REVOLVE: Mass Market Need Not Apply
Revolve has become the trendiest and most profitable e-commerce startup in the recent past – all by excluding the majority of the market and keeping laser focused on solving for early fashion adopters
BUSINESS MODEL & BACKGROUND
Revolve is a Los Angeles clothing company on track to sell $400 million worth of trend-setting apparel this year. While sometimes referred to as an “e-commerce startup”, Revolve has been around for 12 years and has 500 employees. More impressive than its profitability is it’s 50% growth each year since 2012.
Founders Mike & Mike started out when they noticed that high-end designer jeans became popular in LA, but that these local brands were impossible to find online. They started going to showrooms and asking brands to carry their jeans online. By 2007, they carried 1,000 brands.
.They soon recognized that designer jeans would become a commodity and that they needed more of an edge than free shipping and returns (which could be easily replicated). They knew that their trendsetting customer wanted to buy premium merchandise online, and so their biggest differentiator would be the ability to spot the next big trend.
Revolve’s target customer can be described as “a fashionable woman between the ages of 20 and 40 who has social media savvy and plenty of occasions to get dressed up and go out. She lives that slightly paradoxical L.A. lifestyle where eating healthy and going to yoga intersects with drinking cocktails and staying out late at the club.” (Fortune)
To keep this customer engaged, Revolve not only strives to be the first to market with the industry’s emerging trends, but also prides itself on having an unparalleled product assortment, which means that it mush ensure that it maintains a wide selection and availability of in-demand brands
OPERATING MODEL & COMPETITIVE ADVANTAGES
TALENT/HR || To best understand its target, Revolve hired its core customer, yoga-by-day-party-by-night 20-40 year old fashionistas, as interns. They soon realized that these interns were better at predicting new trends than experienced merchandizers from larger department stores. These interns were especially adept at picking up trends in up-and-coming brands that had no track record. Recognizing this competitive advantage, Revolve promoted merchandising, buyers, and other positions all from the intern level rather than hiring external experienced candidates.
MARKETING || To stay on top of trends and stay in the minds of its social media–savvy customers, Revolve focuses its marketing efforts on maximizing engagement and user generated content on social media. To further build out brand advocacy, Revolve developed “RevolveMe”, a designated part of its site that features user-generated content. By highlighting and positively reinforcing user submissions, Revolve both builds brand loyalty among the most engaged and socially active customers and gives itself an eye into which trends are getting the most traction. Furthermore, and closely aligned with the interests of its target customer, Revolve has been known to throw trendy parties in the Hamptons: “It’s the sort of carefully engineered scene that’s made to be Instagrammed.” (Fortune)
MERCHANDISING || The key to Revolve’s ability to stay relevant to its core customer and stay ahead of trends is in its refusal to hold inventory of trends that have gone “mass market”. While its competitors are discounting the last of a season’s selection, Revolve abandons these items, replacing them immediately with the new predicted trend. This keeps the focus away from late adopters and on the core customers who are going to keep coming back for the newest styles.
DATA & TECHNOLOGY || On the front end, Revolve allows customers to curate their searches, favorite items, and set alerts for themselves. Meanwhile, on the backend, to better connect inventory levels, customer return rates, pricing, and item-level exposure, Revolve leverages OrderDynamic’ Dynamic Action applications. For example, it is able to identify items that have low customer views to inform the removal of this inventory and avoid overstock. Through this system, Revolve can further understand the correlation between site views and inventory by customer group, marketing channel, brand or category.
FINANCING || The founders generally keep a low profile without the Silicon Valley hype coveted by some of their competitors. Originally, they chose to stay away from Venture Capital funding to avoid the obligation and growth pressures. Uncertain of the future, they wanted the flexibility to experiment and do right by their customers. This allowed the company to be practical and disciplined, turning the Mikes’ initial investment of $50,000 into a profitable business of over $100 million in sales in late 2007. Unfortunately, when the 2008 downturn hit, the company lost money and weren’t able to buy enough inventory to satisfy their customers. That’s when they knew they hit a breaking point and that they needed a safety net in order to meet their customer promise, and in 2012 TSG Consumer Partners invested $50 million in the company. Since then, Revolve’s sales have grown to more than 50% a year.
SUPPLY CHAIN || Revolve’s impressive growth sometimes puts pressure on its supply chain. To ensure that they will always be able to serve their customers with the latest styles, Revolve bought up its top vendor, Alliance Apparel Group, which owns Lovers & Friends, Tularosa, and NBD in March 2015. This way, if Revolve sees a trend taking off, but is limited in selection from other existing suppliers, Revolve can ask one of these brands to develop a wider range in price point or design. This not only allows Revlove to keep its promise to customers by providing the best selection from top trends, but also builds up a stronger pipeline with the vendor by informing and predicting inventory needs.
SOURCES ||
http://fortune.com/2015/11/11/revolve-clothing-profile/
https://www.internetretailer.com/2015/03/23/online-clothing-retailer-revolve-acquires-fashion-brands
https://ashleycassandra.wordpress.com/value-creation-strategies/
http://www.latimes.com/business/la-fi-advertising-disrupted-20150102-story.html
Thanks for a great introduction to REVOLVE! I have never heard of the company before, but I now know where I’ll be doing my Christmas shopping 🙂
I thought that your comment on their strategy to always be ahead of the fashion trend is interesting, and also very hard to do. It seems like they put a lot of effort into identifying the next big thing in fashion, but how do they ensure they order the right amount of inventory and don’t overstock a particular item? I imagine this would be particularly hard given that they also work with the smaller local designers to ensure authenticity?