

Building a Fashion Company on the Internet? Stop. Just stop. - rokhayakebe
http://melanie.io/?p=139

======
chime
> 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.

~~~
astrofinch
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?

~~~
arethuza
There is actually a _huge_ amount of money in that space - think Oracle, SAP
and many others.

~~~
nickpinkston
*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.

------
kariatx
"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.

~~~
melanie_io
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.

~~~
chime
> 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.

~~~
jfarmer
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.

~~~
encoderer
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.

~~~
jfarmer
Robots don't merchandise, that's the problem. For many people decisions about
what to wear is very intimate, but algorithms are bloodless.

The who, where, and how matter much more in fashion. Algorithms miss that.

~~~
div
I think a strong algorithm may surprise you.

I remember reading about the Netflix contest and how one of the algorithms
categorizes movies into it's own statistically relevant categories*.

Once a comparative algorithm is used and the dataset gets large enough, I have
no doubt the recommendations will start to get real good real fast.

[http://devlicio.us/blogs/billy_mccafferty/archive/2007/01/02...](http://devlicio.us/blogs/billy_mccafferty/archive/2007/01/02/netflix-
memoirs-top-contender-divulges-algorithm.aspx)

~~~
jfarmer
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.

~~~
encoderer
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.

------
bermanoid
_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.

------
jfarmer
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.

~~~
robozome
PS - if your site demands this:

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.

~~~
jfarmer
We've tested the page, and this converts no worse than the alternatives.

~~~
redthrowaway
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?

~~~
prof_hobart
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.

~~~
jfarmer
We don't spam anyone's Facebook feed, for the record. We will post something
if and only if you click "post to Facebook."

~~~
prof_hobart
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.

------
switch
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.

~~~
rokhayakebe
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.

~~~
switch
Give her more credit for what?

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).

~~~
rokhayakebe
Do you have an example of a site that started as an affiliate and ended up
creating its own products? I think this is would be very very difficult.

------
ig1
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.

------
colinloretz
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.

~~~
epicviking
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.

~~~
viraptor
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?

~~~
epicviking
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.

------
andreasklinger
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.

~~~
epicviking
You really would benefit from sorting the items you have for sale. At the
least Man and Woman.

~~~
andreasklinger
Thanks for the feedback. The shop is yet very MVP-like. We are currently
working on it.

~~~
amac
Interesting. Why did you decide to re-brand as Lookk from Garmz may I ask? (I
took about 12 months to find the Lifemall name for my site)

------
shaanbatra
"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.

------
badclient
What companies is she even talking about?

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.

~~~
jfarmer
She's talking about sites like Pinterest, Svpply, TheFancy, etc.

------
reinhardt
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.

~~~
OWaz
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.

[http://www.nypost.com/alexa/p/the_top_shop_2HqqVcU4pRZJisg0N...](http://www.nypost.com/alexa/p/the_top_shop_2HqqVcU4pRZJisg0NinioK)

~~~
reinhardt
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.

------
girlvinyl
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.

------
astrofinch
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?

~~~
jfarmer
Now you have to build two successful products: one to acquire customers, and
one to sell to them.

~~~
astrofinch
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.

~~~
jfarmer
No, I meant what I said. Why spend time and energy building a huge consumer
success if your goal is to sell things?

Name some successful online commerce companies that started that way. Most (I
won't say all) started as pure commerce, e.g., Gilt.

If you're ShoeDazzle selling shoes for $40/month, your customer acquisition
problem is fundamentally different than a site like Svpply.

If you want to sell things, sell things. Don't try to play 3d chess.

~~~
astrofinch
Could you provide support for your assertion that the customer acquisition
problem is fundamentally different?

~~~
jfarmer
1\. ShoeDazzle can afford to pay for customers

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.

~~~
astrofinch
Thanks!

------
Hisoka
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.

------
diolpah
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.

~~~
jfarmer
Uhhh, what? Not all apparel, but:

ShoeDazzle, BeachMint (StyleMint/JewelMint), Rent the Runway, Warby Parker,
Gilt, One King's Lane, Send the Trend

Anyhow, the list goes on, and it includes us at Everlane
(<http://www.everlane.com>). Some of these (including us) are vertically
integrated.

~~~
diolpah
It seems I'm completely out of the loop, having heard of none of these except
for Gilt. Thank you.

~~~
jfarmer
I forgot Trunk Club

[http://allthingsd.com/20110908/trunk-club-
raises-11-million-...](http://allthingsd.com/20110908/trunk-club-
raises-11-million-to-shop-for-men-who-hate-the-mall/)

~~~
diolpah
That article is just incredible. $11MM raised, assuming 25% dilution, giving
them a ~$44MM valuation on only $1MM in revenue?

I had not the faintest idea there was a huge valuation bubble in my own
industry. I am a little bit shocked.

