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.

Gap store in China | Source: Juncture Mag

Gap plans store closures in US, while opening new locations in China (Washington Post)
“The struggling retailer, which runs the Gap, Old Navy and Banana Republic chains, detailed plans on Thursday to close 189 locations, or 21 percent of its namesake Gap stores in the U.S., by the end of 2013. At the same time, the largest U.S. clothing chain said it plans to triple the number of Gap stores in China from about 15 by the end of the year to roughly 45 by the end of next year.”

eBay’s New Retail Platform Is Mostly Free, So What’s the Catch? (All Things Digital)
“The platform, called X.commerce, was unveiled yesterday at the company’s developer conference in San Francisco and is designed to help any size retailer, ranging from family-owned stores to Toys “R” Us, keep up to date as shopping goes online and mobile.”

Female Founders Of Snapette Not Your Typical Geek Entrepreneurs (Forbes)
“The founders of Snapette are not your prototypical start-up entrepreneurs. At least in the minds of some Silicon Valley venture capitalists… While there are many shopping and style websites, Snapette is different because it focuses on actual products in the real world connected to location.”

Prada and Schiaparelli at the Met (On the Runway)
“Elsa Schiaparelli may share a birthday with Karl Lagerfeld (Sept. 10), but Miuccia Prada is unquestionably her sister in soul. Putting these two nimble minds together makes sense, and not simply because both are educated Italian women who enjoy a good fashion joke. The Metropolitan Museum of Art announced that the spring 2012 exhibit at the Costume Institute will be ‘Elsa Schiaparelli and Miuccia Prada: On Fashion.’ It will open May 10 and run through Aug. 19, with the gala on May 7.”

The woman who built a wardrobe with doors all over the world (Guardian)
“While the British high street struggles in the face of the economic downturn, My-wardrobe saw 68% sales growth in the first half of this year. Sales doubled in the 12 months to May after Curran introduced more upmarket brands such as Missoni and Phillip Lim. More than 900,000 shoppers visit the site each month to view collections from 180 designers, spending an average of £260.”

Hermès sari collection | Source: Luxpresso

Hermès sees sari as way in to India (FT)
“It’s perhaps not surprising that the first offer of a sari from a western company comes from Hermès, which last year launched a bespoke Chinese brand, aimed at winning more Chinese customers while resuscitating China’s craft tradition… India’s luxury market has recently captured the attention of European and American fashion houses, as the increasingly affluent elite shrug off years of socialist-inspired austerity.”

Battle of the catwalks update: Milan and Paris refuse to budge (Telegraph)
“So, as things now stand, New York fashion week will begin on September 13 next year, followed by Milan on September 19, London on September 21 and finally Paris on September 25. Milan decided to go ahead with its controversial calendar (that sees it run concurrently with two days of New York and four days of London fashion weeks) despite a last minute plea from its British and American counterparts.”

eBay VP Steve Yankovich: En Route To $4B In Gross Mobile Sales (TechCrunch)
“eBay is on its way to process around $4 billion in mobile sales (= gross merchandise volume, not revenue) in 2011, double the number it logged last year. The company’s mobile apps for iPhone, iPad, Android, WP7… Have been downloaded over 50 million times, and its Marketplace app alone has seen about 20 million downloads. Furthermore, three purchases are made through eBay’s mobile applications every second.”

From Rags to Riches (T Magazine)
“With big-name museums increasingly relying on fashion, it was only a matter of time before corporate brands saw the advantage of creating their own exhibitions and ‘museums,’ where they could set their focus without any intervention from pedantic historians and where they could make or break their own rules… But with so many more museum exhibitions scheduled to open and an audience that adores fashion displays, no one would dare to dismiss a heritage piece as ‘this old thing.’”

LVMH: In the lap of Luxury (Telegraph)
“If you have ever wondered how big the Moët & Chandon cellars are, what the inside of the Christian Dior haute couture house looks like or how long it takes to make a bespoke Chaumet tiara, then you are in luck. Next weekend the luxury group LVMH – whose portfolio also includes Louis Vuitton, Givenchy Couture, Dom Pérignon and Glenmorangie – is opening the doors of some of its private inner sanctums.”

Burberry Spring/Summer 2012 | Source: Design Scene

Burberry launches 2012 collection on Twitter (Guardian)
For the first time, the label “live tweeted” the show on Monday from backstage, posting photographs of each look on Twitter moments before the model stepped on to the catwalk… When you consider that it was not long ago that high street stores smuggled spies into catwalk shows in order to glean clues as to what might be in stores in six months’ time, this is quite a turnaround.”

Tom ‘God’ Ford has off day. Fashion world in denial (Guardian)
“This man redefined the parameters of what a fashion brand could be during his time at Gucci. He made the world rethink what it means to be sexy, replacing heroin chic with a slick, glossy aesthetic…His comeback show in New York was one of the highlights of my decade as a fashion editor: a gorgeous, glorious, life-affirming celebration… But even godlike geniuses have off days.”

eBay says Boo to the runway (FT)
“Some of the world may be obsessed with fashion that hasn’t yet happened – or the stuff now appearing on runways from London to Paris, which won’t be in-store until late February of 2012 – but the folks at eBay are much more interested in the profit potential of immediate gratification.”

London Fashion Week crisis after Gucci summon models to Milan (Telegraph)
“London Fashion Week has been thrown into crisis after heavyweight Italian fashion brand Gucci, who will show their spring/summer 2012 collection in Milan on Wednesday, ordered countless models to fly to Milan early to begin fittings for their show.”

Miuccia Prada Sitting Pretty (Because London)
“Miuccia earned her stripes slowly and after years of being regarded with skepticism from critics and fashion insiders. Untrained in design and lacking an apprenticeship in the conventional sense, she earned a Ph.D. in politics, then became a mime artist before eventually taking over the family business. 
At that point in the late ’70s, Prada was a small Milanese leather goods manufacturer.”

Hussein Chalayan photographed by Chris Moore | Source: Vogue Paris

Chalayan and McQueen exhibitions: cultural landmarks of the year (Telegraph)
“It is the intellectual and imaginative stature of these two former peers – the fact that they drove fashion to reflect difficult realities and push the boundaries of technology – which make their shows a different kettle of fish from the usual lifeless way clothes appear in museums.”

LVMH Pledges Gender Balance In Europe (Forbes)
“LVMH Moët Hennessy Louis Vuitton voluntarily committed to increase women’s representation at the highest corporate level by signing the Women on the Board Pledge for Europe, which aims to increase women’s board membership to 30% by 2015 and 40% by 2020.”

Global Demand Buoys Burberry (WSJ)
“Luxury retailer Burberry PLC reported a 34% rise in first-quarter sales, boosted by new store openings and continued global demand for its iconic trenchcoats and designer handbags… Luxury groups enjoy renewed demand and the company’s growth strategy continues to deliver strong profits.”

U.S. Retailers Shop for Space in Europe (WSJ)
“The weak U.S. economy and worries about jobs have consumers spending less and are causing some of the biggest U.S. retailers to look abroad for growth… American retailers are finding it easier to experiment and try new strategies in new markets than to revamp worn models at home.”

eBay liable for counterfeits sold on its site (Telegraph)
“eBay has tried to claim exemption from liability for counterfeit goods sold on its site, but the European Court of Justice… Ruled that brand owners will be able to initiate legal proceedings if the likes of eBay and other online marketplaces allow counterfeit goods to be sold.”

Bryanboy | Illustration: Moises Quesada

Blogging from Manila to Milan (WSJ)
“Bryan Grey-Yambao, a 24-year-old Filipino based in Manila, began blogging from his parents’ home in Manila in 2004. He is one of the biggest names among a new, increasingly influential crop of fashion bloggers — with their own commercial contracts, front-row seats at fashion shows and multipage spreads in magazines.”

In Eco-Jeans, the Green Becomes Harder to Spot (New York Times)
“Two years ago, when going green was red-hot in the fashion industry, there were plenty of organic jeans to choose from. Today, none of the brands do. Which raises the question: Where has all the organic denim gone?”

Jiang Qiong Er, Shang Xia’s CEO & artistic director (Luxury Society)
“Beyond the industry’s collective marvel at the foresight of the firm to bolster its export of Hermès goods into China by inventing a domestic Chinese luxury brand to boot, there is much more that the Shang Xia brand is destined to achieve besides just filling the Hermès coffers. Shang Xia’s visionary co-founder, Jiang Qiong Er, explains why.”

Forecast 2011: Menswear’s e-commerce success story (Monocle)
“With sales having increased by 11.4 per cent over the first two weeks of November 2010 alone, e-commerce is one of the fastest growing sectors in retail. And, this year it’s the men’s market that will see the greatest change.”

eBay Takes a Page From the Glossies (New York Times)
“[Andrea] Linett began a new job this week as the creative director of eBay Fashion. One of her responsibilities is to enliven the experience of online shopping at a site that often feels more like a digital flea market.”

Giambattista Valli Store, Paris | Source: Giambattista Valli

Giambattista Valli: “True Luxury Is When Others Come To You” (Style.com)
“There’s something about Giambattista Valli’s clothes that is so fundamentally optimistic, they’ve got you at hello,” said Style.com’s Tim Blanks—and last week, the designer opened his first Paris boutique, in the centuries-old Galerie de la Madeleine.”

Diane Von Furstenberg and China: A Perfect Fit? (NY Times)
“Today, there are roughly three dozen DVF boutiques worldwide, and she’s extending her reach into China, with shops in Beijing and Shanghai…’I came for the first time in 1990. And I’ve always had this fantasy. I’d like to sell every Chinese a T-shirt.’”

When friendship and fashion equal success (Financial Times)
“When launching Gilt Groupe, an online shopping site that currently has 3m members, the co-founders did not trouble to write a traditional business plan. Instead Alexis Maybank, 35 and Alexandra Wilkis Wilson, 33, took what they had learnt from Harvard Business School and bypassed the formality.”

EBay to Buy Germany’s Brands4friends (Bloomberg)
“EBay Inc., the largest e-commerce marketplace, agreed to buy brands4friends, Germany’s biggest online shopping club, to increase fashion sales in Europe.”

Seamless Sabya (Deccan Herald)
“His clothes are an extension of his personality — they’re cheery, colourful and above all, exude a strong sense of Indianness. With his mantra being ‘clothes are just extensions of one’s intellect’, B-town’s favourite designer, Sabyasachi Mukherjee has proved his mettle in the business of fashion.”

Derek Lam | Source: Derek Lam

Derek Lam launches crowd-sourced collection on eBay (The Cut)
“Upon the collection’s initial unveiling, anyone with Internet access will be able to vote immediately for their favorite looks online to determine what goes into production.”

U.S. luxury, dept stores set for Xmas bounce (Reuters)
“Luxury and department stores will be the biggest beneficiary of expected growth in the U.S. retail market this holiday season, according to the head of the National Retail Federation.”

Gilt City acquires Bergine.com (Luxury Daily)
“Gilt City has acquired Bergine.com to combine two local leaders of luxury services and experiences. The acquisition is a first for Gilt City’s parent company, Gilt Groupe Inc. It accelerates Gilt City’s West Coast expansion.”

LVMH says will continue to buy Hermès shares (Reuters)
“LVMH said… it planned to buy more Hermès shares and disclosed to French regulators that it built up its 17.1 percent stake in Hermes partly through derivatives, called equity swaps.”

Moss’ final Topshop collaboration (Independent)
“As she prepares to unveil her last [collection] – what has the high-profile partnership done for the fortunes of the model, the mogul – Topshop owner Sir Philip Green – and the crowds who have bought into Brand Moss?”

Dior's Shanghai Dreamers | Source: antbazaar

Chinese people as identical Maoist robots? (Guardian)
“If fantasy is part of the appeal of fashion, then wouldn’t it be worthwhile for Dior, Chanel, and other couture houses to figure out how Chinese people fantasise and see themselves?”

Marketing’s New Rage: Brands Sponsoring Influential Bloggers (WWD)
“Forget about just display ads. Increasingly, the future of advertising online seems to be through sponsorships, contests, giveaways, product placement, widgets and games — often with bloggers.”

How CEOs Will Use Social Media in the Future (Mashable)
“Today’s CEO is not social… Very few of the CEOs at top companies in the U.S. and the rest of the world have any material presence on the popular social media sites… all signs are pointing to a future filed with CEOs who can speak the language of the people — social media.”

Ebay redoubles marketing efforts for fashion offering (Marketing)
“Since eBay launched its Fashion Outlet site in April, it has had 30 fashion retail brands, including Superdry, Karen Millen, Ted Baker and Office, join to sell their products through it.”

How the late Corinne Day changed my life (Telegraph)
“Her style of photography, and that British Vogue shoot in particular, kicked off the whole grunge movement in the ‘90s in a blaze of controversy. No discernible make-up, natural light, girls with flaws.. Her work was so unmistakably British and effortlessly cool.”

Leslie Mann wearing Boy | Source: Boy. by Band of Outsiders

Can an Outsider Cash In? (WSJ)
“Scott Sternberg, a former Hollywood talent agent, is pushing to turn his small, successful label into a fashion empire. Formerly with Creative Artists Agency, Mr. Sternberg quit his job seven years ago to launch the label Band of Outsiders, spawning a boom in skinny ties and riding the surge in modern prep wear.”

Top fashion brands enjoy a new vogue (FT)
“Fashion and finance have traditionally made uneasy bedfellows. While some fashion brands such as Burberry and Louis Vuitton have married vision with business acumen, all too often there is a tension between creativity and corporate finance.”

EBay Adds ‘Flash’ Fashion (WSJ)
“EBay Inc. will launch “flash sales” of high-end fashion brands Monday in its latest bid to revive its giant online marketplace. On a portion of its Web site dubbed Fashion Vault, the company will offer discounts starting at 50% off retail for a limited time, beginning with offerings from French Connection Group PLC.”

An unauthorised history of Smythson’s (Guardian)
“Not so long ago, Smythson’s was confined to Bond Street. Now it has branches in New York and Los Angeles, another two at Heathrow, stalls in several department stores and Samantha Cameron as its creative director. Their success, including Cameron’s, depends less now on printing handsome stationery for English gentlefolk and more on selling baubles to the impressionable rich.’”

Suits fit for a king (from the Queen’s dress-maker) (Independent)
“Seven years after Sir Hardy’s death at the age of 93, the fashion house that the clothes designer and war hero set up on Savile Row is to abandon its heritage as the provider of pink silk gowns to the monarch and focus on a different clientele: the gentleman in need of bespoke suits and made-to-measure dinner jackets.”