Op-Ed | The Problem with Most Fashion-Tech Startups

Source: Uprising Movements

Today, Lawrence Lenihan, founder and managing director of FirstMark Capital, examines the burgeoning interest in fashion-technology startups.

NEW YORK, United States — Fashion is an incredible industry. It’s sexy, it’s glamorous, it’s exciting. But it’s also incredibly complicated and the amount of change the Internet and other technology innovations will bring to this industry in the next decade will be mindboggling. Indeed, our offices have been swamped with business pitches from more than a thousand entrepreneurs who want to transform this industry.

As for the ideas themselves, many look great on whiteboards or in business school competitions: virtual closets, flash sale businesses, new designer “discovery” sites, you-be-the-designer sites, social shopping, user-curated boutiques, subscription sites, custom clothing, and so on that seek to use technology in ‘clever’ ways. But, in the end, they often miss the mark by a wide margin.

There are many flaws to these businesses. But the biggest flaw I see is that these “Internet entrepreneurs” fail to understand how the Internet will fundamentally transform the fashion industry, not just provide another access point to buy something.

In my opinion, the biggest change will be a dramatic shift in the relationships amongst brands, retailers and customers. Going forward, every brand must figure out how to connect directly with its customers and they must structure their business around the relationships they want to have with their customer rather than let their distribution channels define them. The economics are too great not to do so.

If all brands must connect directly with their customers, it also means the roles played by retailers must change. Online retailers will not succeed as customer access points for brands anymore, because the brands can now access these customers directly. So, the online retailer must be more. I would argue that Net-a-Porter is as large a threat to Vogue as it is to Bergdorf Goodman, because of the editorial content and contextual placement they provide. In my mind, making a decision to sell on Net-a-Porter is a branding decision, not a revenue decision. The ramifications of this shift will destroy many large incumbents in this industry, as they realise that they must provide a brand more value than simply aggregating customers and selling their products in unimaginative Sears-catalogue formats.

Another major change will be retailers and brands realizing that there is enormous opportunity to use technology to create shopping experiences that replicate the emotion that a customer feels when they shop an incredible physical store, without resembling the traditional shopping experience in any shape or form. In the current fashion-tech world, many incredible designers and merchants who create amazing physical experiences have created dull online experiences. Too often they try to far too literally recreate physical experiences online: I go into a store, I look for a product that I like, I put it in my bag or cart, I proceed to the checkout, I pay for it and I leave. But fashion is not about process or necessity: I need water but I don’t need that fantastic Tom Ford suit, I only feel like I need that fantastic Tom Ford suit. Simply displaying products like they are in a grocery store (rows and categories) doesn’t work.

Fashion makes you feel. It is about emotion. The web can create amazing experiences using video and images to convey a story. Sites can engage customers and get them to participate in the definition of brands and products. My personal favourites: Net-a-Porter Live which recreates the emotion of sitting in the middle of Bergdorf’s during Christmas, every second of every day of the year; ModCloth’s Be The Buyer program that enables customers to determine buying decisions and take a vested interest in the product’s success; and Miista Shoes, which sets clearance sale pricing based on the Klout scores of its followers.

As an investor, I am putting my money behind brands (people that make stuff!) that are leveraging technology to create a new kind of relationship with their customers. Before the Internet, brands needed retailers to be the vehicle of this relationship by physically aggregating customers. Now brands can aggregate customers themselves, not based on where the customer lives, but on the values, interests and aspirations the brand and its customers share and use technology to create incredibly unique, intimate, personal, interesting and fun relationships.

One of the most brilliant brand concepts that I have seen (and loved so much I invested in) is LollyWollyDoodle. Lolly sells dresses for little girls, but in a unique way: through stories on Facebook. On any given day you can look online and see an offering of several products (full price, limited run items) that engage and excite a passionate set of customers. Founder and CEO Brandi Temple is a brilliant entrepreneur who figured out how to replicate the emotional experience of shopping without replicating the process of going into a store, with daily surprises, stories and emotional connections. In addition, she is able to use the data on the velocity and acceleration rate of product sales on Facebook to predict product demand on the website, thereby being able to manufacture more profitably by not over- or under-producing a given product.

Another company I have invested in is Tommy John which aims to change the men’s underwear industry. And via a personal investment, I helped start a unique high-end luxury fashion brand named Norisol Ferrari which is creating a new type of relationship with customers who are tired of mass “luxury” brands that make up so much of the so-called luxury industry today. The brand I most wish I had invested in is Warby Parker, who is blowing apart the eyewear industry (and Luxottica can’t touch them).

I’m also putting my money behind retailers who recognise that brands can and will go directly to their customers and rather than try to fight and prevent them from doing so, are creating platforms that enable brands to build and strengthen their relationship with their customers. Retailers won’t exist in the future if they can’t provide value – and only a few can provide value through brand and merchandising talent. I think Moda Operandi (another company I wish I had invested in) will be able to carve out their own niche as a direct retailer in addition to their current business, but I believe that they have more potential as a service provider of trunk shows for brands.

I love “retailers” like ModCloth, but the truth is nobody cares about the brands on the site, they care about what founder Susan Koger puts on there and I would bet that they become a direct label brand more and more. I met with the two founders of Of A Kind recently. At first, I cringed, because they were introduced to me as a “designer discovery site” and I figured they would be like the dozens I had seen recently. But they had a unique twist: provide customer acquisition, brand building and data (and maybe technology one day?) to enable new designers to build their own businesses while Of A Kind builds theirs. They are a true brand service provider that recognises how this industry has changed.

One of my companies that sells fashion as part of a broader mix is AHALife. There will be some very interesting developments there that demonstrate what a retailer-as-service-provider can be. And my prediction is that we will see more and more entrepreneurs who understand that it’s the brand that matters and use technology to provide unique value-added services to them.

One thing’s for sure. It will be an exciting next few years as technology transforms the relationships amongst brands, retailers and customers. But the biggest challenge entrepreneurs face might be themselves. Many would-be fashion-tech entrepreneurs have a deep understanding of the fashion industry and no understanding of technology. Or they have a deep understanding of technology and no understanding of fashion. Or, they understand neither!

The entrepreneurs who master both and understand the subtleties of each will be triumphant and realise all the potential that lies in this combination of technology and fashion.

Lawrence Lenihan is the founder and managing director of FirstMark Capital and an adjunct professor at the NYU Stern School of Business.

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31 comments

  1. Always wondered how to go about investing in fashion brands but haven’t found any useful step-by-steps on the web. Is BoF able to whip something up in this regard?

    Kay from Lagos, Lagos, Nigeria
  2. The article is interesting, the ideas expressed are interesting, most, actually all of the mentioned ‘different’ web fashion stores in this article unfortunately are not different at all. Same as thousand others besides having some kind of financial relationship with the author.
    Disappointing really. I was hoping for something fresh and did not find.

    Karel Longer from North Hollywood, CA, United States
  3. I found this article very interesting, and the ideas expressed interestingly, as Karel Longer pointed out. It’s a new and exciting time we’re heading towards in terms of fashion and technology, and I am interested in seeing where it will take us. Thanks for sharing!

  4. All great, assuming though that filtering of brands and discovery of new brands is unimportant. As if the brands of today will be here and live forever and no newcomers will ever appear.

  5. An interesting read. Very female biased view, however.

    I think a lot of the problem is that these entrepreneurs get into fashion tech for the same reason people get into the music industry. They think “it’s sexy, it’s glamorous, it’s exciting” and therefore they or their venture is sexy glamorous and exciting. Truth is: that’s not good enough to build a great business.

    Even more interesting: for most men, fashion is not sexy, nor glamorous, and not the least bit exciting. That’s where we (getbrandid.com) like to be.

    - @arush

  6. Comments to the Comments:

    Regarding not different: you’re right (although I ‘ll bet you did not hear of several of them). I can give you lots of “differen”that will all fail. I can give you lots of “different” that are silly. There are just not that many different that are really good and the good ones take off, not as measured by VC funding, but measured by sales.

    Re filtering, it is important and a vital service that will be provided by great retailers as it always has. But filtering is not enough, helping these new brands grow will be hugely important. You drew the wrong conclusion from the article: I believe there will be hundreds of brands that will destroy the existing incumbent mega brands. Only the Internet can do this these new brands and that is why they need to embrace it from the beginning, not just after they start selling. Brands that can do this will be the next rulers and this is where I want to put my money.

    Re female biased, yes but that is where the dollars are. I invested in one men’s brand, TommyJohn, and would love to invest in others. I am not a big fan of cheap custom clothing and that is where most of the plans have been. Some of these will succeed, I just think they are hard to scale. I have seen a few great men’s brands who just don’t get the Internet. I’d love to put money here for a number of reasons.

    Thanks. Good observations. Let me know of companies that you think I am missing,

    LawrenceLenihan from United States
  7. Great insights Lawrence! I know this article is a little biased as seen in the comments above, but I’m seeing some our customers at Adorii. We are building a disruptive brand at Adorii.com. Look out for our new product and technology releases in mid-Nov for our site.

  8. Great insights. 3 observations:
    1. Lawrence is right, women buy or influence 80% + of purchases. Follow the money.
    2. These companies are trying to address customer-focused issues from individuality to baggy boxers.
    3. Interactivity rules – all attempting to exceed experience of “real” or online shopping.

  9. While I agree that little value should be assigned to virtual interception, I do think retailers have value beyond brand strengthening.

    A single brand, which by its very nature must tout some flavor of exclusivity, will never be viewed as an objective gathering place within which customer opinions are faithfully gathered and impartially shared. Retailers are well positioned to leverage these opinions to create a more meaningful shopping experience.

    And speaking of shopping experience, I’ll admit that I’ve short-changed this arena. My personal priority is to make shopping less painful and more efficient. Thanks, Lawrence, for this important reminder that fashion isn’t a requisite, but a playground.

    Janice from Cambodia
  10. Very interesting points raised in this article. However, I don’t believe that any online retail experience can compete with the physical experience of a brand in its luxury retail environment and therefore shouldn’t try. Just like any city centre or crowded shopping mall, the online retail world is a very busy noisy place. Technology has evolved to bring us global 24 hr access and convenience when it comes to designer shopping and I think that’s enough. Online shopping should save time and open up the picture to new brands for online customers with a few easy clicks. It gives us a bird’s eye view over a vast market and as an online shopper I am grateful for any filters. That’s why I don’t think there’s any harm in discovery retail sites or the catalogue format of luxury online shopping. Once a site provides clear and easy access to designer products, its job is done. Yes a stylish site reflective of brand image is important but if brands and retailers become too concerned with online branding, I believe there will be too much interference and the convenience and simplicity that has driven the popularity of online designer shopping will be lost.

  11. Love the affirmation that feeling still drives purchasing, especially in the luxury space. As Karl Lagerfeld said, “Fashion is illusion” and brands must continue to elicit and create emotions that exist outside the realm of everyday life – whether that is online or offline.

    I think what is implied but not fully articulated in this article is that technology will re-create the industry beyond the bounds of the internet. A few of the companies touted as innovative in this article have also disrupted their supply chain which has brought change and transparency in a good way (I would add Everlane, Joor and Fashion Playtes to this list). Still, many inefficiencies remain and the physicality of the industry has not changed much. Purchase orders are still written; patterns are still drafted by hand; sewing still largely happens in front of a Juki. Players that can continue to transform the supply chain and its associative data will create new edges to the market we haven’t yet seen.

    The other facet of the industry that has been little discussed is extended sizing. The average woman in America is a size 14 and yet most brands and retailers fail to cater to this market. I predict much growth in servicing women of all sizes.

  12. You’re right on. Most fashion executives I know consider the internet another place to sell merchandise and they lose the most important asset provided by the internet: quick, easy and effective attachment to the consumer and, more importantly, the prospective consumer. They’re also a younger and growing audience. It’s similar to the manner in which fashion “providers” entered the retail business with their own stores. They (and this goes back about twenty years) went in with their tail between their legs not wanting to offend their retail customers. It wasn’t until the retailers went so heavy into private label that the mfrs considered retail a business rather than a showroom.

    Richardrndll from New York, NY, United States
  13. Observation: Mr. Lenihan is insightful to recognize that the area of brand / customer relationship is the sweet spot for transformative innovation, but sets the bar too low by adopting the same relationship frameworks, fantasy, emotion, aspiration, that were established in the bricks and mortar environment. I hope that future of Fashion and Design will involve more than the challenge of how to sell more unnecessary things and then convince consumers to discard them well before the end of their useful lives. The internet provides the opportunity to challenge these assumptions about what drives fashion and to collaboratively, with the consumer, develop new, and perhaps more meaningful, engines to drive Fashion and Design commerce. The notion that Fashion and Design must driven by aspiration, fantasy, and conspicuous consumption is tyranny; once you accept this notion, there is no room for real transformative innovation… But once these drivers become negotiable and on the table for discussion, then we’ve opened unlimited potential for innovation and creativity to return to the worlds of Fashion and Design… This generation of Fashion Tech entrepreneurs have the potential to bring on these changes if they are prepared to ask whether things must be the way they have been.

    weltadvisors from New York, NY, United States
  14. I think the article makes a good point in realizing fashion is always changing and looking for new ideas. But when it comes to technology it won’t be about the change it brings to the fashion industry, but how people will be able to access the fashion industry with the click of a button. Also since the sites, blogs, people, start-ups and shows change with every season. I think gradually you will see a change on how, where, why and when people actually buy fashion in the coming years.

  15. Hello all,

    To you Laurence, great article.

    May I just say, that you all speak of your own backyards very passionately and demonstrate great knowledge of them however the global centre of gravity for this industry of has shifted from West to East. For those of us who operate in the East the tyranny of distance has been replaced by the prospects of proximity.

    The success of anything will now depend on who is looking Eastwards and when they look Eastwards, what are they seeing. . .

  16. Really valuable Insights Lawrence,
    You’re right, I didn’t know about two of the sites you mentioned in the article, is good you did the filtering.
    I will like to ask you if you know startups that are doing other than retail for fashion brands, I mean is there any start up using the technology to really change the industry?
    I work at Fashionbi.com, it is a platform that allows the user to gather all the relevant data on the digital performances of your brand and know the real facts behind the data. Until today I haven’t found a similar platforms using high-tech to manage Fashion and Luxury Brands performance.
    Being you an expert in the subject, it will be rewarding if you could share with me the sites you consider the best on this field that I just mention.
    Thanks on advance,
    Victoria

  17. @ weltadvisors

    I actually didnt want to respond to this article because unlike others I didnt think it was that good. However you brought up the same point that sparked my attention.

    In the article it says: and selling their products in unimaginative Sears-catalogue formats.

    That is what fashion companies are afraid of but it is exactly what consumers need. A tshirt is just a tshirt it shouldnt cost 500$ (no matter how great the styling is im buying the product so lets focus on that) a tshirt is not going to give me the glamourous fiction world that I see in the ad campaign. No matter how many shirts I buy of brand X. The bottom line is: fashion is just not that important ( I know thats almost sacrilegious to say but it is the truth )and the sooner consumers realise that, the sooner they can break free from the Tyranny weltadvisors speaks off. And they will be able t0 spend there money, time and energy on more important matters. And websites are just the vehicle to help consumers do that. And to get their clothing fast and easy without any blablabla unatainable fairytailes.

    An from Leiden, South Holland, Netherlands
  18. Thank you for this article. I agree that online retailers should not try to duplicate an in-store shopping experience. You simply can’t do it. Ecommerce companies should try to create something totally different- an experience that can only be found (unique to) online. A different, but still stimulating-to-your senses experience. That is the challenge. Shopping online is done for efficiency, but why can’t we also enjoy the experience?

  19. I recently graduated with my masters degree in Textiles but am finding it difficult to land a job with such a broad-based education. I completely agree with your sentiments, “The entrepreneurs who master both and understand the subtleties of each [fashion and technology] will be triumphant and realise all the potential that lies in this combination of technology and fashion.” What kind of advice would you give to someone such as myself on how to obtain that fashion technology knowledge? Any particular universities or programs you can suggest? Thank you.

    Kelly from Lunenburg, MA, United States
  20. I totally agree with “In my opinion, the biggest change will be a dramatic shift in the relationships amongst brands, retailers and customers. Going forward, every brand must figure out how to connect directly with its customers and they must structure their business around the relationships they want to have with their customer rather than let their distribution channels define them. The economics are too great not to do so”

    Lawrence, there is one start-up nailing this concept. It is in Manhattan…. and it seems that you are going to miss it.

    WinkieBoy from New York, NY, United States
  21. I think that the article focuses too much on brands as startups and ignores the startup technology companies providing unique solutions to these players. Also I’m not sure that Lawrence is on the mark with his prediction that brands will start connecting directly with consumers and thus retailers will either have to adapt or risk being cut out. The internet has been around for a very long time, and this has yet to happen. What revolutionary change is the internet now engendering that will result in this eventuality? Retailers have a purpose, they provide value that in most cases brands simply cannot on their own, and if anything history has shown that technological advances tend to lead to divergent situations rather convergent, thus more players in the value constellation not less.

  22. Good article. a world of information, but once I started to put myself in the equation as the consumer, I noticed how technology and fashion make things easier for the consumer in the long run. for example, buying a shoe that’s no longer in stock in stores is now made available online, the product is virtually everywhere once the search begins which will cause the brand to still make the sale even if the product is market down.

    imsomie leeper from Athens, GA, United States
  23. More comments to comments:

    Re the need for sites for discovery and filtering: yes, I agree. There is a need. But I would also argue that provide only that value will have short lives and will not be able to capture much value. I believe that you will see wholesale/retail margins change to reflect actual value add. I wrote more about this in my blog a few months back if you want to read more: http://lawrencelenihan.com/?p=594.

    Re interesting fashion tech companies, I think the best one I have seen is FashionGPS. They are doing many interesting things. I believe lookbooks.com has a ton of potential. I keep looking for more, this infrastructure change will be as substantial as the business change.

    Re customer needing Sears catalogue-like formats, I think you have a great opportunity in North Korea.

    Re duplicating store experience – I obviously believe online is great, but I also believe that online and store are incredibly complementary. Great brands need both!

    Re getting more skill, join a company. You can’t learn enough of anything in school. You learn by doing. Moreover, this future has not been written – that is why it is so exciting!

    Re missing the amazing start-up in NYC. Damn, I hate missing great companies. Please tell me!

    Re revolutionary change. I agree. It won’t be one, it will be lots of different technologies. It will be how they are used, not how novel they are. We are so early in this phase that I don’t think we have seen anything yet. I don’t think retailers are necessarily dead, but I do think most broad-based incumbents won’t be able to change fast enough and will die. It won’t be overnight, but it will happen.

    LawrenceLenihan from New York, NY, United States
  24. This is a great article and I definitely agree with this statement – “I would argue that Net-a-Porter is as large a threat to Vogue as it is to Bergdorf Goodman, because of the editorial content and contextual placement they provide.”

    I ,as a customer, would like to shop on a website that not only sells fashion items but also creates that aspiration or need through the way those products are styled and showcased on their website. Asos.com is another great example where one gets the opportunity to view a runway video for every single garment that they sell making the buying decision much easier.

    maitri_mody from New York, NY, United States
  25. This is a very interesting article. One thing that I’ve noticed amongst “fashion startups” is that rarely do they include someone who has ecommerce experience. Startups that have user-generated curation, or user-generated shops and/or are based off of affiliate marketing don’t understand how much hustling has to go into actually selling things online. As a blogger, I’ve met with many startups who think that a blogger can just set up a shop and things will sell, but it’s not the case, because it’s not the same animal…

  26. @Lawrence, great article but just wanted to touch on technology for the B2B market. Many smaller businesses struggle without the technology to keep their businesses in sync, when in fact there is plenty of tech out there to help them.

    In terms of building relationships with their supply chain for example, applications like Apps4Fashion allow orders to be made directly from stock which increases accuracy and reliability. I think that it’s tech like this app that can build stronger relationships within the supply chain through an interactive way of doing business.

    With years of fashion-industry experience behind the development of such applications – it is able to combine fashion know-how with modern and slick technology.

    I think this type of tech that integrates efficient processes with modern & slick functionality will be the future.

    fabiovirgi from London, London, United Kingdom
  27. Done. I already sent you the coordinates of the company by email.

    WinkieBoy from New York, NY, United States
  28. Thanks for this great article! One thing I find missing in it is your opinion on social collaboration networks such as Balluun.com and how they are able to replace tradeshows nowadays. You mentioned in the part about how in the current fashion-tech world, many incredible designers and merchants who create amazing physical experiences have created dull online experiences.
    Platforms like Balluun.com (or others) are giving these designers a good way of presenting themselves to a network of retailers. As it says in the article – the web can give you incredible tools (Balluun) to create brand experience!

    Nicolas from Glendale, CA, United States
  29. I looked at this article when it first posted on BoF and was in the development phase of a fashion tech startup. All great insight, but one thing that hit me over the head in this article is that it did not mention startups that take the critical POV of solving a problem for the fashion sector. Without taking that point of view I imagine most startups fail if they cannot give true value to brands (and retailers). That was the first thing my partner, who has 25 years experience in the fashion sector, and I with analytics and engagement background ventured out to execute. We will see…

    AG Levy from New York, NY, United States
  30. Living in the Bay Area I overhear a lot of conversations about fashion startups. The biggest problem are people that lack even the most fundamental understanding of fashion and the fashion system. There is an arrogance that it is easy and just about pretty things.

    The second problem is creeps that think fashion apps is a way to fondle models or meet manic pixie dream girl makers. Worse they may even rely on advice from women that know even less about fashion simply because they’re women. The amount of americans that understand fashion (different from marketing) on any level is diminishing even in the “real” sector. SV as in many areas needs to collaborate more with creatives that have an authentic vision. France and Japan seem like the natural leaders for this field.

    Google glass and DVF have done more to destroy the synergy between SV and Fashion, by exposing the quixotic and out of touch side of the tech industry, while emphasizing the hollowness and lack of leadership within the apparel industry.

    Jude Gabbard from San Francisco, CA, United States