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.
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 .
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 .
- 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 
- 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 . 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 .
- 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 .
- 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 .
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.
 Company website www.everlane.com