Everlane Takes A New Fashion Lane
Everlane can be summed up in their 9-word mission: “Know your factories. Know your costs. Always ask why.” This transparency is the key driver of both their business model and operating model.
Everlane can be summed up in their 9-word mission: “Know your factories. Know your costs. Always ask why.” This transparency is the key driver of their business and operating model. Everlane is one of the few fashion brands to publicize its supply chain. They find the best factories around the world to bring their designs to and develop a strong partnership with each of these factories. These factories manufacture fashion items that are sold on Everlane’s website directly to the consumer (eliminating any normal brick & mortar expenses). The best part? Everlane keeps an open dialogue with their customers every step of the way.
Suppose you want to buy a cashmere sweater. You see one on Everlane’s website for $125 – why should you buy it? You might buy it because you know the sweater comes from Mr. Chu’s Factory in Hong Kong, which you’ve read all about here.
Know your factories.
You might buy it because you perceive you are getting a deal. Materials cost $46.78, labor $12.40, duties $2.37, and transport $2.42. Summed up, its “true cost” is $64. Everlane tells you that a traditional retailer would charge you $230, but the Everlane price is $125.
Know your costs.
You might buy it because you are a “questioner” or a “rule breaker.” Why does fashion retail operate the way it does? Who touched the cashmere sweater that you are buying? Where is it from?
Always ask why.
BUSINESS + OPERATING MODEL
Everlane’s business model is that of 100% transparency – or what they call “Radical Transparency” – with their consumers. Everlane wants and operates off of this two-way conversation. They creates knowledge value through this Radical Transparency, and captures that value in sales to consumers who buy-in.
When thinking about Everlane’s operating model, Everlane’s assets are far more than the items of clothing they sell. Their assets are their factories, customers, and environmental awareness & sustainability. Moreover, their operating model consists of a direct-to-consumer structure and additional cost-saving processes to ensure the value to the consumer.
Everlane aligns their operating model to their business model in the following ways:
- Factories are “partners,” with both high quality and ethical/environmental standards.
- Pricing is consistent – no items will ever go on sale (a transparent pricing strategy ensuring Everlane’s margins are not eroded).
- Costs are clean – material costs, labor costs, duties, transportation…there are no advertising costs, no additional brick & mortar costs. Even Everlane’s marketing is organic (Instagram posts, Snapchat).
- Inventory is basics or “essentials”-driven, variations on a perfect v-neck tee or cashmere sweater; Everlane does not stock your typical “fashion” deliveries or collections that you see at most retailers. The items are produced in small batches to achieve stock management (while stock-outs may be more frequent than at your typical retailer, Everlane cannot and does not sit on too much slow-moving inventory).
- Everlane disrupts Black Friday – whether they shut down their website or launch the Black Friday Fund to raise donations for one of their factories, “doorbuster” sales are not part of Everlane’s operating model.
Everlane’s business model and operating model are both aligned behind developing a fashion offering for a changing retail consumer. Today’s consumer is very different than who she was 30 years ago. She cares about the environment, she cares about people, and she wants to know the answers to everything (we live in the age of googling). At the same time, this retail consumer has become more label-agnostic. Clean, simplistic, casual luxury (cough, Everlane essentials…) are filling her closet. Moreover, today’s consumer is not dominantly female. Men have increasingly begun to make retail purchases on their own, and the value proposition that Everlane offers is extremely appealing to men and women alike.
After launching in 2011, revenues in 2013 had surpassed $12M and 2014 revenues were double that. 2015 revenues are speculated to surpass $35M. But founder, Preysman, is taking a step back in his transparency; Everlane no longer discloses their financial numbers. Is there a worry that their operating model are too replicable, given their extreme transparency? Is it too easy for copycats to enter? Frankly, there are few secrets to Everlane’s success.
Nonetheless, given Everlane’s two-way dialogue with their consumers, these consumers will be the first to tell them if there is need to worry. Everlane’s dialogue with their consumers will foster their success and future scaling. Take Mini, Everlane’s kidswear line, which launched yesterday. Moms of the world, Everlane heard you. What’s next? Vogue’s recent article points to an expansion into shoes…. I’m excited.
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http://www.bloomberg.com/features/2015-everlane-ethical-fashion/
http://www.vogue.com/13375928/everlane-mini-launches/
http://www.entrepreneur.com/article/236471
http://www.inc.com/diana-ransom/35-under-35-everlane-and-its-radical-idea-of-fashion.html
http://www.sfchronicle.com/style/article/Everlane-expands-its-reach-6204937.php
Thanks for the post about this interesting business model, Cara!
I’m curious to know how Everlane incentivizes factories to partner with the company, given that Everlane’s transparency policy makes the costing information of its partners publicly accessible, which may affect factories’ abilities to mark up their prices to other distributors or retailers or detract from other retailers’ willingness to source from those factories.
Also, is there a particular reason Everlane focuses only on basics and essentials? How does this relate to their competitive advantage since they are intentionally limiting their product offerings?
Great post Cara! I certainly can see the value proposition of a clean simple merchandising strategy. I wonder though if the quality of their garments have been put to the test. If I am looking for basics, I am most concerned with quality more than design. Thanks!
Cara, I thought this was an excellent outline of Everlane’s strategy and operations – thanks! In thinking about this as an end-consumer and as a retail-veteran, I have a couple of thoughts:
First, does transparency in Everlane’s pricing help or hurt their value proposition? In general, I am a huge fan of transparency, and it has clearly worked well for Everlane. But the pricing breakdown in the graphic above actually raised some questions for me! Should I be comfortable paying $125 for a sweater, when just shy of 10% of that price goes to the actual maker? If the argument is that the new consumer feels empathy for the international labor force producing her/his products, is that consumer comfortable with such a small amount being allocated to labor costs (particularly as compared to Everlane’s profit)? If I know that $125 sweater only cost $64 to produce, does that make me feel more or less comfortable putting the remaining $61 into Everlane’s pocket? Many retailers make even higher margin %’s on their full-priced merchandise, but they do so with the expectation of discounting a significant portion of their stock. Since Everlane doesn’t discount, they may actually have higher margins than (or comparable ones to) mainstream retailers. Finally, will deal-driven consumers switch from buying their cashmere at outlet malls to buying it online at Everlane and possibly paying more, even if it feels like better value for money? I think the move toward transparent pricing is an excellent one, but I am curious about the magnitude of its strength as a competitive advantage.
Second, I tend to applaud the decision to focus on basics or essentials. An evergreen product mix never needs to be discounted, and can match consistent consumer demand for staples. However, a lack of trend-driven or otherwise unique items lessens customers’ incentives to return to Everlane frequently to shop and purchase. In an e-commerce model, customer lifetime value depends largely on average order value and repeat purchase rate. If Everlane’s products are of high quality – and presumably wear out over a longer time period – customers will repurchase less frequently. There is potentially a lower upper-limit to purchasing potential from each customer than for other brands with a more diverse product mix. So it all comes down to whether Everlane can derive enough value from each customer – and grow its customer base – sufficiently, in order to have a sustainable business. I’m curious to see how this shakes out!
Again – great analysis, and thanks for posting!