Everlane: Winning with ‘Radical Transparency’
Everlane is an online retailer offering elevated “basics” (i.e. white t-shirts, cashmere sweaters, leather tote bags). Everlane’s entire business model is centered on “price transparency” in their products. Everlane is targeting the millennial shopper who believe in companies with a social conscious and value high quality products for a good deal. In the highly competitive ecommerce environment, it is common practice for the consumer to price compare and has access to the prices for every competitor. Everlane capitalized on this consumer behavior to create their point of differentiation – lower prices for high quality products. On their website, Everlane breaks down the cost of every component that goes into making their products. They show the customer exactly what they are paying for, including the percentage of profit that Everlane is making on the transaction. They even highlight the price of their product in direct comparison to the higher price of their competitor’s products; Everlane employs a 2x markup from the cost while the industry standard is closer to an 8-10x markup. Everlane enables the consumer to buy products of a similar quality but at a “fair” price. Each aspect of their operating model allows Everlane to deliver on their business promise of keeping quality high and prices low – all with “radical transparency.”
INVENTORY, MARKUPS & DISCOUTING MODELS
Everlane intentionally stocks less inventory than they believe they can sell. The products are intended to sell out so the company has no need to discount the products to move through their inventory. In a traditional retail pricing model, a product has 3 prices throughout its lifecycle: full price, partially discounted, and rock bottom final discount. By never offering discount, Everlane successfully ties their inventory model to their pricing model. By maintaining a low level of inventory, the company is able to reduce some of their overhead costs which further enables them to offer lower priced products.
This aligns with Everlane’s business proposition of pricing transparency. They are able to maintain one single price throughout the product’s entire selling history. Everlane also communicates their markup percentage openly to their customers; shoppers know exactly how much profit Everlane makes on each item. Traditionally, a company needs to mark up the ticket price of their product significantly because they plan to discount that product. The company must still make a margin profit even while the product is on a discount. Therefore, the original ticket price of the product must be marked up much higher than the company’s actual target margin. By eliminating the discounting practice, Everlane is able to have a lower original markup. This is the point of difference that Everlane embraces and is the story Everlane tells to their consumer.
PRODUCT DECISIONS
Everlane utilizes their merchandising decisions and their product line to support their brand proposition. In order to plan for such low levels of inventory, Everlane employs 4 major merchandising strategies. First, they offer a very limited product line and thus maintain a minimal SKU count. Second, they stand behind the idea of iterative basics. The traditional retail model for basic products involves a longer product lifetime and a large stock of inventory. However, Everlane has reinvented the idea of “basics” by challenging the notion that a product can be perfect enough to remain unchanged for seasons, or even years. Therefore, they frequently relaunch their basic products with small tweaks and improvements. They are allowed this flexibility because they never take large inventory positions behind products. Third, they utilize product waiting lists to anticipate demand. The items are planned to sell out, so customers will join a waiting list for the new, updated product. The Everlane team is also able to use feedback from the first product to make improvements on the new products aesthetic and supply. Finally, Everlane’s conservative inventory model allows them to be very flexible and make changes to a poorly performing product quickly.
THE PLATFORM & ADVERTISING METHOD
Everlane strategically chose to launch solely on their ecommerce platform so they are able to avoid the high costs associated with brick and mortar stores and the markups associated with wholesale distribution. Additionally, Everlane does not use any marketing in order to avoid the large expenses associated with an advertising budget. Instead, they have spread their word through cheaper platforms that specifically target their millennial demographic, mainly social media. These are two additional ways Everlane has stayed true to their brand strategy of keeping costs low and transparent to their customers.
SOURCES
2). https://brandsbyovo.com/knowing-brand-everlane/
3). http://www.vogue.com/13283183/everlane-fashion-tech-company/
4). http://qz.com/139888/everlanes-retail-recipe-stock-less-than-youll-sell-and-never-discount-a-thing/
5). http://www.forbes.com/sites/gregpetro/2015/11/06/everlanes-radical-honesty-2/
6). http://www.inc.com/diana-ransom/35-under-35-everlane-and-its-radical-idea-of-fashion.html
Ah do I love Everlane. I never knew about their inventory model (but I guess I should considering they are always out of my size!). I wonder if having such low inventory ever hurts them more than helps them. Maybe the cost of losing out on a sale, or even a customer, could outweigh the benefits they are reaping right now from this policy? It just surprises me that they put such emphasis on limited inventory given their products are mostly basics. I would imagine they need pretty good insight into forecasted demand to produce what is the “right” amount, and given they are still relatively new and in a totally evolving marketplace with new players every few months, it’s probably quite hard to estimate how their consumers will behave. I guess their waiting lists provide some reprieve.
I also wonder if they’ll stick to their decision to not go the brick-and-mortar route. They could probably do quite well with the pop-up store concept in big cities.
This is so interesting – love it! My main questions are around the sustainability of this model. How much longer can Everlane keep ‘reinventing’ the basics, season after season – will they run out of ideas? Also, I wonder whether this low inventory model is restricting their growth. Further, are they sacrificing growth for their ‘story’ and what is the tradeoff between being transparent and maximizing profitability?
Awesome post! In terms of the low inventory the company maintains, how are they able to do this from a production perspective? I know that most retailers “schedule” factory time in other countries, which is partly why they produce in mass quantities given having to reschedule in peak season is incredibly expensive (and likely unavailable). Are they doing any manufacturing “in house”?
I also think it’s interesting that in a world proliferated of players offering free returns, that Everlane doesn’t (and instead charges a $5 restocking fee). This may complement their business model, though, given they are selling basics and there are likely less issues with fit when it comes to a standard cashmere sweater or cotton tee. However, I wonder how many purchases and first time costumers the company loses out on because of this decision. Freeing them of the cost of returns is probably another huge enabler for their low price model, given ~90% of retailers say that free returns is an issue they are constantly thinking about.