can start selling them that stuff.
3) The costs and barrier to entry is much lower if you are trying to fix the discoverability problem.
4) The real problem, and the most important thing, is the role of fashion. What fashion really does. That can be tackled completely in the online world through a website.
5) Fashion is a market that is going to make a lot of startups a lot of money.
Things that signal status (such as special electronic brands and designer bags and Grey Goose vodka) are never going to go out of style.
Instead of listening to this writer's advice, any company going into fashion should look at how backward thinking most people in the industry are, how little they understand technology, and how they are unwilling to admit the core purpose of fashion.
The easiest entry is discoverability and influence and that's also the most powerful element of the fashion ecosystem.
If you become the discovery engine and the decision engine then it's game over for everyone else.
All those VCs funding fashion startups are not idiots.
Yes, fashion is a huge industry in the US, and you can make a ton of money in the market.
By just being a middleman, you're looking at margins in the 10% region. Enough to build a business, but not a game-changer.
If you target production and supply-chain problems, which are far harder, then you can build a business with margins north of 40%. Not only that, but because you've solved some seriously hard problems, you've driven the cost of competition up for the existing players, while adding yet another entry barrier for other startups.
That's the point of the article -- that today's fashion-focused startups are all going after small game, with nobody shooting for buffalo.
I don't think the people going in to fashion start ups are going in to them to make large profits. It seems to me they are motivated by wanting creative control over some product or line of products and this is just another way to go about doing that.
For criticizing her article for not being "well thought-out", you sure didn't write a well thought-out reply. I don't see how your reply actually disproves anything she said; you've basically just said, "no, she's wrong... because she is wrong."
c) If you become the decision engine (something Google and Bing are trying to do with their Flight Search and other initiatives in various verticals), then you can easily take over the entire business.
If people are coming to you and you help them decide what to buy - then you can start selling them that stuff.
*
If you become the decision engine for Fashion you can decide everything else.
I think perhaps it's not very clear until you consider what WalMart has done and what Amazon is doing.
And what Google is trying to do.
You start off as the starting point and then you start taking over more and more until you start producing the products you were originally only linking to.
Amazon and WalMart are not decision engines, and they never were. Maybe Amazon had a little of that on the side, but both are traditional retailers with all the traditionally hard problems the article mentioned that people don't want to solve.
In fact, Amazon is a poster-child example of what you stand to gain if you are willing to tackle more than just being a frontend.
Amazon started off selling books. What do you think their margin for each was?
Then they took over a large part of the market. Then they moved into selling other things like electronics.
Then they made the Kindle and controlled the device people read on and the starting point and the buying point.
Now they are getting into publishing and self-publishing.
They are taking over everything starting with taking over the online selling point for books.
That's what a fashion startup earning only 10% can do.
Use the 10% (which is mostly profit) to power an engine that slows takes over all of fashion.
Move into parallel areas like shoes and accessories.
Then starts making their own stuff.
I appreciate your trying to defend the poster of the original short-sighted article.
However, if you look at building a real business that has the power and control to completely take over an entire industry then starting online is much better than starting in the backend.
If you want to provide services to publishers who publish books (which is what back end would be for books) - well and good.
But there's nothing transformative about it.
The real transformation is to replace Publishers.
that's why the poster of the original article is so wrong.
She thinks she's thinking big by talking about tackling the back end instead of doing online sites.
However, the real prize is to replace the entire pipeline and then, if the company so chooses, to replace labels and the entire fashion industry.
Starting Point: Where people start their search (to buy something or find something).
Decision Engine: Where people make a decision.
Buying Point: Where people actually buy.
What are all the reviews at Amazon for?
Amazon is both a decision engine and a buying engine. They are trying to wean off starting engines like Google and that is why they first tried A9 and now are trying devices in customers' hands.
If you step out of your attempt to defend the poster of the first article you'll realize that her article (not her, just the article) is very short-sighted.
The Internet is destroying entire industries - yet she thinks fashion internet startups should instead compete in the real world.
That makes no sense. We should all play to our strenghts. While she's trying to do backend stuff and help existing Fashion companies, some 'only 3 to 8%' earning Internet startup is going to disrupt the entire industry.
A hacker, in my opinion, is not meant to figure out how to solve the problems the existing industry power players created or want solved.
A hacker, again in my opinion, should solve the most elegant things and solve things for actual people.
You are missing a very key point here: consumers do not decide what they wear, the fashion / PR machine decides that for them.
Think about this: while a girl may discover a cool, new designer on Pintrest and buy a dress from that designer, trust me, she will still scratch out some girl's eyeballs to get the new Louis Vuttion bag. And why? Branding. And hundreds of millions of dollars in marketing to create an image, an illusion, and an object that conveys status. LVMH is the most powerful and profitable luxury conglomerate in the world for a reason (it is about 3x more profitable than Amazon with 20% less revenue).
Brands either die or thrive based on their ability to do two things: create a desirable brand and manage inventory. The entire function of branding and marketing is not going to be replaced by Svpply. Or Pintrest. Or whoever.
Lastly, it's comical you keep mentioning Amazon. One of the biggest reasons for their success is their ability to manage a supply chain better than almost anyone else.
I've found that almost nobody in Silicon Valley gets this, especially engineers (speaking as one). They treat the "product problem" as a technology problem (more data, better recommendations), but it's really a psychology problem (how do you make people fall in love?).
Mapping the social web onto the latter problem is actually more straightforward, IMO, than trying to, say, mine my Facebook account to make more "personalized" apparel recommendations.
You may want to give her more credit. She did a fashion startup for a few years.
About the 3-8% affiliate fees, that's not a viable business model. You would have to deliver north of 15M dollars to get 1M dollars. Assuming the average ticket is $150, you need 100,000 conversion. The average internet conversion rate is 3%. So you need 3M uniques. That is not very easy to get. Even if you are buying it.
She did a fashion startup for a few years and she never figured out that nearly every luxury company gives 10% to 15% commissions?
If she really thinks it's 3 to 8% then she's blissfuly ignorant.
She doesn't get the fundamental concept of capturing the starting point. If a site becomes the destination for fashion i.e. where people go to search for the next thing they buy.
Then that site can very easily expand into selling that very thing.
At some point we say - Instead of getting 15% from this luxury watch maker, we ask for 25%.
Then we say - Let's make stuff ourselves and see if we can get more than 25%.
What Google is doing and what Facebook is trying to do is very similar. Expand and take over all the profits. But first you need to be the starting point or decision point for something (search, social interactions, dating, buying clothes).
Back in the real world, it is actually happening the other way around. Retailers and brands (which have all the power and money) are becoming the content creators and poaching talent from the publishing industry. Quote below from a Business of Fashion article earlier this year.
"What began as a trickle is now starting to look more like a mass exodus. Jeremy Langmead, formerly of Esquire, is now at Mr. Porter. Andrea Linett, formerly of Lucky magazine, is now at eBay. Dennis Freedman, formerly of W, is now at Barneys. Fiona McIntosh, formerly of Grazia, is now at My Wardrobe. And the list goes on. It seems that there are almost weekly reports announcing that yet another magazine veteran has fled a traditional publishing company to take up a position at a brand or retailer. Recently, it was British Vogue that was in the headlines, when creative director Robin Derrick and fashion director Kate Phelan both announced within days of each other that they were leaving the magazine. Phelan is set to become creative director of Topshop, while Derrick’s plans have yet to be revealed.
By now, it’s a well-known fact that times are tough for traditional, ad-supported editorial outlets. For example, from 2007 through 2009, Condé Nast — publisher of Vogue, Vanity Fair and others — saw about $500 million in revenue disappear, a decline from which it has yet to recover. In fact, Condé Nast CEO Chuck Townshend recently admitted to the Wall Street Journal, “My eyes are wide open. I don’t consider [the traditional ad-revenue model] to be a perennially sustainable stream of revenue.”
I think you killed your reply. Still read it. You may have a point. In the case of Google you can see this happening, and Jason Calacanis pointed earlier this week that "Google is now buying content companies and just giving you the answer". So you are right. However I think when you are dealing with physical products the dynamics are truly different.
One of the reasons why stuff is so much more expensive in Europe than US. The prices are higher, so cash margins per sale still high even if percentage margins might be lower.
Now Europe is obviously a place where there is a lot of scope for these businesses.
The best example of a fashion startup I've seen is Indochino (www.indochino.com). They were faced with many of these issues and have gone and taken full control of their end to end supply chain. They are selling "physical fucking product" but they are making it more personalized and custom tailored (pardon the pun), direct to the customer. I don't have much need for wearing a suit these days, but the moment I do, they will be the first and only place I go.
In the beginning they even offered education to their customers around things like 1) selecting the right suit for the occasion 2) various types of ties/ways to tie a tie 3) type of cuffs, etc. They seem to have gotten rid of the education aspect of the business but I found it really helpful as someone who like fashion but doesn't know much about it.
I actually think Indochino is an example of someone focusing too much on the "physical fucking product" and missing some chances to do some real innovative stuff. They could potentially offer some really neat customizations, possibly even a full "internet bespoke tailor experience" kind of thing, but they avoid that in favor of more dumbed down aspirational product that tries to sell itself as something it isn't.
As for wanting to learn more, I'm currently teaching a university of reddit course on menswear customs, history, and how tos. Its under menswear 101. Go check it out.
I don't really agree. Maybe it's "dumbed down" experience comparing to a private tailor. But at that price range just getting out of the "standardised sizes" and getting details you want is worth it. Kind of like what http://www.tailorstore.co.uk provides. Barely anyone has actually heard about online stores like that. Amazon is the default. Why offer more customisations when people are not really ready for the basic customised experience?
I think Indochino would benefit from pushing the customization angle though. As it stands now they are simply offering a product not unlike Banana Republic with a bit more customization in the lining and a bit in the sizing. I think the number of people who want custom suits is a lot higher than you think (not to mention, Indochino's business model is highly dependent on return customers) and aiming more for the market currently only filled by traveling Hong Kong tailors might be in their better interest. I do think they are going in that direction though.
I run a fashion startup involving sampling, serial production and fulfillment. I couldn't agree more with Melanie.
The risk aspect sizing and inventory management is a bit downplayed imho. Stocking breaks necks. Good merchandising is more important than breathing oxygen.
Btw i would also appreciate HNs feedback on my company: http://www.lookk.com - if there is interest i could do a "show hn" post.
Huge fan of what you guys are doing. It speaks volumes that Carmen choose you as one of her first investments post Net-A-Porter. The products are really well-curated and it is one of the few sites I have seen that might actually have a shot at closing the 4-6 month production gap and reducing remnant inventory.
As anyone in the apparel business knows, you have two businesses: one full-price business and one remnant inventory business. The key to success is keeping your remnant inventory business as small as possible by closely matching production with demand, this balance can be difficult for an emerging designer with no experience, so I applaud you for trying to fix this problem and make it easier for a new designer to start a business. Good luck with everything!
"In the end, Fashion 2.0 is really not that much different than Fashion 1.0, in order to win, one must focus intently on building a better product that solves a real problem – you know, just like every other successful business in the world…."
So true. People are so focused on 'social' that they are ignoring the real problems.
Because the best fashion-related startups that I am aware of are super revenue and retail focused. I am talking about renttherunway, or this other startup that sells subscriptions to product trials etc.
The start-up I am contracting for is in a similar business (homeware and interior design) and has recently made the same decision to shift focus from a low margin, high volume affiliate model to a low volume, high margin "boutique" model. Curious to see how it pans out.
The low volume & high margin fashion site probably has a good chance of being successful as long as it carries recognizable and fashionable brands. The reason I say that is that sites like Net-a-Porter and MrPorter (which probably are mid volume) seem to be doing quite well based on the few articles I've read. Below is just one in case anyone is curious.
Recognizable fashionable brands such as John Lewis do fine on their own and are not going to give up a large chunk of their margin to a middleman. The biggest challenge for the new business model is try to discover and push less known brands or brands with little/no online presence with high quality products.
Take, for example, a traditional retailer such as Opening Ceremony. After shipping, merchant fees, packaging, and COGS, they produce an average gross margin around 40% (the industry standard) – after accounting for photography expenses (which most affiliate sites do not have), let’s say the margin is around 30%. Whereas a fashion site that generates revenue mainly from affiliate fees will collect only 3-8% of the revenue on each sale. That means that the new, lightweight fashion site must sell 4x-10x more inventory than Opening Ceremony in order to produce similar profit margins. On the hierarchy of risk, figuring out a way to sell 10x more than your competitor in order to just stay in the game is a much larger risk than the inventory management issues of a traditional retailer.
We're seriously comparing B+M company with gross margins of 30% to a lean startup receiving affiliate fees of (let's take the worst case, even) 3% on a product and suggesting that the affiliate has to sell 10x as much "in order to stay in the game"?
Plain and simple, you cannot compare these numbers, they have absolutely nothing to do with one another.
That 3% affiliate fee is as close to pure, unadulterated gravy as you can get in business - it's profit practically from day one, regardless of volume. It's probably being chopped up between three dudes working out of a garage somewhere, whose entire set of business expenses comes down to some electricity, a few meals a day, and a $0.34 / hour large EC2 instance. If their volume went up by a factor of 10, then maybe they'd need to add another few servers (each of which is probably making them thousands of dollars per hour, if it's pegged).
With affiliate marketing, if you've got high volume, your margin approaches 100%, since your expenses are pretty much independent of your sales (unless you're reliant on advertising, which to be fair is another matter altogether) - would it then make sense to say that traditional retailers need to sell 3x as much product to stay above water? No, because it's an apples to oranges comparison.
Now, if you wanted to claim that in order to have similar total profits to the traditional retailer the startup would have to move 10x as much product, we can start talking. But the point is, they don't need as much profit to compensate everyone involved at the same level - that traditional retailer probably has at least 10x as many people employed per unit sold as the startup does, and the startup's advantage there scales much better with increasing volume.
It certainly may be the case that pure-online fashion sites are fundamentally doomed to fail for some reason, but if so, the article offers no real evidence. All we've seen is an argument that would also imply that Amazon, Netflix, iTunes, and most other online product sales businesses should fail, because they all have much smaller profit-per-unit figures than traditional brick and mortars.
One of the three cited examples of success in the article - One King's Lane - isn't a fashion/apparel retailer at all. It's a home decor and furniture flash sales site.
Wouldn't you want to solve the customer acquisition process 1st and then re-factor your supply chain once your customer base is large enough to warrant the effort?
You mean one to acquire customers and one to do customer fulfillment. And customer fulfillment is useless if you don't have any customers. This seems obvious.
2. ShoeDazzle needs far fewer customers to generate significant revenue
3. ShoeDazzle's value proposition is much clearer -- either you want shoes to buy Kim Kardashian shoes, or you don't
4. Users join a site like Svpply vs. a site like ShoeDazzle for very different reasons.
There's just so much evidence that you can build a successful online retail presence without going through the first stage that it honestly seems stupid to me.
Warby Parker, Bonobos, Gilt, One King's Lane, Jack Threads, BeachMint, ShoeDazzle, BirchBox, Rent the Runway, etc., etc., etc. just opened a f(*&ing store.
I agree with her ideas for the most part. You need tremendous scale to make something like ShopStyle profitable. But even if you sell stuff, it's hard to differentiate yourself from the crowd as well.. and if you do software for the back-end.. ugh.. maybe it's because I'm into consumer web, but I can't imagine how to market to those type of companies who have age-old processes that are incredibly hard to overthrow.
This is a good read, and the author hits on some solid observations about the online apparel industry.
That said, I am shocked about the claim that a single VC has funded an apparel retailer recently. I am in this industry, and I can assure you that it is about as unsexy as one could get from a VC perspective.
I would love to know who all these recently funded apparel businesses are.
Absolutely! I wrote MRP systems for a pharma manufacturing in Florida and the kind of stuff I had to do on a daily basis far surpassed the complexity of your breathtakingly-beautiful but typical project-management webapp or customized T-shirt webstore. Let me be clear, complexity has absolutely nothing to do with the merit of one product vs. another. KhanAcademy code could be simple as 2nd grade math but nothing I ever write will ever be as beneficial to the world. However, complexity is expensive, takes time and dedication, and rarely pays off in the short-term.
There is a reason most supply chain software installations run in the millions to tens of millions. Here's an example of something I wrote while ago: A drag & drop scheduler in JS, kinda like Google Calendar that lets you schedule production jobs on different equipment, across different labor teams. When you change a single job on the schedule, it auto-calculates the entire requirement for the entire company. Moving one production job up (say shampoo for customer A) could end up in the company losing $500k because one of the ingredients that went into shampoo for A also goes into conditioner for customer B. This particular item has a lead time of 3m from China. And since order for B is significantly larger in amount, every single day of delay is money actually lost because you bought all the other raw materials for B on credit from the bank and now have to pay interest on it, while it just sits in the warehouse waiting for the raw material to be flown in from China.
Of course, this is something you want to avoid in the planning stage itself. And that's what the software does and warns the user within seconds of making any changes. One tiny bug in the code, say it doesn't correctly factor in the internal lead time from QC (this particular chemical needs to be sampled for microbiological contamination) and you just delay the project by a week. Putting up a pretty website is hard work but it is nothing compared to hiring 20 people to spend 3 months mapping out the multi-stage routings for 500 different SKUs. No tech-VC wants to invest in businesses that require a tremendous amount of operational labor. That's what banks are for.