E-commerce, in particular online apparel retail, is a tempting but scary industry to be an entrepreneur or investor in. On the positive side, apparel is the fastest growing sector of U.S. e-commerce with a projected average 17% CAGR (compound annual growth rate) through 2017. Logically, it also seems like eventually most all apparel retail should shift online except for experiential and fit related purchases and when you need something in a pinch. After all, online retailers can offer superior selection and lower prices because of no retail space costs and economies of scale.
Having said all that, e-commerce and particularly apparel e-commerce has been extremely hard to build new big businesses in. There are few companies started in the last 10 year among the top e-commerce sites, which is surprising given the general explosion of popular new consumer internet sites over the last decade.
Source: Josh Yang, “E-commerce Landscape 2012.”(U.S.) http://ow.ly/nrEyG
Amazon is also a “300-Pound Gorilla” as it is the default search engine for shopping and it can also undercut everyone on price. Investor Chris Dixon wrote that one entrepreneur said to him: “If it has a UPC code, Amazon will beat you.”
In the last few years, a number of promising new e-commerce apparel companies have emerged, but they have mostly stayed true to form of staying outside of Amazon’s way. These companies have either sold inventory that Amazon mostly doesn’t carry (Bonobos, Fab, Nasty Gal, Zulily), had a different business model (Trunk Club, Rent the Runway, Gilt) or sold used clothing (Threadflip, Poshmark).
Thus given all the opportunity yet also challenges, I was particularly interested when a year ago, my friends in San Francisco, Mark Spera and Dean Ramadan left their jobs to open up BeGood Clothing, which is both an e-commerce and brick and mortar store focused on curating products aimed at the emerging multi-billion dollar LOHAS (lifestyles of health and sustainability) market. They have made a bunch of interesting and gutsy choices from the decision to go after both brick and mortar and online customers from the get-go to the decision to carry merchandize from both long tail brands not on Amazon and brands like Toms that already have widespread distribution.
This week I sat down with them for an interview to learn more about their business and how it has developed now 12 months into operations.
What does BeGood do and how are you differentiated?
BeGood Clothing is a socially responsible men’s and women’s clothing and accessories retailer. We carry only brands that give back to charitable causes for each purchase. We believe the supply chain should be fully transparent, clothing should be eco-friendly, and purchases should benefit the world. Events like the Bangladesh factory fires several months ago are making people challenge their notions about their everyday purchases. BeGood hopes to answer that call.
Why start a physical retail store? Is this a scalable part of the concept? If not, is this CAPEX that could have been used to further develop and experiment on the potentially more scalable e-commerce side?
The store is a real-time product feedback loop, a marketing tool. Instagraming a picture of customers in the store is much cooler than a picture of a computer engineer! And it gives us access to brands that online-only retailers cannot carry because of restrictions.
How do you make merchandizing decisions? I noticed that some of the products you list are also on Amazon where as many are the kind of long tail products not supplied by the giant. Does the inventory held by Amazon and other big retailers effect what you decide to sell?
As of now, rather than focus on what the big guys are up to, to we strive to carry the best inventory mix possible. We make sure to separate ourselves with exclusive products. But we think a finely curated line and an amazing story can trump price in the eyes of our growing, contentious customer base.
How does being in San Francisco where there is no summer effect your purchasing decisions with respect to inventory? Do you think of inventory purchasing as store vs. online separately?
Yeah – that’s a bit of an issue. Come next summer when we are doing significant volumes of sales online and in retail and people in SF are wearing hoodies and pants while everyone else is wearing bathing suit, we will definitely have to think of the inventories separately.
How important is it for conscientious consumers to also have that consumption be conspicuous? We have seen indications particularly with the sales of hybrid automobiles that consumers are more likely to purchase the Prius, a car whose unique style makes their sustainable choice apparent, than less conspicuous competitors?
Many people are surprised to learn that Patagonia has a charitable giveback incorporated into the fabric of their company. People equate the Patagonia logo to comfort and quality rather than eco-friendly and charitable. We are a fashion-first brand that also happens to subscribe to eco and charitable tenants. Consumers like clothing that fits well and looks good and it is a nominal portion of the population that would sacrifice aesthetic and price for anything. So to answer, I don’t think a big green “ECO” stamp on every article of clothing will move inventory off the shelves. People will come back to you time and time again because of your company values but most consumers are initially more impressed by a pair of wooden sunglasses or an on-trend maxi dress than by a logo.
It seems like increasingly we are seeing lifestyle retailers take on a strong content component in helping define their brand and create value for their community of users. Birchbox is one example of this? Do you think this is necessary / an essential part for what you are trying to build?
Content is key for BeGood. Yes, we are selling clothing. More, we are selling the importance of an eco-friendly and charitable lifestyle. We lead by example so we devote the majority of our blog postings to our own musings and photos of us having fun, volunteering, and being green. We have found that the best approach to gaining loyalty and customer interest is by curating real and genuine content. If I was selling beer, I would take pictures of me and my buddies drinking. Now, I take pictures of me and my buddies drinking organic beer.
Being an online apparel retailer is clearly an uphill battle with so many large competitors in dominant positions. And that’s before taking into account that even if you do succeed, exit multiples are small (usually 1-2 time the companies trailing 12 month revenues) compared to other tech sectors. Regardless, BeGood presents a novel and potentially promising model for how to launch a new retail concept, leveraging a brick and mortar presence to gain advantages over online only competitors. Best of luck to those crazy guys!