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Nov 29, 2017
How TechStyle Fashion Group is Reimagining the Fashion Business Using Silicon Valley Smarts
By Anton Von Rueden, COO, TechStyle Fashion Group
The COO of TechStyle Fashion Group provides a personal look at what it takes today to be successful in commerce. Since its launch in 2010, TechStyle Fashion Group has revenues of $700M+ and 4.6 million VIP members across its four fashion brands, including: Fabletics, ShoeDazzle, JustFab and FabKids.
Vertical Integration 2.0
In a diversified digital economy, where platforms such as Uber and Airbnb are redefining both commerce and convenience, many companies are building distributed networks without centrally owning any physical assets at all. It might sound counterintuitive but, in fashion commerce, as opposed to services, we have always believed that vertical integration means owning both the product and the platform. You can see this start to happen at behemoths like Amazon who have long focused solely on platform, and are now starting to launch their own brands.
As a guiding principle, the TechStyle Fashion Group platform was created as a way to test, launch and scale global fashion brands across demographics and geographies. It is powered by our own enterprise technology system called FashionOS — and a unique and vertical suite of Expert Services including dynamic merchandising, application development, supply chain, member services, content studios, customer acquisition teams and more.
When startup CEOs ask me whether they should “build or buy”, I tell them to think about what they stand for and how they differentiate as a company. We engineer the core technology here at TechStyle Fashion Group, and we own it 100% — because we see ourselves as a platform. If technology is a core competency, it’s just too risky to outsource. Yes, it adds significantly to the startup costs, and it makes hiring a priority at a time when, as an executive, you might want to focus more on selling, but it is part of what makes TechStyle Fashion Group one of the fastest scaling fashion companies thus far.
To illustrate: our FashionOS system was built in-house by our 120+ engineering team, with resources dedicated to each business function and each of our consumer-facing brands, to avoid triage and priority conflicts. It’s a hub-spoke style integrated system, with constituent patent-awarded technology solutions — from Bento (global membership ecommerce system) to Bond (global customer management system); Albert (enterprise data management system) to Evolve (supply chain and fulfillment). Then there’s OmniSuite, which takes us seamlessly from digital to bricks and mortar and back again (more on that in a moment).
If you’re in the kicking-the-tires business of evaluating tech companies, or being evaluated, you’ll know that most are heavily reliant on external vendors, subcontractors, and pieced together with third-party legacy systems. In the end, what’s their valuation based on? Investors are canny when it comes to the actual intellectual property of a prospective investment.
Vertical integration extends to R&D — and our Media arm too — and we feel this is crucial. We have multiple skunkworks constantly improving our machine intelligence, agile acquisition and retention engines, pushing us to get faster, better and smarter at how we serve the customer. We don’t use outside agencies to build our brands or amplify our message. We oversee all media creation, and a $125M annual media buying budget, which is handled internally. Each year we concept-shoot-edit over 35 TV spots with more than 150 iterations for 6 different countries, and we created over 35,000 digital ads. We do all of our own social strategy, A/B testing, and messaging; constantly tweaking and testing for ultimate optimization. When considering a commerce company of the future, owning not only your means of production, but the creation of all messaging, in real-time, is essential.
Anywhere/Any time commerce
When we opened our bricks and mortar stores for the Fabletics brand, analysts and industry pundits asked us why a “digital-first” fashion company would do so. Although, since Amazon bought Whole Foods, I have to admit that question has come up less, in recent weeks. As Amazon knows, if you’re in commerce, you need as many touchpoints for the customer as possible.
It’s back to the vertical integration strategy — we couldn’t have (and shouldn’t have) opened bricks and mortar businesses without another core component of FashionOS called OmniSuite. Here’s how OmniSuite works: Our VIPs are identified as soon as they walk through the door by a retail assistant with a handheld digital device who asks if they can sign them in. Most say yes because they know we optimize their experience instantly, making them feel special. We can see what they’ve ordered before, make suggestions, tell them about new items and talk through what they’re looking for in a truly personalized way. They can try on clothes, shop in-store and, via the OmniCart, can add items to their virtual boutique, sending direct to their home, if that’s what they want.
Due to OmniSuite, the experience of shopping from Fabletics, online or off, is seamless; pleasurable for our members and significantly adding to customer conversion rates, enabling efficiencies and raising revenues for our business. Our Fabletics stores saw same store sales increase of 38% over last year. Contrast that with falling revenues at J Crew (down 5%) and Victoria’s Secret (down 11%).
Essentially, our Fabletics stores are an integral part of our data intelligence layer. We’re constantly refining design, purchasing, fit changes and style updates through the real-time information we receive in-store. Most importantly, we didn’t open locations until we had a significant volume of our VIP members living in the same zip code. Stores, for us, are about increasing the customer lifetime value and servicing our most important loyal subscribers.
Aside from vertical integration 2.0, my big advice to startup CEOs is this — obsess over the customer and personalize as much as you can — customers expect you to know them when they return, and deliver what they want next. Which is why we built TechStyle Fashion Group on a membership model to meet customer needs and use predictive algorithms to populate the shopping experience from web, to email and even personalizing the physical catalogs we send to the home. Aside from using personal data to increase customer satisfaction, we also use it to hedge business risk. As a membership-based company we are able to limit two of the biggest cost to any fashion company 1) creating product that people don’t want and 2) advertising to bring existing customers back to the site. We are able to spend far less on marketing and advertising than traditional retailers, because we’re in perpetual permission-based dialogue with customers, not trying to reacquire them each month.
The Business of Fashion
Is fashion still a good business to be in? Yes, according to McKinsey & Company, who state the global fashion industry is now worth 2.4 trillion dollars, and growing at 5.5 % annually. For business planning purposes, fashion, as a sector, has predictable seasonal uplifts, consistent trend-based upgrade cycles, and a large, clearly defined, customer base.
But interestingly enough, the business efficiencies in fashion from how you please the customer to how you hedge business risk are still fairly arcane. In starting TechStyle Fashion Group, it was clear that the entire fashion sector needed to reengineer itself from the ground up, bringing in state-of-the-art operational best practices, while getting transparent with a highly-vocal millennial workforce, and customers, who demand it.
It’s not just about being digital-first, although try telling that to the once powerful mega mall corner tenants who are facing empty stores and shrinking margins. It’s more subtle than that. To win at fashion today, you need to be equally left-brain/right-brain and totally focused on the consumer. Because they have many (many) more choices than before.
After all, fashion is still the way people express their personality, dress for the job they want, and “retheme” for new horizons. That’s not going to change. In fact, with social media exposure, fashion is the ultimate identity signifier. Don’t take my word for it: check out the 153,000+ #OOTD (outfit of the day) hashtags on Instagram right now.