M.Gemi – Italian Fast Footwear
Founded in 2015, M.Gemi is a direct-to-consumer high-end Italian footwear brand for both man and women. Each pair is hand-made and offered at a price point between $198 and $598. New models are released on a weekly basis. In the last 18 months, the company has opened two “fit shops” (Boston, New York). When the customer purchases a pair of shoes, the transaction flows through their online account and is delivered straight to their homes.
The company was founded by Maria Gangemi, Cheryl Kaplan, and Ben Fischman, and has currently raised $47.2mm 1 through VC funding.
An industry ready for digital disruption
The business model of the designer footwear industry has remained stable for decades. Via digitization, M.Gemi has found a way to provide faster, better, and cheaper luxury footwear to consumers:
- Faster – In traditional footwear supply chains, production needs to be planned 12 to 15 months in advance before hitting the retail stores. Through efficient supply chain technology and by working closely with small Italian manufacturing firms, M.Gemi is able to accommodate shorter lead times. According to Fischman, it takes M.Gemi 60 to 90 days from product concept to online retail. If a style sells out online, reordering can happen instantly, and the style can be live again within 30 days.2
- Better – New styles are released on a weekly basis and customer feedback is incorporated into design choices and production forecasting.
All models are produced in small volumes. Behavioral analysis predicts that customers are more likely to buy a product when they sense that availability is limited. It is estimated that the majority of product styles sell through 50% of inventory in their first week3 , partly due to the scarcity effect.
Online and offline data collection enables a customer-centric design and production process. Product feedback is directly looped back to the design team and production forecasting unit. For example, when a model experiences high returns, the designers will adjust the model, or halt production.
The combination of scarcity, frequent new releases, and a customer focus results into a higher potential purchase rate. - Cheaper – Through disintermediation of wholesalers / distributors and increased supply chain digitization, M.Gemi makes higher margins on their products, and offers luxury footwear to consumers at lower relative prices. In addition, the company holds lower average inventories due to the smaller production volumes.
Customer-centric supply chain through data collection
M.Gemi has managed to incorporate both online and offline customer feedback into both the design process and production forecasting.
Online, data is collected through their website and the weekly newsletter. Each Monday, M.Gemi sends the “Monday Drop”, promoting their new models. Their tools allow to instantly track consumer clicking and purchasing behavior, which enables them to respond quickly to consumer preferences, by either ordering more inventory of some models, sizes, or colors, or adjusting designs to consumer preferences. In addition, the M.Gemi website allows to pre-order new styles and to add your name to waitlists for models that have sold out. This data directly feeds into the supply chain, adjusting production volumes.
Through their retail stores, M.Gemi has found an elegant way to bridge online and offline experiences. While in store, the Sales Associate tracks the customer in the database. This allows for a more personalized experience, as the Sales Associate can now look up previous purchases and returns. As the stores are “fit shops” and don’t actually sell products, the Sales Associate will add the desired products to the customer’s online cart. The customer can check out online, and have the products shipped directly from the warehouse to their desired address. Cheryl Kaplan, President of M.Gemi, states that “those who do shop both channels spend more money with the brand overall.”4
Future opportunities
M.Gemi should continue driving customer engagement, both online and offline.
Online, a possible approach could be to drive more interactivity by creating an online loyalty program. Each time a customer reviews a past purchase, he/she could be rewarded with loyalty points, that could either be saved for exclusive (offline) events, or for product discounts.
Offline, the company could host events in their stores for valued customers. Customers would sign up through their online profiles, allowing M.Gemi to track customer interest.
According to Kaplan, one of the biggest challenges M.Gemi faces in converting shoppers to make their first purchase online. Their policy of “Free Shipping, Free Returns – Always”5 may not be enough for customers to start buying the shoes. Increasing the amount of fit shops in major cities will allow for both greater brand awareness and higher conversion rates.
Open questions
How scalable is this business model, given that M.Gemi works with small Italian manufacturing firms, which are limited in presence and capacity?
How easy is it to copy this model?
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References:
- “M.Gemi Raises $16 Million In Series C Funding Led By Burda”, PR Newswire, (Jun. 20, 2017)
- Shontell, “Ruelala founder raises $14 million to launch the Warby Parker of beautiful Italian shoes, M.Gemi”, Business Insider, (Mar. 24, 2015)
- Moore, “Designer Spotlight: Step Into M.Gemi’s Italian-Made Shoes, Luxury Accessibly Priced”, Forbes, (Mar. 30, 2017)
- Milnes, “How M.Gemi turned its physical stores into data troves”, Digiday, (Sep. 26, 2017)
- com, accessed on Nov. 14, 2017
Photo credit: http://mgemi.com/about-us/
The last question posed by the author is an important one – how easy it to replicate the M. Gemi model? I believe it’s actually quite easy. I do not see the M. Gemi model as one with high barriers to entry or replication. In fact we have recently seen a proliferation of these types of apparel or footwear start-ups that are vertically integrated and do not have a traditional brick-and-mortar presence, opting instead for “showrooms”. Bonobos, MM LaFleur, Acustom Apparel, Paul Evans, and J Hillburn are all examples of brands that have so called “fit shops”. From a cost perspective, this is beneficial as traditional physical stores require much more inventory on hand and require overall more capital investment, but how can a brand differentiate their in-store experience.
Specifically, how can M. Gemi digitalize its fit shop experience? Some companies like Acustom Apparel provide full-body scans to perfect sizing and shape. I wonder if M. Gemi can similarly digitalize their in-showroom experience by scanning a customer’s foot to customize their shoes.
Ultimately, despite M. Gemi’s digital supply chain, in my opinion it is not poised to be a lasting brand. Their use of customer data to refine offerings is not a novel idea – I would argue that most e-commerce companies understand the benefit of tracking customers and are investing in using this data to enhance decision-making. Lastly, the idea of releasing shoes on a weekly basis seems excessive, not to mention contrary to the idea of durability (associate with quality) and sustainability.
Very interesting article! The main value propositions of M. Gemi are 1) the disintermediation approach that combines old world craftsmanship with new world technology at uncommon prices 2) weekly releases of new styles. [1]
Digging a bit deeper – for 1) since M. Gemi works directly with small Italian family-owned workshops, I wonder how to maintain fast delivery time for customers outside Italy. How do they maintain price advantage given high transportation cost when customers are located thousand miles away from the manufacturers in Italy, not to mention the customs and foreign exchange fluctuations?
For 2) I found it very interesting to build customer preferences into weekly launching new styles. One important aspect of digitalizing supply chain is to visualize the needs in each part of the network. With data collection of customer’s clicks and purchasing behaviors using the weekly “Monday Drop”, M. Gemi can better visualize customers’ need. The bigger questions are how fast M. Gemi’s design team can respond to customer’s preference before it changes, and how to measure the success/role data plays in providing insights for designing a popular product.
[1] http://www.burdaprincipalinvestments.com/investments/m-gemi/