Antique Elevator | Source: elevatorpreservation.com

In our final post in a week of articles on e-commerce innovation, we are pleased to launch Elevator Pitch, a recurring feature on BoF that will showcase one exceptional fashion-technology start-up per month and provide valuable feedback from a panel of fashion, technology and investment experts, as well as the BoF community.

LONDON, United Kingdom – Ever since the early days of BoF, we have taken a keen interest in the exciting emerging activity at the intersection of fashion, technology and entrepreneurship. From the first article we published about Gilt Groupe back in November 2007, when the company had only 5 employees, to our four-part series on FashionStake, which last week announced its acquisition by Fab.com, to our early features on platforms like Pinterest and Tumblr, which have gone on to attract tremendous attention from the fashion community, BoF has a track record for being the first to spot and support the most innovative start-ups making a mark in the fashion space.

As we have examined over the last few days here on BoF, we are currently witnessing a veritable surge of innovation and venture capital interest in the fashion-technology space. Amongst e-commerce start-ups alone, we have seen the emergence of new business models like curation, subscription retail, social merchandising, mass customisation, retail gaming and collaborative consumption.

What business models will be next to emerge? Who will be the next Net-a-Porter, Gilt Groupe or Pinterest? If you have a promising business idea in the fashion-technology space or are already working on a start-up and looking to raise your profile or attract funding, we are putting out a call for your Elevator Pitch: concise pitches that you might give to a potential investor, partner or key hire if you bumped into them in an elevator.

For entrepreneurs wishing to participate, please respond to the questions below for the opportunity to have your pitch featured here on BoF and receive valuable feedback from a panel of fashion, technology and investment experts.

THE QUESTIONS (maximum 500 words):

1. What is your business idea and what problem is it solving?
2. What market does it address and how big is this market?
3. Who is your competition and how are you different/better?
4. What is the revenue model?
5. Who are the team that will make your idea a reality?
6. How much funding are you seeking and why?

HOW IT WORKS:

1. We are accepting Elevator Pitches by email only and review the first 500 words you submit. Please send your submissions to elevatorpitch@businessoffashion.com. We cannot respond to every email and will only contact those pitches selected to be published.

2. Each month, the selected Elevator Pitch will be presented to members of our Expert Panel, who will provide their feedback on the business idea and its potential.

3. We will publish one Elevator Pitch per month, along with feedback from our Expert Panel, and invite the BoF community to join the discussion.

THE EXPERT PANEL:

Sonali De Rycker, Partner, Accel Partners, London
Sonali has been active in the European venture business for 12 years focusing on investments in the consumer internet and digital media sectors. Sonali is responsible for investments in KupiVIP, Lyst, StylistPick, Spotify, and Top10.

Kirsten Green, Founder, Forerunner Ventures, New York
Kirsten has been in the investment business since 1996, investing in both public and private companies and building a focus on the consumer sector. Representative investments include: Birchbox, Bonobos, Chloe & Isabel, Cleanwell, Serena & Lily, Skullcandy, StyleOwner, Warby Parker.

Ben Lerer, Founder, Thrillist, New York
Ben Lerer is a Manager of Lerer Ventures and the Co-Founder and CEO of Thrillist.com, a leading men’s multi-platform lifestyle publication with over 3 million daily subscriptions in 19 localized markets in the U.S. and the U.K.

Rachel Shechtman, Founder, Cube Ventures, New York
Rachel has been a marketing and merchandising consultant since 2003 working with clients including Gilt Groupe, TOMS, and the CFDA; and advising others such as Birchbox and Quirky. Recently she launched a new retail venture in Manhattan called STORY.

Imran Amed, Founder and Editor, The Business of Fashion, London
Imran is a fashion business advisor, writer, and digital entrepreneur, and is Founder and Editor-in-Chief of The Business of Fashion.

Elevator Pitch is a recurring feature on BoF, co-curated and developed with Rachel Shechtman of Cube Ventures, that will showcase one exceptional fashion-technology start-up per month and provide valuable feedback from a panel of fashion, technology and investment experts, as well as the BoF community.

Modcloth screenshot | Source: Modcloth

In Part I, we examined the innovations and infrastructural advances that have improved the historically poor economics of e-commerce and set the stage for a renaissance in online retail. Today, we explore some of new and exciting business models taking shape, the companies exploiting them and the challenges they face.

SAN FRANCISCO, United States — For years, e-commerce suffered from capital inefficiencies and complexities that pushed investors away. But in recent years, major infrastructural advances and the success of innovative start-ups like Gilt Groupe have rekindled investor interest and set the stage for an explosion of promising new business models including personal subscription, social merchandising, mass customisation and collaborative consumption.

PERSONAL SUBSCRIPTION

Opportunity: The model is relatively simple: consumers join a monthly club, complete a personal style survey, and are then shown a selection of products each month that they can choose to buy for a flat rate. While traditional online retailers struggle to gain and retain customer mindshare, and must constantly re-engage and convert customers to stay profitable, subscription style services generate far more predictable revenue streams. Subscription retailers also capture data on the tastes and size measurements of individual customers in order to deliver personalised product selections. This not only drives greater customer loyalty, but also enables retailers to better manage inventory risk.

Key Players:

• Shoedazzle offers personalised, stylist-selected shoes and accessories at affordable prices, delivered straight to doorsteps, and has attracted over 3 million members and over $60 million in venture capital from top tier firms.
• Beachmint has raised a total of $38.5 million and launched several subscription services across a number of verticals, working with celebrity designers, including jewelry site Jewelmint, launched with actress Kate Bosworth and her stylist Cher Coulter; Stylemint, launched with Mary-Kate and Ashley Olsen; skin care site Beautymint, launched with pop culture phenomenon Jessica Simpson; and shoe site Shoemint, launched with actress Rachel Bilson.
• Birchbox, an early subscription retail innovator, is a beauty subscription service that addresses product discovery and sampling and has raised a total of $11.9 million
• Manpacks is a convenience-focused men’s subscription service for staple male essentials like razors, underwear, socks and shirts.

Challenges: Competition in the subscription retail space is heating up, so we might start to see increasing churn rates. While subscription services have stickier revenues, they are vulnerable to cancellations. In order to succeed over the long term, they must continue to offer products that are constantly exciting and relevant to their customers. Multiple months of disappointment will most likely result in lost customers.

SOCIAL MERCHANDISING

Opportunity: Social merchandising enables retailers to collect consumer feedback on goods prior to buying them. Typically, consumers are asked to vote, comment or curate products (sometimes through contests), indicating their preferences in a way that generates hugely useful data that retailers can leverage to more accurately predict what will sell, better aligning supply and demand. Social merchandising also engages customers and drives greater loyalty.

Key Players:

• Threadless was one of the first online fashion retailers to let the crowd vote on their favourite t-shirt designs and determine which designs would be put into production and sold on the site.
• Modcloth, which raised $19.8 million in a Series B round led by Accel Partners in 2010, has experimented with a successful “Be the Buyer” program, which lets consumers vote on their favourite items, generating data that informs Modcloth’s merchandising strategies.
• ASOS now encourages consumers to vote on, curate and share the designers and products they fancy most, a sign that larger e-commerce sites are experimenting with social merchandising as well.

Challenges: With social merchandising, timing is a challenge. What consumers want today may not be the same as what they want in a few months time. So, for these feedback loops to be most effective, short cycle production and fulfilment are essential.

MASS CUSTOMISATION

Opportunity: Mass customisation lets businesses deliver individualised products to every single customer, based on the buyer’s choice of aesthetic, functional, or contextual components such as styles, colours, materials and measurements. The individualised tailoring of products has, traditionally, been too costly to scale. But mass customisation allows customers to participate meaningfully in the design of their goods, restoring individuality to the process, while leveraging the cost-efficiencies of mass production to make the model feasible. Customers get the exact products they want. And by offering goods that, by definition, cannot be found elsewhere, the model enables companies to differentiate themselves vis-à-vis competitors and build stronger, more engaged and loyal relationships with consumers. Plus, by getting commitment (and payment) at the top of the purchase funnel, mass customisers avoid the perennial issue of excess, end of season inventory that didn’t sell. Indeed, customers pulling — rather than companies pushing — product designs offers practical, emotional and economic advantages.

Key Players:

• Nike first launched its highly successful mass customisation platform NikeiD back in 1999, allowing consumers to add a personalised look and feel to select shoe models. Ten years later, following a 2008 redesign of the application, the company reported that the platform had “surpassed $100 million for the first time.”
• Zazzle and Cafépress, which earns over $100 million in revenue per year, are white label companies also active in the space.
• Burberry Bespoke allows customers to create trench coats to their personal specifications, choosing from a wide range of style, fabric, colour, embellishment and detail options.

Challenges: The downside of mass customisation is the increased cost and complexity of production, which is ultimately reflected in higher prices. Prices for Burberry’s custom trenches start at about $1,800, while special materials can bring the price up as high as $8,800. Customers derive greater value from personalised products and are willing to pay a premium for these goods, but it’s simply not feasible that every part of a product design will be customisable. The trick is identifying which key elements of a product to make customisable and offering the right degree of variability in order to provide a made-to-order feeling, while ensuring manageable and scalable production.

COLLABORATIVE CONSUMPTION

Opportunity: Collaborative consumption is the next generation of swapping, sharing, bartering, trading and renting, behaviours which are being re-energised through the growth of peer-to-peer marketplaces and other technology-enabled platforms. Sellers can get rid of used or depreciating assets, while buyers can consume the items’ residual value at a price point that is substantially cheaper than retail. Collaborative consumption also includes rental models. For high cost items, especially those that are fashionable or ephemeral, renting items often makes more sense and gives a new customer base access to products that would normally be outside of their reach. As a result of the troubled economy and the rise of flash sale and daily deal sites, consumers expect discounts as a matter of course and routinely seek out high quality or high design items at cheaper price points, creating an environment ripe for the growth of businesses built on collaborative consumption.

Key Players:

• Rent the Runway, a mail-order service which lets women rent designer fashion and is sometimes described as “the Netflix for fashion,” has attracted over 1 million members and secured over $30 million in funding from top tier firms Highland Capital, Bain Capital and Kleiner Perkins Caufield & Byers.
• Bag Borrow or Steal lets consumers rent designer bags by the week, month or season.
• TheRealReal, backed by start-up accelerator 500 Startups and other noteworthy angel investors, recently launched an online consignment store selling previously owned luxury fashion at prices as low as 90 percent below retail.
• I-Ella enables consumers to easily swap and exchange fashion.

Challenges: Peer-to-peer models faces obvious challenges around trust and quality control. And, as with any marketplace business, getting liquidity through a critical mass of products and users is essential, but challenging. The rental model is initially capital intensive, because a company has to purchase inventory upfront and absorb the depreciation and maintenance costs associated with each item, which creates barriers to entry for copycats aiming to get off the ground and achieve profitability. Overtime, the model can be lucrative, especially for companies that are able to make accurate assumptions around depreciation from wear and tear and the costs of upkeep.

Although winners are already emerging from the current explosion of e-commerce start-ups, we will continue to witness constant e-commerce innovation for the foreseeable future. Indeed, with only 9 percent of commerce currently being conducted online, there is still tremendous room for growth. Beyond the aforementioned approaches, a number of promising young companies are building businesses around innovative models like shoppable media (Joyus), multi-level marketing (Stella & Dot), curation (AHAlife), local shopping (Aisle50) and retail gaming (Lockerz and Sneakpeeq). And while venture capital investment is a symptom of a good market, not a cause, investment in e-commerce more than doubled from $1.06 billion in 2010 to $2.39 billion in 2011. This kind of interest from VCs will surely accelerate the explosion of new start-ups set to disrupt the retail industry in the months and years to come.

Elizabeth Knopf is a former investment associate and the co-founder of Sorced, an online showroom.

Fab.com Screenshot | Source: Fab.com

Yesterday, BoF was first to bring you the news of the recent $18 million investment in Farfetch.com. Today, we continue a week focused on e-commerce by examining the historical challenges faced by online retailers and how recent innovations and infrastructural advances have fundamentally improved the economics of e-commerce, setting the stage for a renaissance in online retail.

SAN FRANCISCO, United States — Following the burst of the dot-com bubble in early 1999, e-commerce suffered from a lack of venture capital investment. The unrealised, over-hyped expectations for e-commerce — at a time when the market, consumer technology and infrastructure were less evolved — and the subsequent burns left venture firms with a nasty aftertaste. Perhaps the most spectacular fashion e-commerce failure was that of Boo.com, which launched in the Autumn of 1999, burned through $135 million in venture capital in just 18 months and was liquidated in 2000.

But on closer inspection, e-commerce has also faced additional complexities and capital inefficiencies that, for years, continued to push investors away.

HISTORICAL CHALLENGES AND FIRST MOVER ADVANTAGE

First, e-commerce lacked defensibility. With software or other internet services, intellectual property or the complexities of build create barriers to market entry for would-be competitors. But e-commerce businesses are essentially selling products. The most important elements of these businesses are the assortment, breadth and variability of the merchandise they offer, along with overall access to this merchandise. Access to inventory is not a sufficient barrier, however, as other stores can carry the same products unless a business has exclusive agreements with vendors, which happens rarely and usually only for a limited time.

In the absence of defensibility, companies needed to demonstrate solid metrics around scale of revenues, registered users and overall profitability in order to secure investment. But for e-commerce companies, this requirement created something of a catch-22. When compared to software or other internet services, start-up costs for e-commerce companies were higher, due to the expense associated with buying physical inventory, setting up a logistics platform for warehousing and fulfilment, and acquiring and retaining customers. Furthermore, since they operated at the wholesale level, their margins were relatively smaller.

In order to work and attract investment, these businesses required scale. But in order to achieve scale, they needed significant investment.

There were a few big success stories, such as e-Bay and Amazon, which gained significant first mover advantages. As Josh Kopelman of First Round Capital has pointed out, from 1999 to the beginning of 2010, the list of top general e-commerce sites in the United States remained almost unchanged. In fashion, online juggernauts like Net-a-Porter, Yoox, Neiman Marcus, and Shopbop maintained their incumbent positions.

IMPROVED ECONOMICS AND REDUCED ENTRY COSTS

In recent years, however, the tides have turned in e-commerce. For one, consumers are now acclimated to the concept of online retail. According to Forrester, the online retail market in the US alone is expected to grow to $279 billion by 2015. But critically, major innovations and infrastructural advances have also fundamentally improved the economics of e-commerce, attracting significant venture capital interest in the sector.

Starting in 2007, US private sales pioneers like Gilt Groupe, Rue La La, Hautelook and Ideeli were able to drive massive consumer adoption in a very short amount of time when compared to traditional e-commerce sites. They offered designer fashion at significant discounts, distributed directly to email inboxes.

With timing and supply constraints to compel immediate action, these members-only sites successfully identified and leveraged key behavioural insights to drive engagement, collect customer data and generate rapid sales. But perhaps most importantly, their ability to move product much more quickly than traditional sites reduced cash flow requirements. Indeed, many flash sales sites buy on consignment, while others do not touch or pay for inventory at all until it is purchased by the end consumer.

In recent cycles, the rise of social media channels like Facebook and Twitter have also enabled e-commerce businesses to acquire customers and accelerate growth far more efficiently. Fab.com, which sells discounted furniture, jewelry and art in 72-hour flash sales, has leveraged social media to great success, attracting a total of 1.65 million registered users in just six months. According to The Wall Street Journal, in November of last year the start-up processed approximately 100,000 orders, double the previous month, and is now averaging $1.4 million in sales per week. The company recently raised a Series B round of $40 million, led by Andreessen Horowitz, valuing Fab.com at more than $200 million. “They’ve leveraged social extremely effectively,” said general partner Jeff Jordan in a blog post on the transaction.

The evolution of e-commerce solutions like Shopify, Magento and BigCommerce, along with the growth of Software-as-a-Service (SaaS) tools like Mailchimp, RJ Metrics and Shipwire and the rise of Amazon Web Services, a cloud computing platform, have also made it significantly easier and cheaper for retailers to build and manage beautifully designed e-commerce storefronts. Additionally, leveraging APIs (application programming interfaces that make it easy for software programs to talk to each other) has made integration much more time- and cost-efficient, not only for the consumer-facing storefront, but also in terms of the back-end workflow.

Innovation across the supply chain is also making development easier, improving scalability and easing integration, while also decreasing capital requirements for e-commerce businesses. Web-based point of sale systems, wholesale marketplaces, ordering and invoicing software, enterprise resource planning systems, and shipping and fulfilment systems are becoming simpler, cheaper and more flexible. In fact, companies can now use highly efficient software-as-a-service (SaaS) tools across the entire supply chain, paying periodically to access hosted software, without having to incur the costs and complexities of hosting and managing back-end infrastructure.

NEW OPPORTUNITIES AND ECOSYSTEMS

In the context of these improved economics, there are a number of problems to be solved that provide interesting opportunities in e-commerce. Traditionally, retailers have faced difficulties in turning customer data into actionable insight. This is beginning to change. SaaS tools let retailers more easily access and make sense of data, opening up opportunities for businesses to leverage the inadvertent “buyer profiles” that consumers are now creating as they express themselves on social media. Particularly interesting are the taste and behavioural data that consumers share on social curation sites like Svpply, Pinterest, Lyst and The Fancy.

While brands and retailers are scratching their heads solving their data issues, consumers are frustrated with the process of discovering products. It’s easy browse through a physical store, but searching millions of items online is overwhelming. Even if you know you want to buy a black pair of shoes, you still end up with thousands of options. Discovering products that are right for you remains challenging.

The growth of new technology channels and ecosystems created and supported by large players is also providing fertile ground for e-commerce innovation. Alongside the growth of social channels like Facebook, which offers retailers new ways to achieve viral distribution and offer social discovery, the mobile commerce market is expected to reach $31 billion in the US alone by 2016, up from $3 billion in 2010. But while these new channels create new opportunities for e-commerce companies, they also present a major challenge: multi-channel integration. Historically, merchants have been forced to cobble tools together to create a seamless, multi-channel workflow.

EBay’s new X.commerce initiative aims to address this problem, offering retailers a single platform that lets them easily add, customise and integrate tools from the X.commerce marketplace, making it easier for young companies to capitalise on the multi-channel opportunity. The stated vision of the X.Commerce initiative is to “help merchants and businesses of all sizes to compete and thrive in the fast-changing world of social, mobile, local and digital driven e-commerce.”

Indeed, with improved economics, new opportunities and goliaths like eBay supporting the ecosystem, the stage is set for a renaissance in online retail and the growth of disruptive business models built around new ways of buying, selling and engaging with goods.

Tomorrow, we explore the recent explosion of new business models in online retail, including personal subscription, social merchandising, mass customisation and collaborative consumption.

Elizabeth Knopf is a former investment associate and the co-founder of Sorced, an online showroom.

Gilt Groupe warehouse | Source: Fantabulously Frugal

Today, BoF takes an in-depth look at the past, present and future of Gilt Groupe’s business model and speaks with Gilt Groupe CEO Kevin Ryan on his plans to continue the company’s ascendance.

NEW YORK, United States — Back in November of 2007, BoF was amongst the very first media outlets to write about Gilt Groupe, the New York-based start-up that went on to dramatically reshape the online retail market for fashion, building a community of high value consumers around limited-time, members-only “flash sales” for designer apparel at steeply discounted prices.

The timing of Gilt’s launch couldn’t have been better. In the months that followed, fashion and apparel brands began to feel the impact of a global recession that would ultimately give rise to one of the most challenging macroeconomic environments in the history of modern retailing. Seemingly overnight, wholesale inventories became unmovable as retailers drastically reduced product assortments and orders.

As a consequence, many fashion brands were forced to liquidate excess inventory positions, causing a sudden and significant supply glut for “cut out” goods. Prior to the Great Recession, brands would have sold this excess inventory through off-price channels like Loehmann’s, T.J. Maxx and Century 21. But as the economy sank, these retailers were asking for discounts as high as 90 percent, while merchandising clothes in a haphazard fashion which did nothing to protect the high-end image brands had spent years cultivating.

What’s more, the extreme market conditions of the Great Recession created an acute financial imperative for retailers — off-price, as well as full-price — to convert their own excessively large inventory positions into cash, leaving many brands almost without any viable sales channel, let alone one that would protect brand equity.

Gilt charged onto the scene like a knight on a white horse, providing a novel, efficient and brand-sensitive way to liquidate excess inventory and enjoying explosive growth in the process. Based on this momentum, Gilt Groupe raised $138 million last May in a new round of financing, valuing the four-year-old company at $1 billion.

But fast-forward to the end of 2011 and flash sales are facing significant challenges. Here, BoF examines the rise, stumble and future of Gilt Groupe’s business model.

Although impeccable timing was critical to Gilt Groupe’s meteoric rise, there were other important factors behind the company’s success. Firstly, Gilt’s member base is largely comprised of one of the most desirable demographics in retail: urban sophisticates. The typical Gilt customer has a bachelor’s degree, is in his or her mid-thirties and “significantly over-indexes in higher household income buckets, when compared to the general online population,” according to a spokesperson for Gilt Groupe.

To build this quality customer base, Gilt leveraged online network effects to great success, starting with friends of the founders and early employees. “This is a business that has grown predominantly through word-of-mouth marketing,” one of Gilt’s founders, Alexis Maybank, told The Wall Street Journal last year. “75 percent of our membership has come from the suggestion of a friend, using our on-site ‘Invite Friends’ feature. That’s how we launched. We sent invites to a list of about 15,000 people — friends, former colleagues and classmates, dating back to grade school!”

Second, Gilt’s business model succeeded in driving consumer demand in a novel way: offering designer product at significant discounts, distributed directly to email inboxes, with timing and supply constraints to compel immediate action. Fifty percent of Gilt’s deal revenue is generated in the first hour after a sale starts.

Gilt’s email demand generation strategy also went hand in hand with a strong product assortment. From 2007 to 2009, the company’s core team had powerful relationships with fashion and apparel brands that, in conjunction with Gilt’s high value customer base, enabled them to secure highly desirable product, delivering a unique value proposition to their members.

And finally, Gilt managed to liquidate inventory in a way that protected the image of participating brands. Generally, brands are careful to close out their inventory in a manner that both optimises cash flow and ensures that their target audience doesn’t see it. But, amazingly, the quality of Gilt’s product offering and customer base enabled brands to sell excess inventory at a discount, while still maintaining a positive image.

How did Gilt start to stumble?

Ironically, it was Gilt’s massive success and the demands this placed on securing greater and greater volumes of desirable product that began to undermine the company’s ability to deliver on its core value proposition: great product at a great price.

From 2009 to 2010, Gilt’s revenue rose from $170 million to $425 million, according to estimates published by Internet Retailer. This significant growth created the need for more and more quality product to feed the Gilt machine, something that was difficult to fulfil in ever-increasing volumes.

While Gilt Groupe itself was inspired by the French private sales behemoth Vente-Privée (which recently launched its own a US-focused flash sales venture with American Express) Gilt’s success also spurred hundreds of other competitors to enter the flash sales market, from start-ups like Ideeli and Rue La La to strategic players like Amazon’s MyHabit and Nordstrom’s Hautelook.

With a flood of new Gilt-like clones actively looking for supply, the glut of excess inventory from the mid-2000’s economic boom dried up even faster. Additionally, in response to the global recession, many brands began producing at volumes that were lower than in the heady days of 2007. As a result, brands who were once price takers became price setters, increasing the cost of securing inventory.

An anecdotal comparison of the brands and products available on Gilt today versus those available in the company’s first couple of years shows that, over time, quality level has gone down. Back in 2009, it was possible to find prestige brands like Ralph Lauren Purple Label and Porsche Design on Gilt, in stark contrast to the many unknown brands that populate the site today. This meant that each time a subscriber opened an email and the product did not communicate the excitement-to-value ratio that had originally made Gilt so successful, their inclination to open subsequent emails from Gilt, and the brand’s position as a curator of style, suffered.

To be fair, these are challenges that have impacted all flash sale players and are not unique to Gilt. But they nonetheless present a significant threat to the company’s core business model.

What is Gilt doing to address the issue?

“Today because we are bigger and more well known, we get inventory that we didn’t get before,” Gilt Groupe CEO Kevin Ryan told BoF. This may simply be a matter of showing strength in the face of adversity as market sources suggest that inventory is indeed a major issue for flash sales players.

That said, Mr. Ryan did go on to explain a number of initiatives he has put into place to try and ensure Gilt’s continued ascendance. “We do some things that we didn’t do before,” he said. “We do more cuttings and we are increasing private label,” he continued. “We do pack and hold. At the beginning of a season, brands will go out and get orders from Neiman and Saks — and then we’ll order it as well. You can’t always count on this, but let’s say they end up with 15,000 orders and the minimum from their Chinese producer is 20,000. They’ll come to us and say, we’ll produce 2,000 for you, but you have to hold it until the end of the season.”

Leveraging its database of more than 5 million members, Gilt has also built a number of new businesses, launching Jetsetter, a travel deals site; Gilt Taste, a business unit focused on gourmet food deals; Gilt City, a Groupon-like local deals site; Gilt Home, a deals site for furnishings, home décor and gifts; and Park & Bond, a full-priced menswear business.

“What I do is try and sell more things to my existing customers,” explained Mr. Ryan. “We have new categories: hotels, restaurants, home, which have unlimited inventory,” he continued. “Within our overall business, two years ago, 95 percent of what we did was end of the season men’s and women’s. Today, that’s probably 35 percent of what we do. We’re in most of the big categories I want to be in right now, but we’ll add one or two over time.”

Performance of their new vertical product extensions is mixed, according to annual gross revenue estimates provided by Mr. Ryan. Compared to the size of the original men’s and women’s business (over $300 million), Jetsetter and Gilt Home (each close to $100 million in sales) have been successful. Currently less successful, though only 15 and 7 months old, respectively, are Gilt City (in the $50 million to $100 million range) and Gilt Taste ($10 million to $20 million). But Gilt clearly recognises the need to capture a larger share of their customers’ disposable income and seize adjacent revenue opportunities.

Gilt is on track in a number of other areas, as well. The company recently launched global e-commerce, shipping to over 90 countries, and understands social marketing in a way that many retailers do not, actively engaging with its large audience of fans and followers. Gilt has also seized the opportunity in mobile and tablet, deriving between 17 and 30 percent of revenue, depending on the day of the week, from mobile platforms, according to Chris Maliwat, a former vice president of strategy at Gilt Groupe.

But the negative impacts of reductions in supply, upward pricing pressures and growing deal fatigue are here to stay and will continue to create an increasingly challenging environment for Gilt and its flash sales peers.

What should Gilt do now?

First of all, Gilt could reinvigorate its vendor value proposition and focus on building new relationships with brands. Here, the most valuable asset for the company is the demand source of their customer data, a fact with which Mr. Ryan concurs.

“[Customer data] is a hugely valuable part of our business. I think we have the best personalisation of anyone, maybe second to Amazon,” he said. “For example, when you get an email in the morning, that’s one of 2,000 versions that goes out. The data is run every night, based on the sales, based on what we think [individual customers] are going to buy. When you open up the [website] you get a different page than I do; I actually get different sales than you do.”

But Gilt is not making the most of this data or sharing its full value with vendor partners. For example, Gilt could better quantify and harness the total value of their relationship with customers by doing things like delivering email analytics and driving social media for brands.

Taking a page from fast fashion, Gilt Groupe would also do well to further its focus on analytics, transforming itself from a data-rich, but insight-poor platform to a vertically aligned organisation driven by actionable information derived from its wealth of data. Retailers like H&M and Zara have upended the traditional seasonal approach to retail through intensive use of analytics coupled to a modern, vertically integrated manufacturing machine. Indeed, it’s their ability to transform analytic insights into demand-responsive product compositions that is their core strategic value proposition.

“Store managers communicate directly with Zara designers and feed them data on what sells well and what doesn’t,” reported The Wall Street Journal in September. “If managers say a polka-dotted-black dress is flying off the racks, it is able to turn around quickly and churn out polka-dotted dresses in other colours and have them in stores in a matter of weeks.”

But Gilt has a significant competitive advantage over fast fashion retailers in the structured nature of the demand signals (clicks, views and purchases) the company can read, meaning that it’s possible for Gilt to automate the identification of trends, while retailers like Zara must rely on store managers to proactively surface these insights.

As this game-changing start-up looks ahead to 2012, Mr. Ryan remains confident that the initiatives he has put in place will support a potential IPO and move the business into profitability. “The overall company is not profitable yet,” he said. “Sometime next year we’ll cross over. The zone where we might go public, and I think we probably will go public, is between fourth quarter next year and fourth quarter the year after,” Mr. Ryan told BoF.

Matthew A. Carroll currently runs outdoor brand Cloven Footwear and sits on the board of three tech start-ups in San Francisco, California.

Editor’s Note: This article was revised on 19 December, 2011. An earlier version of this article misstated that Gilt Groupe was not targeting sales to specific consumers based on their shoe size. It is. The article also misstated Chris Maliwat’s affiliation with Gilt Groupe. Having previously served as vice president of strategy, Mr. Maliwat left the company in November 2011. The article also neglected to mention that new business lines Gilt City and Gilt Taste are 15 and 7 months old, respectively, at the time of writing.

NEW YORK, United States — At a news conference Monday morning, livestreamed on YouTube and emceed by the actress Anne Hathaway, Valentino Garavani and long-time business partner Giancarlo Giammetti unveiled the Valentino Garavani Virtual Museum, a downloadable desktop application that showcases almost five decades of the designer’s work, drawing on a database of over 180 videos and 5000 images, including Valentino’s original sketches. A fashion first, the digital museum invites users to navigate a series of immersive galleries, organised by theme and rendered in 3-D, that in the physical world would stretch over 10,000 square meters.

Funded entirely by Mr. Giammetti and Mr. Garavani at a reported cost of several million dollars, the virtual museum, which is free to access, serves no direct commercial purpose — the duo no longer have a financial stake in the Valentino business, which is owned by private equity firm Permira — and exists for the sole aim of securing the designer’s legacy.

But the Valentino museum launch comes at a significant moment for the industry. Public interest in fashion exhibitions is surging. This summer’s record-breaking Alexander McQueen exhibition at The Metropolitan Museum of Art attracted over 650,000 visitors. Meanwhile, big luxury brands like Louis Vuitton, Chanel and others are moving to control and communicate their heritage by staging large-scale exhibitions at major museums in emerging markets. Gucci has even opened a private museum of its own in the heart of Florence.

While lacking some of the inherent experiential value that comes with exploring a physical space, the Valentino virtual museum offers obvious advantages in terms of cost and reach — no small points in the context of today’s globalised and uncertain economy — and the initiative’s strengths and weaknesses are sure to be examined closely by other fashion brands in the weeks and months to come.

Having previewed the Valentino Garavani Virtual Museum in the days prior to launch, BoF sat down with Mr. Giammetti just before the press conference to discuss the vision behind the world’s first digital fashion museum.

BoF: Why did you decide to make this museum a digital experience instead of a physical one?

Giancarlo Giammetti: I’m passionate about virtual tours. I remember years ago going online to the website of the Barnes Foundation. I was fascinated by this virtual tour, which was a camera going around the rooms of the gallery. You could move and focus on paintings. This was always in my mind. And when we started to think about what to do with this huge archive of forty-seven years, which was quite well organised, I wondered how to make it available and how to keep it together and also how to keep it as a memory for ourselves. So the idea of a virtual museum was born.

We have a small museum in France, but it’s very small. There are not hundreds of dresses there. Also, it’s not in Paris, but about one hour from Paris, so it’s much more difficult to bring people there. I respect real museums very much. I think, especially in this country, fashion museums are doing an amazing job. But for one designer to have his own museum and be sure that it will live forever and not one day look dusty and instead keep fresh — how will this happen? Digital is also the language of today, so whomever will come after us can still see it, because it’s something modern, not something related to a model of the past.

BoF: We understand you worked with the digital agency Novacom Associés-Paris, as well as the architects Patrick Kinmonth and Antonio Monfreda, to bring the museum to life. What was the brief you gave them?

GG: The brief was, first, to create the architecture. I wanted something very modern, very simple. But I wanted to keep the idea of a room and have a blue sky with clouds moving to simulate the breeze of Rome, so we have skylights. As it’s an archive, of course you want to see the dresses, you want to see the photography, you want to see the people. There is a master class [where Valentino explains his creative process]. There is an interview in which I describe our adventure together. I wanted to keep it something classic, but bring it to a different reality. In the end, we wanted a real museum, but in a virtual way.

BoF: The museum features an impressive array of content. What is your favourite part?

GG: My favourite part is “Very Valentino” where you see five decades of clothes. There is one dress, for example, and behind that you see Monica Vitti wearing the dress in L’Avventura, the movie by [Michelangelo] Antonioni. And then you see a picture by Helmut Newton of Valentino and Monica and Antonioni in the Caffé Greco in Rome, along with the original Valentino drawing of the dress. All this together — this is the world of Valentino, this is the world of that dress. For every garment, you can see a video — if there is a video, because don’t forget video began in the 1980s — and the original drawing, press clippings, advertising, all linked together.

BoF: Alongside the museum itself, you have launched a presence on Facebook, Twitter and YouTube. How will these channels complement the experience?

GG: On Facebook, there were so many Valentino Garavani fakes, like for every celebrity I would imagine. I wanted to create [an authentic Facebook presence] myself, so I started with The Real Valentino Garavani. It was more for our friends; it was not huge, just four thousand people. But I started to put a lot of material there; of girls, models, press. And then it was normal to move to Facebook for the museum and then to Twitter.

BoF: In terms of the museum, one thing we haven’t talked about as yet is the audience. Who are you trying to reach? Are there people you hope to reach with a digital museum who may not have visited a physical archive?

GG: Yes. That’s why you get the application for free. We didn’t want people to have to pay to get into the museum. We didn’t want any sponsors. All the investment is [from] Valentino and myself. In 2008 or 2009, we did a show at the Musée des Arts Décoratifs in Paris. It was beautiful to see all these young people sitting on the floor and drawing. That’s who we want to reach here. But Les Arts Décoratifs is small. This can be huge.

BoF: You mentioned as we were sitting down that this was your first experience working in digital. Can you describe what that experience has been like and one lesson that you have learned?

GG: It never stops! When I started working on this, I thought when you have finished you take a break. You have done it and it’s there. But no! We want to evolve it. I’m already thinking that the master class of tomorrow will be done by an important journalist, or I will have somebody witty — I already have somebody in mind — who writes a blog, so I’ve learned that it seems easy, but it’s not.

OUR THOUGHTS:

Expectations? When we first heard that the legendary Mr. Valentino and Mr. Giammetti were launching a virtual fashion museum, we were excited. In the context of the physical exhibitions currently being staged by a number of luxury brands, here was a new digital format that offered both practical advantages and new creative possibilities. Expectations were high.

First impressions? As soon as you enter the museum, the ambitious nature of the undertaking becomes clear. The digital architecture is stately and there is a vast amount of rich content to explore. But the videogame-like experience is a far cry from the standards of popular gaming titles and the 3-D graphics feel dated. One of the major advantages of a virtual museum is greater accessibility and one of the key audiences the experience aims to reach are young people, who are highly mobile and constantly bombarded with a vast array of media experiences competing for their attention. Therefore the decision to create a downloadable desktop application rather than a web app that can be easily enjoyed across devices and during quick bursts of media-snacking is unfortunate. Of course, this choice stems from the choice to apply the metaphors of a physical museum to a digital experience. It’s one thing to make physical museums digitally accessible à la Google Art Project. But when creating a digital museum completely from scratch, why follow the conventions of a physical gallery?

Most potential? Conceptually, the core idea of a digital fashion archive is strong. Not only does a digital experience have the potential to be far more accessible and cost-effective than a bricks-and-mortar museum, but the flexibility of digital media enables users to more easily explore the web of interesting relationships and interconnections between pieces of archival content. For each garment there is a rich back-story of videos, editorial images and sketches.

What’s more, unlike a physical museum that has certain fixed properties, a virtual museum can be updated at the pace of a blog, an opportunity Mr. Giammetti appears eager to seize. Indeed, if Mr Giammetti and Mr Garavani commit themselves to the kind of constant experimentation and rapid innovation that digital allows, they have the opportunity to create something that no fashion house has yet achieved: a living and breathing archive that’s globally accessible and ever-evolving. This is a powerful way to secure the legacy of one of the world’s greatest fashion designers.

What’s missing? The virtual Valentino museum is a closed system, isolated from the social web. None of the archive’s rich content is sharable and there is no integration with leading social platforms like Facebook and Twitter. This is a missed opportunity to spark conversation amongst fans, and indeed to drive more people to explore the museum, especially after the initial media buzz has faded.

Furthermore, a visit to the virtual Valentino museum is a solitary experience, where it’s impossible to see, be influenced by or interact with fellow visitors. One of the most powerful ways to create the kind of digital archive that Mr Giammetti envisions — never dusty, always fresh — is to harness the energies of visitors. For example, why not let users curate a selection of their favourite dresses, remix them with other archival content and share this record of their experience, both within the museum and beyond? The possibilities are endless.

But perhaps the single most powerful and forward-looking thing that Mr. Giammetti and Mr. Garavani could do to unlock the creative potential of their substantial archive is to develop an Application Programming Interface or API. Technology companies like Google, Facebook and Twitter often publish APIs — interfaces that enable software to interact with other software — making their platforms available to external developers who can leverage them to build new experiences and applications. For example, in August, luxury retailer Bergdorf Goodman used the Google Maps and Instagram APIs to create Shoes About Town, an interactive map featuring geo-tagged images of covetable footwear. In a similar way, a Valentino museum API could give select developers access to the vast amounts of content currently housed in the digital archive — dresses, images, videos, text — with which they could build new experiences and applications to add to the virtual museum project and bring the designer’s legacy to life in previously unimaginable ways.

In Digital Scorecard, BoF’s editors review the most innovative digital initiatives from across the world of fashion.

Emerging Designer CC Kuo, The Black Stripe | Source: Lookk.com

NEW YORK, United States — Blogging and other forms of social media are surfacing emerging designers faster than ever before, bringing greater transparency to a previously underexposed part of the market and empowering consumers to discover new names. But the emerging fashion businesses which stand to benefit most have long faced significant distribution barriers and unfavourable economic terms that make bringing their product to market problematic.

Because young labels can rarely afford the huge investments associated with opening their own bricks-and-mortar stores, their primary path to market has been selling pieces at wholesale prices to multi-brand boutiques and department stores, who traditionally mark up items 2.5 to 3 times before selling them to end consumers, taking 60 to 70 percent of the retail value. But for emerging brands, even this is far from guaranteed, as risk-averse retailers typically wait a few seasons before buying a new designer in order to first confirm that the brand has proven its ability to generate consumer demand, creating a kind of “Catch-22.”

In recent years, the growth of internet retailing has enabled smaller brands to route around retailers and earn more favourable margins by establishing direct-to-consumer sales channels online, at a fraction of what it costs to build a physical store. But for the majority of emerging fashion businesses just entering the market, the costs associated with implementing their own e-commerce presence have traditionally been too high to make a directly-owned and operated online sales channel a viable immediate option.

Now, a number start-ups are aiming to disrupt the traditional retail model by changing the way emerging fashion designers break into the market. Launched in October 2010, London-based Boticca is a curated online marketplace for fashion accessories that enables emerging designers, hand-picked by the Boticca team, to sell pieces directly to end consumers, earning 75 to 80 percent of retail value, nearly twice as much as they would make via traditional wholesale channels.

“Independent designers were really up against some major distribution barriers and facing adverse conditions in the retail environment,” said Kiyan Foroughi, CEO and co-founder of Boticca. “Platforms like Boticca are completely transforming the way designers approach distribution by making online the preferred immediate channel for scaling their brand and sales globally from the get-go, as well as by providing them with a sustainable commercial route where they enjoy the lion’s share of the retail economics and connecting them directly to a global customer base,” he explained.

In its first year, Boticca has grown swiftly. Last May, the company closed a $2.5 million (£1.5 million) Series A round led by French investment fund Isai and their site has since scaled to approximately 5,000 products from more than 210 designers in over 30 countries, including Turkey, Iran and Estonia. “Boticca truly connects customers all over the world with inspiring designers in far-flung places,” said Foroughi. “It’s not unusual for individual designers to have customers on five continents.”

Not Just a Label, a London-based marketplace that has worked with Damir Doma, Mary Katrantzou, Rad Hourani and Patrick Mohr, was one of the first and fastest growing platforms of this type. “We allow users and customers to bypass middlemen and antiquated systems that make it so hard for designers to break through,” said founder Stefan Siegel. Launched in 2008 and representing over 6,000 designers in 94 countries, the platform offers young brands easy access to e-commerce via Not Just a Label’s online store and takes a 30 percent commission on resulting sales. “The idea was to increase a designer’s profit margin,” said Siegel, who achieved break-even without seeking external investment and reported a “six-digit turnover” for 2010.

But alongside e-commerce, platforms like Boticca and Not Just a Label also offer emerging fashion businesses tools and services for marketing and PR. “By insisting that no young designer should be forced to pay a large sum to get the exposure they deserve, we provide designers with an all-encompassing digital space to kick-start their careers,” said Siegal, whose company editorialises the product it sells and even acts as a liaison between designers and press. “We also support the independent designers we work with in how they market and merchandise their work, and provide PR resources to help tell their stories to a wider audience,” said Foroughi of Boticca, which also features a blog that spotlights the designers it carries.

Still in the early stages of fundraising, New York-based Wondermode offers selected designers a fast and inexpensive way to set up their own simple e-commerce business, complete with web-based tools for managing payment, shipping logistics, analytics, email marketing and social media, in exchange for 20 percent of retail sales and a “product upload charge” of $0.50 per style per season, for up to four product images. “It’s a ‘one-stop shop’ sales and marketing platform,” said founder and CEO Aaron Duncan. Wondermode, which is still in beta, even offers designers the option of buying add-ons like a photo shoot service.

But the recently re-branded Lookk.com, a 2010 Seedcamp winner formerly called Garmz, which recently raised a seed round led by Eden Ventures and has staff in London, Vienna and Sofia, is perhaps the most ambitious and promising start-up in the space. “Each week new designers are featured in countless blogs,” said Andreas Klinger, co-founder and COO of Lookk. “New trends and names surface more often and quicker than retail and seasonal cycles could ever adapt to,” he continued. “This leaves an untapped potential: new designers with proven demand, but without the tools to follow through and reach greater parts of the market.”

Like the other platforms exploiting this potential, Lookk is a curated marketplace where selected designers can reach a global customer base. “We do not believe in completely open marketplaces as they usually leave the consumer unsatisfied with production quality and product price,” said Klinger. Similarly, Lookk also offers designers web-based tools to manage marketing and fulfillment.

But unlike other players in the space, Lookk offers emerging designers a genuine end-to-end solution that goes all the way to manufacturing, a powerful differentiator for young labels for whom sourcing reliable and cost-effective production is a constant challenge. Lookk empowers designers to not just promote and sell, but also produce pieces, using the company’s in-house production facilities and network of manufacturers. “When we enter into a contract to manufacture, the designer will receive 5 percent commission on the retail price of each piece sold — very competitive considering we handle all associated retail, distribution, marketing and customer care costs,” said a spokesperson for the company, who declined to reveal the commission the company charges brands who have already established their own production, stating only that “buying and wholesale prices are worked out on individual terms with each designer and are competitive with industry standards.”

Critically, Lookk has also far surpassed competitors in fundamentally reimagining fashion retail in the context of the open social web, harnessing the voice of the end consumer to quickly understand market demand and drive more effective business decisions. When designers upload lookbooks to the site, consumers feed back their preferences via a voting mechanism, generating valuable data that directly influences which pieces Lookk’s panel of buyers decides to put into production and sell via the online store.

“We want to build a retail model which truly leverages the possibilities of the internet,” said Klinger. “If we see market demand in a new designer’s products, we can control the full process from design to finished product up to the moment of delivery,” he added. “By directly bringing consumers and designers together and controlling key elements in the resulting value chain we can lower risk and make quicker decisions when bringing new products to market.”

Indeed, the kind of detailed consumer demand data generated by Lookk, combined with shorter production cycles, means the business can produce in smaller, demand-driven batches, significantly reducing risk and improving efficiency. But ultimately, the benefits of this approach extend beyond balance sheets alone. If adopted more widely, this type of social retail model could have powerful and far reaching positive effects on diversity and creativity in the fashion industry at large, enabling traditionally risk-averse retailers to embrace many more emerging designers and still turn a tidy profit.

Vikram Alexei Kansara is Managing Editor of The Business of Fashion.

Lanvin Spoof Video | Source:

NEW YORK, United States — At BoF, we’ve been ranking the top fashion films of the season since 2009, when the genre was still just coming into existence. But even back then, set against the staggering rise of online video consumption and the growing importance of engaging young digital consumers, the medium’s tremendous potential was clear.

Fast-forward to the Autumn of 2011 and YouTube-friendly short videos are practically de rigueur for fashion brands, large and small. But interestingly, it’s not digital “Geniuses” like Burberry who have been creating the most compelling fashion films. Despite being labeled “Challenged” by a Digital IQ report recently released by LuxuryLab, we think the Prada Group is making some of the best digital films in the industry, working with top fashion image-maker Steven Meisel.

But this season, it was Lanvin’s viral sensation (also shot by Meisel), featuring Karen Elson and Raquel Zimmermann dancing awkwardly to “I Know You Want Me (Calle Ocho)” by Pitbull, that proved to be the game-changer that propelled fashion film decisively into the mainstream. The film struck a chord with a broad internet audience, earning over 100,000 YouTube views in the first three days online, providing the spark for a real-life dance competition at a buzzed about and well-attended Fashion’s Night Out event at the brand’s Madison Avenue boutique, and even spawning spoofs, the surest sign of of viral success.

Notably, it was stills from the Lanvin video that appeared in print advertising, flipping a well-established paradigm and highlighting fashion film’s trajectory towards the very centre of seasonal marketing initiatives.

And while we continued to see some absolutely stunning examples of films that look and feel like print campaigns or magazine editorial beautifully brought to life, it’s ‘digital first’ fashion videos, conceived from first principles with the online medium in mind, that broke the mold with humour, quirky charm or unconventional visual techniques which seemed to resonate most with online audiences.

What follows is BoF’s selection of the most powerful and interesting fashion films of the 2012 Spring-Summer season. As you sit back and enjoy the videos, let us know which ones you like best.

1. Lanvin Fall/Winter 2011 Ad Campaign

Dubbed “Park Avenue YouTube,” Lanvin’s tongue-in-cheek, fall campaign video — featuring top models Raquel Zimmermann and Karen Elson dancing uncomfortably in a chic apartment to Pitbull’s 2009 smash hit “I Know You Want Me (Calle Ocho)” and a hilarious cameo by creative director Alber Elbaz — had just the right elements to drive explosive word of mouth amongst fashion fans across the internet, while perfectly communicating the distinctive personality of the Lanvin brand. Shattering the seriousness that has often prevented fashion film from resonating with a broader audience, the Steven Meisel-shot video has already earned almost a million cumulative views on YouTube, been shared hundreds of thousands of times on Facebook, and inspired a spoof remix “starring the attendees of Fashion Week in New York” as well as a popular fan made imitation video.

2. Prada Fall/Winter 2011 Ad Campaign

Following on their first place ranking last season, Prada’s fall womenswear video, shot by Steven Meisel and featuring Antonia Wesseloh, Ondria Hardin, Kelly Mittendorf, Julia Zimmer and Frida Gustavsson, perfectly captures and communicates the delicate co-mingling of sensuality and innocence at the heart of Mrs. Prada’s collection. Set to a hypnotic soundtrack with a breathy voiceover, the slow motion film is also a seductive and transfixing digital merchandising dream, full of sequins, fur and snakeskin. We only wish it was directly shopable.

3. Mourir Aupres De Toi by Spike Jonze & Olympia Le-Tan

Set after-hours on the shelves of famous Left Bank bookstore Shakespeare & Company, Spike Jonze’s quirky stop-motion animation “Mourir Aupres De Toi” brings to life the embroidered ‘covers’ of Olympia Le-Tan’s book-clutch bags to tell the touching story of a clumsy skeleton and his lover. Using over three thousand pieces of hand-cut felt, the film beautifully communicates the handmade aesthetic and human charm of Le-Tan’s work. “I love getting performances from, telling stories about and humanizing things that aren’t human,” Jonze told Nowness, where the film first appeared.

4. “Dynamic Blooms” by Nick Knight & Alister Mackie

Recently released by experimental filmmakers Tell No One in collaboration with SHOWstudio, this succinct, visually stunning film brings to life Nick Knight and Alister Mackie’s breathtaking editorial for last season’s AnOther Magazine. Featuring Benjamin Warbis and Jac Jagaciak, the video collides dance and fashion, transforming pieces by Lanvin, Versace, Chloe, Valentino, Christian Dior Haute Couture, Jil Sander and Haider Ackermann into dynamic contemporary blossoms that explode across the screen.

5. Prabal Gurung Resort 2012 – “New Thing” feat. Rye Rye

For the launch of his first ever foray into resort, inspired by Japanese artist Yayoi Kusama and the portraits of George Condo, rising designer Prabal Gurung teamed up with booty-shaking Baltimore artist Rye Rye to create a viral music video as bold and energetic as the graphic black and white theme, 60s-inspired florals, polka-dots, and pops of pinks, yellows and greens that run through the collection. Directed by Kenneth Cappello, the video deploys a dynamic high-low mix to explosive effect and underscores the power of integrating fashion, film and music to earn the attention of what Gurung has called “the YouTube generation.”

6. AnOther Magazine Issue 21 featuring Rachel Weisz

Shot by Craig McDean with creative direction by David James and styling by Olivier Rizzo, this off-kilter film features Rachel Weisz, cover star of this season’s AnOther Magazine, in a series of non-narrative micro-performances, inspired by German modern dance legend Pina Bausch. While magazines have long used online videos as supplementary material to support their print content, this film is a compelling example of ‘digital first’ editorial: the images that appear in print are stills taken from this surreal film.

7. Love F/W 2011 What Lies Beneath by Mert Alas & Marcus Piggott

Accompanying “What Lies Beneath,” an epic 46-page, Jeff Bark-inspired fashion story shot by Mert Alas and Marcus Piggott for Katie Grand’s Love magazine, this disturbing but compelling film collides romantic elements with a hard-edged and dangerous undercurrent. Complete with white swans, bondage gear and submerged cars, this sexually-charged and transfixing film unfolds like a classical myth reimagined for a disjointed, nightworld where Lara Stone, Mariacarla Boscono, Saskia De Brauw, Kristen McMenamy, Paul Boche, Anais Pouliot, Jed Texas, Guinevere Van Seenus, Xiao Wen Ju and Angus Whitehead play dark contemporary demigods and water nymphs.

8. Gareth Pugh S/S 2012 by Ruth Hogben

This season, East London’s enfant terrible Gareth Pugh teamed up with Ruth Hogben to create a dark and punchy film that was screened at the designer’s Paris catwalk show, as well as on Nick Knight’s fashion website SHOWstudio. Integrated into the runway event, the film both set the tone at the beginning of the show and provided a digital backdrop to the models on the catwalk, turning the presentation of Pugh’s collection into a multimedia viewing experience for the assembled press, buyers and industry insiders.

9. Twin Parallel by Justin Anderson

Directed by Justin Anderson for London-based designer Jayne Pierson and inspired by the twin paradox in physics, this beautiful film won this season’s ‘Best Styling’ prize at Diane Pernet’s A Shaded View on Fashion Film festival, which took place during Paris Fashion Week at the Centre Pompidou. The film’s immaculately styled, still life tableaux, featuring fruit, candles, a cuckoo clock and a goose that presumably lays gold, sharpen the eye and draw attention to the royal details of Pierson’s collection.

10. Kenzonique by Kenzo

This snappy and upbeat trailer for the relaunch of Kenzo, directed by Jo Ratcliffe with music by Rob Coudert, perfectly teased the energy of the brand’s first presentation under new creative directors Humberto Leon and Carol Lim of Opening Ceremony. Dubbed “hyperdelic” on YouTube, the video’s vibrant colour palette and fun feel were totally in tune with the new collection and clearly communicated the brand’s repositioning as a playful creative force at the top end of the contemporary market.

What were your favourite fashion films this season?

Digital IQ Index 2011, Greatest Year-Over-Year Gain or Loss, 2010 vs. 2011 Digital IQ Percentile Rank | Source: L2

NEW YORK, United States — On Monday, Professor Scott Galloway’s NYU-based thinktank LuxuryLab, or L2, released advance copies of their third annual “Digital IQ” report, assessing the digital competence of 49 global fashion and leather goods firms, to a small number of media outlets, including BoF.

According to the study, which will be published later today, fashion brands are embracing digital innovation with enthusiasm and have been amongst the first to pilot forward-thinking marketing initiatives on platforms like Foursquare, Tumblr and the fashion flock’s current obsession, photo-sharing app Instagram. “Some programs could best be described as bleeding edge,” says the study, referring to Ralph Lauren’s experimentation with ‘4D’ projection mapping technology.

But a closer reading reveals that a majority of fashion companies — in a sector which trades on being perfectly contemporary and thinks in terms of trend cycles — still regard the rise of digital media as a trend to be exploited, first and foremost, for its PR and image value.

“Brands are seeking the halo of innovation that comes from inspired online programming,” says the study. “However, most fashion brands still approach digital as a series of pet projects rather than presenting a coherent multi-platform strategy.”

While digital darling Burberry claimed first place in the rankings, more revealing was the poor performance of top brands like Hermès and Prada which have failed to keep pace with innovation, falling from “Gifted” in 2009 to “Challenged” in 2011. “Hubris has infected them with complacency online,” says the study, noting that Prada still doesn’t maintain any official presence on social media, including Facebook, where a “rogue page” maintained by a Prada brand loyalist has attracted more than 800,000 fans.

Interestingly, the report also reveals that the European conglomerates which own many of the world’s top fashion houses appear to be doing little to facilitate knowledge sharing amongst their brands, evidenced by wildly uneven digital competence scores within the major groups. At LVMH, for example, Louis Vuitton is ranked “Gifted,” while Givenchy came in 48th place amongst the 49 brands included in the study. At PPR, Gucci is ranked “Genius” while Balenciaga, one of the industry’s most forward-thinking brands in terms of design, remains “Challenged” when it comes to digital.

Download the full Digital IQ Index here

Vikram Alexei Kansara is Managing Editor of The Business of Fashion

Prada SS11 Lace-Up Project | Source: Prada

LONDON, United Kingdom — Once upon a time, luxury goods makers delivered individualised products to customers based on the buyer’s personal preferences, tastes and budget. It was a process that often involved a series of face-to-face interactions between individual clients and the skilled artisans who would craft the goods. But as mass production began to replace craft production as the dominant form of economic activity, the voice of the individual customer was mostly removed from the equation at all but the highest levels of the product pyramid. Indeed, Henry Ford, who is credited with inventing assembly line production, once said: “Any customer can have a car painted any colour that he wants so long as it is black.”

But today, the rise of a new mode of production called “mass customisation” promises to restore individuality to the product design process. In a recent report entitled “Mass Customisation is (Finally) the Future of Products,” Forrester Research describes the process like this: “Mass customisation bifurcates the product experience of customers into two stages. First, the customer participates in design by making choices around particular features. Second, the manufacturer produces a unique built-to-order product for delivery to the customer.”

The idea of mass customisation is not new. Joseph Pine published his seminal book Mass Customisation back in 1993. And sportswear giant Nike first launched its highly successful mass customisation platform Nike iD — allowing consumers to add a personalised look and feel to select shoe models — back in 1999. But according to Forrester, many mass customisation strategies have failed due to poor implementations, inability to manage cost and immature digital experiences.

Now, although only 6 percent of customers report having used a configurator (nikeid.com, for example) to customise products, the research firm believes that “mass customisation has finally hit an inflection point,” for a couple of reasons: personalised digital experiences like Pandora and Facebook are raising consumer expectations, while the configurators themselves — the digital tools consumers use to visualize and build their products — are becoming cheaper, richer and easier to deploy.

For the luxury fashion industry, this represents a significant opportunity. “People are tired of putting up with the same thing being made en masse for the masses — this is particularly important for fashion where every body is unique,” Joseph Pine told BoF. Indeed, when considered in the context of widespread sizing unreliability — nicely documented in a New York Times piece entitled “One Size Fits Nobody” — mass customisation extends the promise of clothing that’s perfectly designed to fit the individual, at price points that are accessible to consumers who could never afford bespoke clothing.

But there is also another reason. On the one hand, purchasing luxury fashion is about being “in fashion” and participating in a group movement. But on the other hand, it’s about expressing uniqueness. In a 2009 paper entitled “The Law, Culture and Economics Of Fashion,” authors C. Scott Hemphill and Jeannie Suk called this behaviour “differentiation and flocking.” It’s a concept that Anna Wintour captured particularly well in the August 2008 issue of Vogue, noting in her editor’s letter that what’s admired in fashion is people simultaneously “looking on-trend and beyond trend and totally themselves.”

In recent seasons, luxury fashion brands have launched customisation platforms like Louis Vuitton’s Mon Monogram, which lets consumers add personal initials and colours to the brand’s bags, and Prada Customize, which lets people add personal lettering to bags and configure their own shoes and sunglasses. But while these brands offer only light aesthetic customisation, British luxury brand Burberry has announced plans to go one step further, allowing true functional customisation. Last November, at the IHT Luxury Conference, chief executive officer Angela Ahrendts and chief creative officer Christopher Bailey revealed that the firm was launching an online initiative called Burberry Bespoke that would give consumers the ability to order their own customised trench coats, selecting styles, fabrics, colours, buttons, studs and other parameters. “There will be more than 12 million options,” said Bailey.

But with so many options, brands face what Barry Schwartz called the paradox of choice, which, according to Forrester, can lead to abandoned efforts amongst consumers who fear that they might make mistakes, or that the process will require too much work. Luxury brands, in particular, face another hurdle: how can they ensure that the product being created is still in good taste?

Yet there’s little doubt that mass customisation increases product differentiation and has the potential to drive higher customer satisfaction with the promise of a product that’s exactly what the customer wants. A customised product also delivers a sense of accomplishment and personal value because the consumer has played an important role in designing it.

Mass customisation also has operational benefits. When consumers order a customised product, they pay for the product before it goes into production, limiting the need for firms to forecast demand and hold inventory. “Stop manufacturing in the hope of a future sale, holding that inventory for months, and then selling it at a loss,” advised Pine. “The savings on inventory and the increase in cash velocity should more than cover any increase in unit costs,” he continued.

But luxury brands aren’t the only ones launching mass customisation platforms. San Francisco bag company Rickshaw invites consumers to customize an array of inexpensive messenger bags and technology sleeves, while Denim Refinery lets people “individualise” their old denim, breathing new life into old goods and proving that mass customisation has applications at all levels of the market.

So how might luxury brands differentiate their offerings?

Back when craft production was the dominant economic activity, luxury goods makers offered their clients more than a list of possible options from which they were to configure their own products. Alongside an array of options, they offered expert advice that was tailored to the individual, with whom they often had a personal relationship. Indeed, when a client went to a master craftsman, product design was a collaborative process that usually got better over time.

For luxury brands, critical to the success of their mass customisation strategies is what Pine, Don Peppers and Martha Rogers described in an important essay that appeared in the Harvard Business Review back in 1995 as “a learning relationship” between producer and consumers, “an ongoing connection that becomes smarter as the two interact with each other, collaborating to meet the consumer’s needs over time.”

Yet luxury is not just about perfectly serving the needs of the client. According to J.N. Kapferer and V. Bastien, authors of The Luxury Strategy, the luxury industry was born when artisans and craftsmen stopped simply carrying out the commissions of their clients, and instead, surprised them with their creativity: “No longer was the craftsman prepared to go cap-in-hand to visit the client; instead people went to see their latest collections, their new creations.”

Indeed, it’s customisation platforms that have the ability to anticipate, and not just cater to, personal tastes in order to surprise consumers, as well as carry out their will, that may present the most potential for luxury fashion brands.

Tina Craig and Kelly Cook of Bag Snob | Source: Bag Snob

DALLAS, United States — When Kelly Cook and Tina Craig discovered their shared passion for handbags as business undergraduates at the University of Southern California, it was the beginning of a journey which led them to create one of the most compelling businesses BoF has come across in our popular series profiling the fashion blogosphere’s superstars.

“We’ve had this ongoing conversation about bags since college, and when we moved far from each other, we thought it would be fun to keep a journal of our mutual bag obsession,” says Craig of the idea for communicating through their highly influential blog, Bag Snob. “It was never meant to be anything more than amusement for each other,” explains Craig, echoing what so many of the best bloggers say: that they started their blogs out of pure passion.

From those humble beginnings in the summer of 2005, Bag Snob has quickly grown into a bonafide business with more than 250,000 unique visitors across six different web properties covering apparel, beauty, jewelry, children’s clothing, and most recently, shoes. The business has fifteen different income streams which deliver revenues in the mid six figures — much of that heading straight to the bottom line due to the very low cost base of operating what is largely a virtual business with little in the way of physical infrastructure and fixed costs.

Craig explains that after setting up the blog it was instantly clear that they were on to something. “We started Bag Snob with literally $20. Within half a year, we realised a 6-figure income was plausible and our business backgrounds kicked into gear,” she recalls. “We incorporated Bag Snob LLC and registered Bag Snob as a trademark with the money we earned and still have not put in another cent into the company.”

So how did they make this happen?

The magic of Bag Snob lies in offering analytical advice, as opposed to simply reproducing the endless press releases that are blasted to bloggers en masse by PRs looking to push product. Craig and Cook have honed a simple but powerful formula for dissecting every possible variable around a handbag to create trusted, no holds barred reviews that help their readers to make purchasing decisions.  Bag Snob reviews often spark lively conversations amongst their loyal readership.

Of course, this kind of editorial content is also powerful as a commercial tool. Many of the photos of handbags on Bag Snob are linked to retailers where featured products can be purchased instantly. 60 percent of Snob Media’s revenue comes from commissions collected when readers click over to any one of more than 40 online affiliate partners — including Barneys, Topshop, Nordstrom and Browns Fashion — and make a purchase. Affiliate commissions are generally applied to any purchase made within 30 days, not just those of the products that may have led the reader there in the first place.

By far, Bag Snob’s most successful partnership has been with pioneering online retailer Net-a-Porter. “Last year our sales for Net-a-Porter were in the high six figures, though we are not at liberty to say what our terms and percentages are,” says Cook. “ShopBop is our second biggest affiliate partner.”

Affiliate partnerships continue to grow in importance as retailers like Net-a-Porter look to harvest consumer desire created by blogs and independent websites. Standard affiliate commissions range between 5 and 15 percent of a product’s retail price. “Each program is different and the terms are negotiable; since our conversion rates are really high we are able to get better percentages,” says Craig.

But while Cook and Craig often wax poetic about handbags and keep close relationships with their affiliate partners, they are not afraid to critique bags as well. “It makes no sense to try to tailor your content to fit with affiliate partners,” advises Craig. “That would be the beginning of the end.”

In a recent post in their On the Rag series, Cook took a Roberto Cavalli bag stocked at Net-a-Porter to task. “Unless you’re a mummy, you’re going to look ridiculous,” she wrote. “This bag looks so dusty and dingy, I want to shake all the junk off of it. Even the shoulder strap has fringe, so you look like you’re sporting some sort of sad, mop-like cape when you carry it. The gray hue looks more like a filthy white, so it just adds to the macabre effect of this ghostly, ghastly creation.”

Interestingly, the Roberto Cavalli bag appears to have sold out as it is now listed as “no longer available” on the Net-a-Porter website.

Still, the honest approach doesn’t always come without its own problems. “We’ve been ‘chastised’ by various retailers and PR people for negative reviews but that has not deterred us. Providing good content is our priority and readers who’ve been with us for 6 years know this,” Craig points out when asked how they maintain the balance between earning commissions and maintaining editorial integrity. “Our readers buy everything from $2,000 trendy bags to $30,000 investment crocodile bags based purely on our recommendation. They wouldn’t do so if they didn’t trust our reviews.”

But there are other revenue streams as well. Income from ads, sponsorship and ad networks make another 35 percent of sales. Consultancy and sponsorships bring in five percent of sales and are bound to grow following the announcement last week of a collaboration between Bag Snob and DKNY.

“We approached DKNY with the idea of designing a tightly edited line of bags,” says Craig. “We came up with the Five Essentials after studying how our friends and readers were shopping. We wanted to help women collect snob-worthy bag wardrobes without wasting their money on endless parades of black totes and trendy bags. They loved the idea and we agreed on a flat design consultancy fee.”

These kinds of collaborations loom large in Bag Snob’s future. “Without a bag-buying strategy, you end up with a collection of bags you never carry and one that gets worn to death, says Craig. “We would love to get into product. We have spent so much time analysing, we feel we are in the position to contribute some of that knowledge to products that fit with all the standards we use when reviewing.”

And, like all great collaborations, Craig and Cook also learned from the experience, extracting value above and beyond the consultancy fees. “This has been an incredibly humbling experience and we learned so much about designing and production of bags. I think it has made us better bag reviewers, as well. If we are given the opportunity to do more collaborations, it would be amazing.”

As they look to the future, and their business continues to grow, the one thing that will always remain at the core of the Bag Snob strategy is unbridled passion for fashion products. “We all are more professional and organized now, but the passion is still the same and you can’t feign that,” says Craig. “As we always say, if it doesn’t make you crazy like teenage love, don’t blog about it.”

Imran Amed is Founder and Editor of The Business of Fashion

The Business of Blogging is a new series on the rarely discussed business side of fashion blogging. Previous articles are listed below: