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

Source: Uprising Movements
  • Guest Contributor

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
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