Everlane: Simple Fashion, Radical Business Model
Radical Transparency – no, not Bridgewater, but fashion retail.
In only a few years since its founding in 2010, online retail startup Everlane has created a lot of buzz in the fashion industry for its unique business model. At the heart of this is the company’s motto, “Radical Transparency,” which represents its commitment to disclosing its cost structure and manufacturing process.
Business Model
While Everlane’s business model is relatively novel in the fashion industry, it is also quite simple: selling luxury ‘staple’ clothing and leather goods online, for a reasonable – and highly transparent – markup. Everlane caters exactly to what millennials purportedly look for in a company – openness, pro-social operations, and convenience. For every product, the company discloses which of their partner factories it was produced in and the material, labor, and shipping costs associated; explicitly showing shoppers Everlane’s markup compared to a typical retail mark-up. Everlane has also taken the convenience of its online shopping experience to a new level, offering one-hour shipping in San Francisco and New York City for select products.
The results speak for themselves. Everlane has expanded rapidly with sales growth of 200% in 2014. It also boasts of an extremely loyal customer base who join long waiting lists for new product lines, all without any direct marketing [1].
The operating model supports the success of the business model in the following ways:
- Integration of supply chain/distribution: Everlane is able to charge a reasonable markup while maintaining its luxury image through its distribution and supply chain management.
- eCommerce: Cutting out the expenses of brick-and-mortar is the primary way Everlane is able to reduce its prices compared to traditional retailers.
- Manufacturing and distribution:
- Everlane selects and works directly with factories in China, Europe, and the US. The company attributes this “hands-on approach” to ensuring both ethical production standards and high quality [2].
- Everlane also outsources shipping and distribution to a large, family-run distribution center outside of Chicago for their entire line. Working with one distributor with large scale (1,700 employees, of which 100 are dedicated to Everlane) potentially allows Everlane to manage distribution costs. Furthermore, Chicago is an ideal location given Everlane’s concentrated customer bases in San Francisco and New York [2]
- Everlane has also continued to differentiate in the competitive online retail space through Everlane Now, a one-hour delivery service for “emergency basics” powered by Post Mates [3]. While this obviously adds complexity to distribution and inventory management, CEO and founder Michael Preysman sees this as an inevitable evolution of the business noting, “the future of online is incredibly fast delivery.” The scalability and sustainability of such an operation will be an interesting challenge for Everlane going forward [4].
- Everlane selects and works directly with factories in China, Europe, and the US. The company attributes this “hands-on approach” to ensuring both ethical production standards and high quality [2].
- Lean inventory management: Everlane also manages costs through its inventory management.
- Everlane limits the number of SKUs in its product line, focusing on ‘essentials’ (e.g. simple tees, sweaters) with limited variability in color selection. As we’ve learned from previous cases, the high variability of SKUs and need to forecast customer demand and trends in the fashion industry lead to significant operational and production challenges. The simplicity of Everlane’s product line, and common fabrics required for them, allows production to be faster and more nimble compared to traditional fashion retail [5].
- In addition, Everlane limits inventory by manufacturing less than they think will customers will buy. The company does this in order to accurately gauge demand for new product lines and get feedback on the success of their designs. Their nimble production allows them to iterate on their designs and optimize their limited portfolio, as well as enabling them to cut manufacturing and overhead costs. Further, the timelessness of their designs mitigates the issue of backlog losses as loyal customers are willing to wait for back-ordered products when demand exceeds supply [5].
Ultimately, Everlane’s business and operating models perfectly align to address changing customer behaviors including price sensitivity, growth of online and mobile commerce, desire for convenience and speed, and increased awareness of ethical operations. Its highly loyal customer base and strong growth in recent years are a testament to this. The question remains, however, as to whether this model has successfully translated into sustainable profitability, especially as Everlane continues to innovate on its operating model.
Citations:
[1] http://www.inc.com/diana-ransom/35-under-35-everlane-and-its-radical-idea-of-fashion.html
[2] Company website www.everlane.com
[3] https://medium.com/@DanHolm/everlane-is-disrupting-online-retail-with-one-hour-delivery-6ee64ed4805e#.xyrtw4ta2
[4] http://www.complex.com/style/2014/12/everlane-now-delivers-orders-within-an-hour-in-new-york-city
[5] http://qz.com/139888/everlanes-retail-recipe-stock-less-than-youll-sell-and-never-discount-a-thing/
Other sources:
http://www.forbes.com/sites/gregpetro/2015/11/06/everlanes-radical-honesty-2/
http://sf.racked.com/2015/9/28/9399395/everlane-now-delivery
http://tuck-fac-cen.dartmouth.edu/images/uploads/faculty/ron-adner/EIS_Everlane_MM_and_JC.pdf
http://www.vogue.com/13283183/everlane-fashion-tech-company/
http://www.forbes.com/sites/forbesstylefile/2014/11/20/designer-spotlight-everlane-making-retail-markup-transparent/
Thinking about their distribution, I’m not sure Chicago is the most logical choice for their distribution hub. While I think being inside a larger operation and being able to attain economies of scale without actually having to provide that scale is key, locating the distribution center in Chicago seems a bit out of place if they are really focused on the NY and SF markets.
I wonder why Everlane wouldn’t consider two separate and smaller distribution networks on either coast in order to be able to better service its primary markets. It could outsource and achieve scale in a manner similar to what it has going on in Chicago and potentially reduce shipping needs, not only to consumers but also to its factories (China to SF, Europe to NY). This is particularly true if the goods are coming by costly and environmentally-damaging air freight, but also if they are coming by boat. Reduced shipping times and costs could also potentially enable the operations to be even leaner.
I’m sure there are other reasons which make Chicago an attractive or more cost effective option – lower rent, wages, Chicago shipping freight schedules – and, as long as shipping costs can be passed onto the consumer, this might not matter all that much – but thinking about hubs nearer to its customers could potentially provide even more value to its model.
I’m interested in your thoughts on Everlane’s “Now” service. While I think this sounds appealing because it is new and convenient, and Everlane seems to be one of the first clothing retailers to do this, I also have to wonder how often I’m just dying for a new basic black long sleeve shirt that would necessitate one-hour delivery 🙂 And further, in NYC and SF where this service is offered, you are rarely more than a few blocks away from a diverse array of retail options. Do you think this is something that they’ll sustain going forward, or is this just a fashion flash in the pan?
Great post! I also share Kate’s uncertainty around the whether their “Now” service and their business model is a fad or something that will continue. I was surprised to read about their 200% sales growth in 2014 given Prof Keenan’s research on pro-social initiatives and the fact that while people say they stand behind pro-social causes or brands, they might not always vote with their wallet or change their behavior. I also question the transparency around their supply chain which they promote on their site – to what extent is it simply a feel good “story” that enables them to justify a higher mark up for basic items? I’d like to think that its more than just a fad and Everlane’s success is inspiring fast fashion companies to pay greater focus on higher labor standards as well as high quality product, but I’m still skeptical.