Fashion forward

The good news: The U.S. economy is finally rebounding and showing some momentum. The bad news: Not really, not for everyone. While consumer spending has increased across many categories over the past year, not all players are receiving their fair share.

Take the fashion industry. Over the past 12 months, gains in fashion stocks have trailed those of the S&P 500 at 9.2 percent versus 16.5 percent, respectively. Even worse, some in-vogue fashion brands, such as Coach and Lululemon, have seen the value of their stocks drop during this same period.

Lululemon, in particular, has seen the value of its stock reduced and the equity of its brand tarnished, given the recent recall of its $98 (almost see-through) yoga pants and the subsequent response by its former CEO, who placed blame on the customers themselves instead of the quality of the product (“Quite frankly, some women’s bodies just don’t actually work for it.”).1 The recession is certainly not over for this company.

However, not all fashion houses are created equal. Both new and established players are making smart choices and driving profitable growth in a turbulent environment. E-boutique ModCloth grew 40 percent last year to reach $100 million in revenue.2 Online retailer Everlane has grown from 25,000 to 250,000 members since its inception in November 2011.3

Chicago-based Trunk Club, founded in 2009, now employs over 160 people and has grown 174 percent per year.4 These success stories are not limited to emerging brands: Michael Kors recently reported a 55 percent jump in sales in the last quarter, which drove its stock to gain 33 percent since last year and 260 percent since going public.5

All of these companies are in the same business, so what are some of them doing differently to grow at a significantly faster pace in a highly mature and competitive market?

The winners, we argue, are listening and responding to the market. They are redefining their business models from the outside in and breaking out of industry norms. They are rethinking traditional business levers such as pricing, channel, product, and experience in a way that benefits both their customers and their bottom line. They are creating and delivering value with speed, dazzling creativity, and marked success.

Pricing: From black box to glass box

It is generally understood that a higher priced item is a higher quality one. Price has traditionally been a means to denote worth. However, consumer needs and attitudes are changing. A recent study by professors at Massachusetts Institute of Technology and Harvard University showed that consumers are willing to pay more for goods with labels that include information about fair labor standards. In fact, the authors found that the labels increased sales of more expensive women’s items by 14 percent.6 Retailers take note!

Online retailer Everlane is on a mission to “dismantle the idea that high price means high quality,” according to its CEO. Its website reveals that most retailers mark up a designer shirt eight times before it reaches the consumer. In contrast, Everlane only marks it up twice.

Everlane prides itself on keeping prices lean by cutting out advertising and physical stores. Hand in hand with its cost structure is a deep belief in transparency, as “customers have the right to know what their products cost to make.” For example, its Oxford shirts are priced at $55. Included with photos of the shirts, Everlane lists the true cost of making one ($10.77 for fabric and trims; $1.22 for cutting; $8.35 for sewing; $1.97 for finishing; $4.61 for transportation), where it was made (Hangzhou, China), and Everlane’s markup.

Everlane recently unveiled a new section of its website that maps and describes the specific factories that make its merchandise, from leather wallets in Ubrique, Spain, to belts in San Francisco, California. For each factory, the company lists not only the number of employees and year established, but also shares pictures and a narrative that covers how Everlane found the factory (a three-hour car ride through the hills of Spain), the materials it uses at that location (Italian leather in both full-grain and smooth finishes), and even the story and values of the owner of the factory (not surprisingly, he values “transparency and honesty” in his business relationships).

By providing transparency in its pricing structure, Everlane has been able to leapfrog the competition and build a stronger affinity with its customer base.

Product: From crystal ball to informed choice

Success in a fashion company often relies on its ability to predict the types of clothes people want to wear, sell enough clothes to make a nice profit, and do it over and over again.

ModCloth has been using social media in such a way that it tackles both engagement and product development. It offers its customers the “chance to be a virtual fashion buyer and select which designs get created.” Its style gallery features thousands of user-submitted photos of outfit choices. Its virtual buyer program allows users to vote samples into production. The company’s model enables consumers to have a voice in everything from sourcing to naming and even the design of its products.

According to its founders, a third of ModCloth’s visitors are same-day repeat traffic, meaning consumers are actively participating and engaged. “Shopping has always been a social experience,” says cofounder and chief executive officer Eric Kroger. “What’s changed is that, when online, consumers are able to come together as a community and heavily influence each other and brands. ModCloth is different because we’ve embraced this change. We lead conversations directly with our consumers to figure out what they love, and then quickly bring those products to market.”7

ModCloth has continued to leverage social media and analytics to try to solve one of the biggest problems in buying apparel online: ensuring the right fit. Through a new feature in its iPhone app, the company suggests products for users based on reviews from users that share similar measurements (height, waist size, bra size). Given that more than 50 percent of product reviews include user measurements, the company has plenty of data to mine to provide customer confidence when buying on the ModCloth platform.8

By involving customers in key decisions and making them feel like they are part of the company, ModCloth has been able to build a genuine and passionate community that has fueled its rapid growth.

Channel: From showroom to shop room

When consumers find something they want at a retail store, a quick search on their phone typically shows they can buy it online for a cheaper price. Customers know how the item fits, what size they need, and how it looks on them, and complement their first-hand knowledge with online reviews.

One click and the item can be ordered and on its way to the consumer’s house—no waiting in line to pay, no heavy bags to carry. Brick-and-mortar retailers are paying for real estate and employees—but losing sales. Yet the consumer’s need for a physical showroom is real; people prefer inspecting physical products before buying online.

Retailer Desigual used this insight as a foundation for innovation by introducing a “shop-showroom” in Barcelona. The showroom is intricately decorated and intentionally experiential with 25 contrasting areas showcasing the brand and its products. There are no salespeople, only “personal shoppers,” and there are no items onsite available for sale. The showroom welcomes small groups of customers to mini-catwalks to see new collections before anywhere else. The catwalks include professional models and store employees. Consumers use tablet computers to make purchases, and items are shipped for free within 48 hours—even to hotel rooms.

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Image courtesy of Flickr user Heather Paul.

Another example comes from the shoe category. Children’s shoe retailerShoe Train has devised a strategy to build strong relationships with its local customers in Potomac, Maryland. The objective is to make sure that when customers are ready to buy, they purchase from Shoe Train and not the myriad online sites available these days, including Zappos. Shoe Train’s tactics include everything from monthly shoe-tying workshops (often booked months in advance) to fashion shows that serve as fund drives for schools in the area. While Shoe Train does not sell shoes online, the owner actively engages with customers via its social media channels, answering parents’ questions about shoes and fit.

By adjusting its channel strategy in a consumer-centric way, Desigual and Shoe Train have been able to increase relevance with consumers in a way that other players are failing to achieve.

Experience: From impersonal to curated 

Today, when a consumer enters a typical retail store, the experience is rarely catered to the individual. For example, buying shoes is a similar journey for both men and women; the product selection might be different, but the experience is the same. Even though men are from Mars and women are from Venus, the retail shopping experience has failed to reflect basic differences in gender preferences. On the one hand, men generally want to look good but hate shopping. Women, on the other, usually enjoy the shopping experience and consider it a form of entertainment.

Chicago-based men’s apparel company Trunk Club understands this difference and takes advantage of it. The company designed an online retail experience around its target customer: men in their 20s to 40s who have more money than time. Trunk Club outsources its shopping to personal stylists who send trunks of clothes to customers whenever they desire. Consumers can keep whatever they like and send back what they don’t—paying only for what they keep. Stylists gradually learn style, sizing, lifestyle, and individual preferences, so trunks become increasingly tailored and sticky over time.

From a consumer perspective, the experience feels deeply personal and high-end. This is impressive—a seasoned stylist might manage up to 700 consumers at a time. Since its inception, Trunk Club has used online tools, such as SalesForce.com, to help it deliver a personalized and convenient experience on a large scale.

By creating an offering that responds to a core consumer insight, Trunk Club has been able to build relationships and a loyal following with a consumer group that traditionally dislikes shopping.

Promotion: From spending to signaling

The typical fashion retailer spends 20 to 30 percent of revenues on advertising and events to promote its brand and create buzz. Estimating the return of these investments is difficult and elusive. While some companies are taking the leap and changing their marketing investments, many still incorporate historical mix ratios into their annual planning.

In contrast, Spanish retailer Zara spends less than 0.5 percent of its revenue on advertising. Its strategy is based on economic signaling: the notion that one party (in this case Zara) effectively conveys meaningful information to another party (consumers), the same way that a money-back guarantee affects consumer perceptions about the quality of a product.9

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Image courtesy of Flickr user Francisco Seoane Perez.

Zara and its parent company Inditex use store location strategy as a signaling mechanism. They invest heavily in store location, choosing spots near high-end designer retailers such as Louis Vuitton, Chanel, and Stella McCartney. Their retail strategy is also their promotion strategy. “The high street is really divided according to brand value,” says fashion consultant Masoud Golsorkhi. “Prada wants to be next to Gucci, Gucci wants to be next to Prada. The retail strategy for luxury brands is to try to keep as far away from the likes of Zara. Zara’s strategy is to get as close to them as possible.”10

By understanding consumer decision making, Zara has been able to position itself as an upscale fashion house with limited investments relative to competitors.

Fashion is often regarded by outsiders as superficial, unpredictable, and flippant. Trends speed through shelves, bloggers amass cultlike followings, and shoppers adorn themselves in premium logos for status. Yet the industry is a petri dish for business model innovation. Other industries should take note. While fashion is and always has been one of the frontrunners, the race to keep up with consumers’ heads, hearts, and wallets is always on.

  1. Suzanne Kapener, Joann S. Lublin, “Lululemon founder steps down as chairman,” Wall Street Journal (10 December 2013), online.wsj.com/news/articles/SB10001424052702303330204579248612299280816.
  2. Douglas MacMillan, “At ModCloth, vintage fashion goes mobile,”Bloomberg Businessweek  (8 August 2013), businessweek.com/articles/2013-08-08/at-modcloth-vintage-fashion-goes-mobile.
  3. Teresa Novellino, “Everlane in real life,” Upstart Business Journal  (3 July 2012), upstart.bizjournals.com/companies/rebel-brands/2012/07/03/e-commerce-site-everlane-pops-up-a-trend.html?page=all.
  4. Jason Boles, “Secrets to business growth: Interview with Brian Spaly of Trunk Club,” Salesforce blog (13 May 2013), blogs.salesforce.com/company/2013/05/secrets-to-business-growth-3-questions-for-brian-spaly-of-trunk-club.html.
  5. “Michael Kors shares pop after bright first quarter,” BusinessOfFashion.com (6 August 2013), businessoffashion.com/2013/08/michael-kors-shares-pop-after-bright-1q.html.
  6. Jens Hainmueller, Michael J. Hiscox, “The socially conscious consumer? Field experimental tests of consumer support for fair labor standards,” MIT political science department research paper No. 2012-15 (18 May 2012), Social Science Research Network, papers.ssrn.com/sol3/papers.cfm?abstract_id=2062435.
  7. “ModCloth credits social strategy for driving 40 percent year over year growth,” ModCloth press release (23 July 2013), modcloth.com/about_us/press-release—-july-23-2013.
  8. See note 7.
  9. Derek Thompson, “Zara’s big idea: What the world’s top fashion retailer tells us about innovation,” the Atlantic (13 November 2012), theatlantic.com/business/archive/2012/11/zaras-big-idea-what-the-worlds-top-fashion-retailer-tells-us-about-innovation/265126/.
  10. See note 9.

Stephanie Simon, former strategist in the San Francisco office of Landor, also contributed to this article. Main image courtesy of Flickr user jsogo.

This article was first published in the Hub (January/February 2014). hubmagazine.com
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