OMyBag: An (un)sustainable business model to support a sustainable brand’s expansion?
Designed in Amsterdam and handmade in India OmyBag is not your ordinary bag. This eco-friendly bag brand with a social mission, has successfully expanded its sales to 21 different countries across 121 different cities since its inception in 2010. The company's operating model has successfully supported growth during the first five years of the business' existence, but is it the right model to support continued sustainable development of the business going forward?
OmyBag, an Amsterdam based company selling eco-leather bags and accesories, was founded with the goal to sell beautiful, eco-friendly, durable bags that you can “flaunt without guilt”. Founder Paulien Wesselink had the vision to create affordable, yet fashionable bags for fashion and eco-conscious consumers and founded OmyBag in Amsterdam in 2010. As of 2015 ,the OmyBag brand is sold in 21 countries and 121 different cities. OmyBag is an example of a young brand that has managed to build an operating model that successfully supports its business model and that has allowed the company to grow with a modest amount of initial capital investments.
OmyBag produces leather bags for men and women as well as leather accessories (laptop sleeves, luggage tags, toiletry bags). All OmyBags products are produced in India, using eco-friendly leather. The company only works with producers that it believes provide a safe and positive work environment and fair pay for its workers. OmyBag’s customer promise is to bring you affordable beautiful bags that you can feel good about.
Most of OmyBag’s products are sold in it’s online store and shipped straight from Amsterdam to their final destinations across the global. In addition to the online store, OmyBag has worked to build its presence in multi-brand stores, selling it’s products in over 21 countries, mostly in Europe. Thus far, the brand uses it’s Amsterdam office as a showroom where it often hosts sales and special events to promote it’s brand.
Sourcing of raw materials (eco-friendly leather and canvas) as well the actual production of the bags is all done in India. The obvious cost-advantage to producing the bags in India was the lower price of raw materials as well as the much lower price of labor versus producing in Europe. This cost-advantage has allowed OmyBag to produce eco-friendly bags at an attractive price point whilst still making a decent margin as well as creating a positive social impact for the people who produce the bags.
OmyBag sells most of its products online, avoiding the high costs and risks associated with opening brick and mortar locations. The company operates from a low cost, government subsidized, start-up location in an old high-school building in Amsterdam that was designated for demolition several years before OmyBag took office there in 2010. As people in the neighbourhood protested against the demolition of the historic building, the municipality decided to cancel the demolition and to let start-ups use the space. The extremely low rent, ample space and location in the middle of the city allowed the company to grow it’s business as it’s office functions as a design studio, warehouse, office and showroom at the same time. It’s location in the heart of Amsterdam makes it easily accessible for customers and an attractive place to work for it’s young staff.
Due to the resulting low overhead costs, Ms. Wesselink has been able to invest in marketing her brand and expanding her product line with bags for men, small leather accessories and laptop bags. It also allowed her to experiment with several different suppliers in India to optimize for sustainability and quality. This was important, as one of the starting challenges of the business was to find “fair trade” producers that could produce her designs to spec. She was confronted with multiple quality issues at the beginning, when she found that most of the “fair trade” producers were usually not chosen for their focus on quality but managed to sell lower-grade products simply because they had a “fair trade” label. Conscious of the high standards of her fashion-savvy end consumers, Ms. Wesselink knew that the bags had to be perfect and the quality of the leather great for OmyBag to be competitive.
Initially, Ms. Wesselink travelled to India and choose two suppliers to work with. When she returned back to Amsterdam and received the first samples she was very disappointing. The quality of the leather was not great, they did not manage to translate her designs into good-looking bags and solving this over the phone or via e-mail proved very difficult at a distance.
Due to her low-cost set-up the initial quality fiasco’s did not immediately kill her business as she had some cash from her back loan to overcome the quality issues in her inventory. She traveled to India several times to meet with as many suppliers as possible. She managed to find new producers who did not necessarily don the “fair trade” label, but with whom she was comfortable that her products would be produced in a safe and positive atmosphere. She visited many factories and tanneries and selected a handful of suppliers. All these suppliers paid fair wages, covered employee benefits, offered equal pay for women and minorities and provided education and training. This was very important to Ms. Wesselink as the social impact story was part of the OmyBag brand philosophy and customer promise.
Although she did prefer one of the suppliers over all others, she was conscious that the production capacity of this factory was limited and that if there were any production issues at one of her factories she did not want to be solely dependent on this one factory for her whole product line. Depending on the level of sophistication of the different factories, different models (ranging from very simple canvas bags to slightly more difficult to produce leather bags) were elected to be produced in different factories. That way operational risk was spread across several suppliers and OmyBag would not become too dependent on any one supplier. It also gave her flexibility to discontinue production with a supplier if she felt the supplier could not provide the quality of production or production standards that were essential for OmyBag.
Briefly, Ms. Wesselink had also considered vertically integrating. She felt that it was still too early days to open her own factory in India and that for now it made more sense for OmyBag to stay nimble and not to start investing heavily in a factory. In the longer term however, it might make sense one day to take production fully in-house to have full control over the production process and quality control.
Alignment of the Business and Operating model
The OmyBag business-model, selling eco-friendly bags that have been produced in a fair way, is supported by the operating model in several ways. Firstly, because the bags are produced in a sustainable manner Ms. Wesselink finds that she can command higher prices from her customers. The sustainability, “#tradenotaid” story around the brand positively impacts the customer’s willingness to pay. This in turn is essential for the company to be able to produce sustainably and to fund it’s operating model. It also gives the company a competitive edge over bag brands that are not produced sustainably (at least in the eye of the conscious consumer). For a woman with many bags to her name, the social impact story behind the brand is simply another good excuse to buy a bag when she does not need one and to pay slightly more than for a competing brand. The socially and eco-conscious business model therefore support the relatively more expensive operating model (paying fair wages, paying up for eco-friendly inputs).
Secondly, lower cost elements of the current operating model (low cost office, warehousing and packaging in-house, production and sourcing of raw materials in India) have helped the company expand it’s business successfully since its inception in 2010 without heavy capital investments. Outsourcing production has kept the company relatively flexible and nimble as OmyBag did not invest in a factory or production line. Low overhead costs have helped the company remain competitive in a overcrowded and competitive retail market as it did not need to pass on high overhead costs to its customers.
An unsustainable operating model for a successful sustainable brand?
The brand is now sold in 21 countries and in 121 cities. The company is still operating from it’s low-cost site in Amsterdam but is thinking of outsourcing its warehousing and packing of its online sales (currently still mostly done by interns in-house). As the company is growing it will at some point need to invest in it’s infrastructure to support it’s continued growth. Ms. Wesselink is therefore carefully considering her next strategic steps. Although the operating model has served the business well in the first five years of it’s existence, it might not be the right model for sustainable growth. Should she invest in opening a flagship to promote her brand? Partner with retail chains to expand her retail presence? Should she outsource warehousing and shipping? And how can she ensure a reliable supply of OmyBag’s when orders keep growing and her suppliers are operating near capacity…..?
Student comments on OMyBag: An (un)sustainable business model to support a sustainable brand’s expansion?
Very interesting post! I recently found myself shopping in this market segment, so it was quite an enlightening read.
I agree with your questions at the the end. What strikes me though is that they assume a particular growth strategy, i.e. expand the scale of the current activity.
While it definitely is one of the paths to consider, perhaps there are some additional broader questions, possibly pointing at alternative strategies:
i) A number of clothing/accessories brands have remained successful by staying small, preserving the original spirit. I’m wondering if perhaps the founder could use the same model on small scale to expand to different kinds of products- e.g. clothing? cosmetics? The founder could replicate her approach in terms of operations and capitalize on the vibe around OMyBag
ii) would gaining scale not dilute the “honesty” of her sourcing? It sounds like a huge challenge because you either help your existing suppliers scale up in an ethical way or have to work with an increasing number of them, which raises issues related to monitoring them.
iii) if the founder is motivated no so much by monetary gains as by spreading a certain way of doing things (which might be tied to small scale), perhaps she could consider a series of joint ventures to spread this around the world?