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Nov 15, 2018

WWD CEO Talks: TechStyle Fashion Group’s Adam Goldenberg on Celebrity, Personalization and the Future of Retail

The co-chief executive officer reveals what makes Kate Hudson and Rihanna good business partners and what’s in store at retail.

By Marcy Medina on November 12, 2018

By now, most people who watch television or surf the Internet are aware that Kate Hudson has an activewear brand called Fabletics. And many have also seen commercials for JustFab, where shoe-addicted women can fill their closets for just $39.95 a month.

What’s probably less known is the company behind those e-commerce brands — TechStyle Fashion Group, based in El Segundo, Calif., a rather unglamorous yet close-to-the-beach town just south of Los Angeles International Airport.

TechStyle is also the company behind Rihanna’s lingerie play, Savage x Fenty, which launched this summer to great fanfare. The company is raking in more than $750 million in sales across its portfolio of brands, which includes FabKids. To date, it’s raised $260 million in funding and many think that an initial public offering is imminent. With five million users, TechStyle brands operate on a membership model where customers are charged a monthly fee that allows them to buy a certain number of items per month, and are entitled to further discounts on additional items, which are rolled out as frequently as once a week.

The company’s two chief executive officers, Don Ressler and Adam Goldenberg, met in the Nineties, when Goldenberg was still in high school, a teenage tech wunderkind who ended up forgoing college when he sold his video-game website to a media company. The two would later found Intelligent Beauty, whose DermStore beauty e-comm would later sell to Target Corp., and in 2017, officially changed the name of their company to TechStyle Fashion Group.

Goldenberg, now 37, is a low-key presence, but he effectively presides over the 500 employees at the El Segundo campus, as well as another 2,500 worldwide (the company sells in more than 20 countries). He’s so down-to-earth that it’s easy to forget that he’s an entrepreneurial visionary who bet early on e-commerce, membership models and celebrity partners.

Here, he sat down with WWD to discuss how he went from gamer to power player, and what he sees as the future of personalization and retail.

WWD: There aren’t many tech ceo’s who started their first company in high school. How did you get started in the tech business?
Adam Goldenberg:
 I wish I could say I had some master plan to build this huge business back in high school, but really I loved video games. I also loved computers. I had this idea that if I had a web site reviewing and writing about video games, I could get free games and hardware. A lot of people like me had web sites, but back then it was really expensive to host them, so I provided free web hosting to gamers in exchange for their advertising space. We started a network of video-game sites and had an agency selling the ad space and that became Gamers Alliance. The irony of it was that it did work, but all of a sudden it turned into a business where I didn’t have any time to play games and it was quickly about growing and scaling.

Then there was a bit of happenstance. My senior year of high school I’d leave school at 3, go straight to the office, sometimes get home at 2 in the morning, do like an hour of homework and three hours later, wake up and go to school again. I was like, “This is a lot and nobody wants to work for a 16-year-old kid.” Most of my employees were remote and didn’t know how old I was. So, when I had just turned 18 I sold the company to Intermix Media for stock right around the dot-com boom. As part of the deal, I agreed to move out to Connecticut for what was supposed to be six months to help with the integration and transition and then go to college. When I got out there, to me that was like college. I was learning so much every single day, interacting with such smart people, solving real challenges, that I said, “I can go to college later.” Now 20-plus years later it hasn’t happened yet.

WWD: What was your trajectory at Intermix Media?
A.G.:
 It started with just running the gaming division, then I was promoted to vice president of strategic planning, where we were looking at acquisitions and new businesses to launch and create. From there I was promoted to chief operating officer, where it was about not just having the big ideas for new businesses, but helping to bring them to life. The gaming piece fell away pretty quickly and I actually spent a lot more time in entertainment content like greeting cards, and the early versions of what viral videos were before YouTube, and building other e-commerce initiatives. I was fortunate, for example, to launch a dating web site where I actually met my wife. She found me, but it was a good proof point that the web site worked.

Kate Hudson in the Fabletics collection benefiting Breast Cancer Awareness month. Courtesy image

WWD: Three years later in 2005, News Corp. bought Intermix Media. Is that when you started Intelligent Beauty?
A.G.:
 My co-ceo Don Ressler worked with me at Intermix Media and it took us about a day of working for News Corp. to realize it wasn’t for us. We said, “We should do our own thing again.” So we created Intelligent Beauty in 2006.

WWD: That company would later become TechStyle, but what was it about back then?
A.G.:
 We looked at it as an e-commerce brand incubator and we chose to focus initially on beauty because Intermix had a really successful beauty business that we built, so it felt like a natural extension. We focused in 2006 on building the early platform, bringing on a phenomenal team, many of whom were individuals I had worked with since the mid-Nineties, and building brands on that platform.

WWD: That business, DermStore, sold to Target in 2013. What came next?
A.G.:
 We launched JustFab in March 2010. We wanted a new challenge, and fashion is a remarkably fun category where we saw a big opportunity. Our real vision at TechStyle is to reimagine how fashion brands are launched and I think we saw that coming in 2009 and 2010. There just had to be a better way to launch a fashion brand than opening 500 retail doors or selling it into wholesale channels. E-commerce was already growing and we thought that one day, fashion would be 50 percent of sales sold through e-commerce.

WWD: What about the personalization and membership model?
A.G.:
 The business models have evolved a little bit, but from Day One it was about personalization, curation and having a membership program that creates engagement and loyalty. We wanted our customers to have a deep affinity for the JustFab shopping experience as well as the physical product. When we launched, you took the fashion personality quiz, you got assigned your stylist, which was originally a real person who would pick six items for you to view each month. If you didn’t like them, you could give us more data and we’d curate another selection for you. People loved that and over time we found that we could use machine-learning data to do an even better job than people at creating those boutiques. We went from giving six matches to now hundreds of new items each month.

WWD: What was your biggest challenge in launching JustFab?
A.G.:
 Finding someone who was willing to sell us shoes. Because it was just a concept on paper at the time, everyone was focused on when to sell into the big wholesale accounts. So we started with a lot of small manufacturers and eventually evolved to Steve Madden and Camuto making shoes for us, to finally reaching our full vision of doing all that ourselves.

WWD: What was the catalyst for partnering with Kimora Lee Simmons?
A.G.:
 I think the biggest thing that a celebrity brings to a new brand is that it can help amplify your message and bring additional credibility to give customers a chance to try your product. You can’t build a brand just around celebrity, but if you have a great business and you can find the right partner who feels very organic, then it has this amplification effect. Kimora increased the overall universe of those who were aware of the JustFab brand. She was our creative director for several years.

WWD: Now Kate Hudson is a cofounder of Fabletics and has an ownership stake.
A.G.:
 I think it’s what you want as an entrepreneur. You don’t just want an endorsement deal, you really want someone who’s going to be working with you, bringing their ideas and having a vested stake in it. Kate had her baby a few days ago and we were talking this morning about who should we do collections with in the fall of next year. One thing that’s really changed with social is you can see exactly what is going on in someone’s life and you can tell if this is a paid endorsement or if this is really something the individual believes in, and to me that’s what makes those types of partnerships work.

WWD: What was the thesis with Fabletics?
A.G.:
 We knew from JustFab that people loved the membership model and we believed it would work well for other categories. Our thesis was pretty simple: Leggings should not cost $120. It just felt wrong when you look at the cost to make a quality performance legging, there’s just no need for it to cost over $100. The second was there’s this real opportunity to bring fashion into the activewear space. What if we bring real fast fashion in terms of fun prints, different colors and new selections, but have the product perform at a very high level and then do it at a great price point because of the membership program? We wanted to move very quickly, so we believed if we could find the right celebrity partnership it would give us that instant credibility and exposure.

WWD: What’s new at Fabletics?
A.G.:
 One is that we’ve accelerated our newness. We used to launch every month, which in the activewear space was unheard of. We’ve now increased that to almost every week. The second thing is we’ve completely reworked and reimagined the entire supply chain and production process. We took it from being 12 months to now, for most of our styles, about eight weeks. We still have our long-lead design, but we are leaving a large portion of that open so that we can react to all these millions of data points and then manufacture product to match the trends and what we think the demand will be. In some ways that’s like trying to be the Inditex of the activewear space.

The third piece has been the retail store expansion. We just opened a new concept store in Bellevue, Wash., and that will be the model for the future stores, and we will expand to 75 to 100 doors relatively quickly. We like having it be experiential. We built in more of our technology so now while you are in the dressing room you can request different sizes and see the UGC [user-generated content] of how other women are wearing it. We track the dressing room conversion rate, which becomes very important data for our designers and merchants. When the VIP walks in the store, the associate already has what’s on their wish list, what have they bought. And we’re launching our app early next year.

WWD: Why do you think the physical stores have been thriving?
A.G.:
 We’ve been consistently comping 25 to 30 percent year-over-year. Our Silicon Valley tech investors pushed us really hard on the retail data because retail’s just not in their core. Is it the right strategy and what would happen if mall traffic went down another 25 percent? Would we still be excited to have these stores? And the answer is “yes” based on what we are seeing.

A lot of digitally native brands are opening up stores to acquire new customers. We can acquire customers online very efficiently. We are opening the stores to have an additional place to service the 1.2 million VIPs that we have. We open stores where we have a high concentration of members and what we see is if you are located within 15 minutes of that store, almost half of our customers will become omnichannel customers, where they buy two-and-a-half to three times more per year. It’s easier to open a store today than it was three years ago because we now have twice as many. I think part of the reason the stores are comping up so strong is we just have more members.

WWD: What’s in your secret sauce?
A.G.:
 You really have to be great at what you do and deliver exceptional value for price and exceptional selection. You can be the world’s greatest marketer, but if you don’t love what comes in the box, that’s one of the keys. The second piece is how we approach technology. We don’t look at tech as a tool or even a way of selling — we look at it as another one of our products, which has given us a real edge. It’s become easier and easier for us to launch brands because of the tech platform that we’ve built called Fashion OS. We’ve put just short of $150 million over the last eight years into this — that’s everything from Bento, which is the e-commerce web site platform, to Evolve, which powers our supply chain and all of our fulfillment centers. Bond, which is what our customer service GMS agents utilize, and OmniSuite, which powers the retail stores. Because it’s one system and we have so much data on our customers, anything we learn about them at any touch point we can utilize to help give them the product that they want in a very tailored and personalized experience. Our membership model allows us to have a deeper, more meaningful relationship with the customer, which is where we are building this brand loyalty and high wallet share.

WWD: What is the Expert Services Group?
A.G.:
 We’re a heavily matrixed organization, which you can almost see when you walk through here. You can tell who has the fashion background and who has the tech background. To be vertically integrated you have to have both. So we have what’s called our Expert Services Group and this is about 50 percent of our employees, who are supporting all the brands. For example, we have our own in-house media agency, we have our own studio group that produces all the TV commercials, as well as the supply chain group, the tech group. True vertical integration is about having an idea, drawing it on a piece of paper all the way to sending it to the person’s home and the customer service agent who’s handling a return and exchange. Everything in between is being controlled in-house so that you can collect the data, respond to the data, and be very quick and nimble.

WWD: What’s an example of that?
A.G.:
 We recently launched a product, a new legging that has a lot of detail in the fabric and cutouts, and in the first day the sales were below our expectations. That same day we went down to our studio, reshot it on a different model and different angles, got it up on the web site later that day and the conversion rate was 40 percent higher. In traditional retail, visual merchandising is so critical but so many companies take their e-comm as, “I’m going to take a picture and put it up on the web site and that’s it.” Whereas we go, “Which angle do you have as the default on the shopping grid? Which models convert the best? If it’s not converting, is it maybe because a particular outfit you paired with it isn’t right?” Those are all things that our teams use and are quickly reacting to. A lot of companies might have taken two weeks to reshoot it, and you have that missed opportunity.

WWD: How do you break down silos?
A.G.:
 It’s a cliché that’s been used in management forever, but I really believe in it. Even where you sit is such a driver in silos. You know the people in your immediate section, but as soon as you go 200 feet, you spend so much daily time interacting. A lot of what we focus on is how to bring teams together and encourage them to get off e-mail and actually get up and walk down the hall and have a conversation. It makes a big difference. The individuals who come from tech backgrounds are like, “Yeah, that’s how a company should run,” but people who come from a fashion background are like, “Oh my god, I’ve never been at a company where you have a town hall meeting and you say how much cash we have in the bank and what our revenue targets are.” Or, “You are telling us that you can take chances and design something that may feel off-brand, but we are OK to see how customers respond to it?” It’s really funny.

WWD: What’s one question you always ask in job interviews?
A.G.:
 I’ll have something that I know converts really well, but may feel not as on-brand, and I’ll ask, “How would you feel if someone on your team sent out this e-mail or launched this campaign for two days and forgot to tell you about it?” The reaction you see is, “Oh my God, I would never let that happen, I’m the protector of the brand.” We’re not looking for a protector, we are looking for someone who wants to really find out what our customers want and is willing to take chances and actually inspire a team to take risks. To me, the biggest thing we really do here is encourage people to take risks and make mistakes, because that is how you find innovation. And celebrating taking the risk versus celebrating the results.

WWD: What are the most important characteristics you look for in employees?
A.G.:
 We try to hire above everything else passionate employees because part of our cornerstone is people who really want to deliver and make that customer wowed everywhere. And we really believe in creating a safe space for people to take risks and innovate. If you don’t like change, this is not the company for you. We do something called the Harrison Assessment. It’s like a Myers Briggs and what I really look for is flexibility. Do you like things changing rapidly? If you like that you’re going to love it here, and if you don’t like change, this place is going to give you a heart attack.

Rihanna  Clint Spaulding/WWD

WWD: What was the aim when launching Savage x Fenty?
A.G.:
 Similar to Fabletics, we saw a lot of opportunity in the lingerie and intimates market. To me it feels like a category that’s ripe for disruption. You have a lot of traditional players who have been doing the same thing with the same message for a long time.

Like with Fabletics, we knew we wanted to do it with the right partner to bring instant credibility and exposure to the brand, and we knew we wanted to create something that would be truly approachable and diverse and break the mold of what you think about a lingerie brand and campaign. In our view, there was nobody better in the entire world, which is why we are fortunate to have Rihanna as a partner. I’ve been so amazed and impressed in how deeply involved she is. Every single item we have designed she has been involved in the process and seen it on a model, made her own adjustments, decided if we are going to bring it in stock, down to every element of the campaign.

WWD: What did you do differently than Fabletics?
A.G.:
 For all of our other brands, we launched in North America, then many years later, once we felt like we perfected the business model, we thought about Europe. With Rihanna having such a tremendous international reach, we wanted Savage to go international from Day One. This is the first time we’ve launched in 12 markets plus shipping to the rest of the world. The other part was producing our first major fashion show during New York Fashion Week, where you’re live-streaming the show and having product immediately available to shop.

WWD: What has the data on Savage told you so far?
A.G.:
 For e-commerce companies, the returns/exchanges are a critical part of the business model and we heard going into this that return rates can run really high in this category. So we really focused on having a consistent fit, making sure that we had a large amount of user reviews that would tell customers how it’s fitting on different body types. We’ve been seeing return rates of 10 to 11 percent, which in this category is low. We’ve heard they can be as high as 20 to 35 percent. We are also really fortunate to be getting 92 to 96 percent product recommendation rates on average for the line, which exceeds other brands we have launched.

WWD: With sales now north of $750 million, is an IPO in the offing?
A.G.:
 It’s the natural progression for us because we have institutional investors and at some point they want their returns not just on paper but with liquidity. It’s just changing whether you have public investors versus private. I feel like we’re in a nine-inning game and we’re only in the third inning. In some ways it’s just starting to get superexciting because some of these macro trends that we’ve been talking about for years now — e-comm, omnichannel, subscription — are just being realized. I don’t view it as an exit; it would just be when’s the right time for our employees and our investors to go public.

WWD: What are your main challenges and concerns?
A.G.:
 I put them in three distinct buckets. One is the “how do we remain entrepreneurial” challenge. We got here by being faster, more nimble and more scrappy than the competition, and when you become larger there’s a natural tendency for things to take longer and that really puts us at risk for somebody else taking your space. So we are always calling out a process if it feels like it’s taking longer than it used to.

Second is tariffs, just because there’s so much unpredictability. It’s something that usually moves so slowly and you have time to react to. Now I feel like you could turn on the news and things could change. We have a diverse manufacturing base, but short-term, it’s a real risk that we may need to adjust the factories where we work and the price points that we charge.

The third is the changing media ecosystem. If you think about traditional retailers, they grow by scaling how many doors and having those doors comp up. For an e-commerce company, your version of doors is scaling your media spend and having your LTVs comp up. If you look back three to four years ago, we were spending upward of 40 percent of our annual advertising budget on traditional television. That can now be as low as 10 percent. That’s a lot of media dollars that have to shift into new channels. We are really focused on tackling all new digital forms of advertising and being great at the attribution side. How do you track the effectiveness of these channels because you can’t use a last-click attribution for any of them. How do you shift from TV into YouTube, Pinterest, Snapchat, digital video? That’s been a fun challenge, but one that we are making sure we stay at the forefront of.

WWD: Is your goal to become a billion-dollar brand?
A.G.:
 We certainly are going to grow and become multibillion in terms of sales, but I think mostly what we want to do is build true household names. I want these to be the next Nike or Lululemon or Steve Madden. I think they should be the leader in their respective categories. With that will come the sales. One of the things we tell all our employees is to remember that there is a person behind every one of those numbers. When we say we will sell 10 million pairs of leggings, that’s a lot of people. And if a quarter of 1 percent didn’t have a good experience, that’s a lot of people who didn’t get the perfect product experience. It’s really about delighting our customers and becoming those household names and the rest will follow.

WWD: Who is your mentor?
A.G.:
 My co-ceo Don Ressler. I am 37 and when I started working with Don I was 19 years old. When you skip college and start working there’s a lot of life and management experiences that you don’t have yet, so he’s been a really good mentor for me. Make sure you say he’s older, though.

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