GP Bullhound Research / Online Fashion / May 2013

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GP Bullhound Research Online Fashion

INDEPENDENT TECHNOLOGY RESEARCH
SECTOR UPDATE / MAY 2013 /

by MANISH MADHVANI & SASHA AFANASIEVA

THE GP BULLHOUND BANKING TEAM

GP Bullhound is a research-centric investment bank headquartered in London.

This reports looks into the latest trends in the online fashion market, following on from our first research coverage of the sector in October 2008. The first section provides an overview of the development of the market. We then look at the changing behaviour of consumers online and how apparel sites are addressing this with new engagement methods. The next section assesses how the supply chain has been impacted by new online fashion business models. The fourth section examines new business models that have established differentiating ways to engage with the consumer, while the next assesses new B2B business models. In the sixth section, we reveal our views on the latest investment and exit trends in the online fashion segment. Finally, we profile some of the most promising players in the space.

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GP Bullhound Research / Online Fashion / May 2013

  1. 1. Online Fashion WHICH BUSINESSES WILL MAKE THE CUT? From Boo.com to $5bn+ Exits for Investors Despite much scepticism that initially surrounded the migration of the fashion vertical to the online channel, at $41bn it is now the second largest and fastest growing e-commerce category in the US. The sector has yielded some of the best returns in the Internet space for investors, for instance Net-a-Porter and YOOX. It is our belief that a second wave of businesses will drive further lucrative exits. No “Amazon” for Fashion Drives Opportunities Strong association with fashion labels rather than apparel items makes it difficult for a single online destination to cater to all audiences. Instead, the ecosystem is becoming increasingly complex with the number of apparel sites up by a staggering 126% year-on-year. New Models Challenging the Old Guard With increased confidence in the Internet channel, inventory light models such as marketplaces have emerged, bringing independent brands and boutiques directly to the consumer. We view luxury P2P in particular as one of the key growth verticals. The Internet has also been an effective launch pad for vertically integrated pure-play online labels – with exclusive collections these sites may be a potential threat to the established online department stores. Big Data Defining Trends With complex product descriptions and an overwhelming volume of brands, the fashion industry is lacking the taxonomy necessary to help retailers organise their merchandise for consumers and understand the key market trends. Our view is that new data-driven models will redefine the industry. “Unfashionable” Companies Desperate to Enter the Fray Exit trends are shifting from consolidation strategy to acquisitions by businesses outside the apparel and e-commerce spaces, as the sector is perceived to be a high growth and profitable opportunity. New entrants, such as media groups, supermarkets and generalist retailers, are pushing up valuations. We review the major investment trends and potential exits. MANISHMADHVANI manish.madhvani@gpbullhound.com London: +44 207 101 7567 SASHAAFANASIEVA sasha.afanasieva@gpbullhound.com London: +44 207 101 7569 INDEPENDENTTECHNOLOGYRESEARCH SECTOR UPDATE  MAY 2013  DIGITAL MEDIA Important disclosures appear at the back of this report GP Bullhound LLP is authorised and regulated by the Financial Conduct Authority
  2. 2. Table of Contents Introduction......................................................................................................................................... 2  Apparel – Attractive Category .................................................................................................. 2  Social Nature of Purchase Drives Strong Social Media Engagement ..................................... 2  Democratisation and Globalisation of Trends .......................................................................... 3  Fragmentation due to Market Idiosyncrasies ........................................................................... 4  Traditional Brands Late in Digital Implementation.................................................................... 4  Ecosystem Becoming Increasingly Crowded........................................................................... 5  Shopper Engagement Evolution......................................................................................................... 7  Brand Building is Critical .......................................................................................................... 7  Fashion is Media ...................................................................................................................... 7  Social Shopping........................................................................................................................ 8  On the Go – Capturing Users on Mobile is Key ..................................................................... 10  Supply Chain Distribution ................................................................................................................. 11  Pure-Play Online Labels......................................................................................................... 11  Niche Selection....................................................................................................................... 11  Inventory Light – Marketplaces .............................................................................................. 12  Offline – Online Convergence ................................................................................................ 12  Model Behaviour............................................................................................................................... 14  Monetising Discovery ............................................................................................................. 14  Subscription – Not Viable for Fickle Users............................................................................. 14  Luxury – No Longer Members Only ....................................................................................... 15  Collaborative Consumption – Return of Vintage.................................................................... 16  The Feedback Loop.......................................................................................................................... 18  Stock Cycle Management ...................................................................................................... 18  Big Data: Unravelling User Behaviour and Market Trends .................................................... 18  Virtual Fitting Rooms .............................................................................................................. 18  Investment and Acquisition Dynamics.............................................................................................. 21  Growing Investment in New Business Models – Is there a bubble?...................................... 21  Investment Shifting to Vertical Specialists and Marketplaces................................................ 21  Exit Predictions....................................................................................................................... 22  Selected Company Profiles .............................................................................................................. 24  This reports looks into the latest trends in the online fashion market, following on from our first research coverage of the sector in October 2008. The first section provides an overview of the development of the market. We then look at the changing behaviour of consumers online and how apparel sites are addressing this with new engagement methods. The next section assesses how the supply chain has been impacted by new online fashion business models. The fourth section examines new business models that have established differentiating ways to engage with the consumer, while the next assesses new B2B business models. In the sixth section, we reveal our views on the latest investment and exit trends in the online fashion segment. Finally, we profile some of the most promising players in the space.
  3. 3. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 2 GP Bullhound LLP INTRODUCTION Apparel – Attractive Category The apparel e-commerce vertical has overcome many challenges to become one of the most lucrative sectors for investors and entrepreneurs alike. Since the shaky early boo.com beginnings in 1998, its online future has been frequently questioned: will users ever feel comfortable to purchase fashion items without trying them on; will brands ever allow their products to be sold outside of the carefully curated shop environment? Despite being perceived as one of the least suited verticals for online consumption it has become the second largest e-commerce sector after computer electronics (18% of total e-commerce), and the fastest growing in the US 1 . Forecast to reach $73bn in market size by 2016, it will contribute nearly a quarter of total e-commerce growth in the US between 2012 and 2016 1 . With achievable gross margins around double that of consumer electronics, and the fact that it has become one of the first product categories to attract the luxury brands en masse, it is of little surprise that exits in excess of $5bn have been achieved over the past four years 2 . It is our belief that innovative new models in the online fashion sector such as marketplaces (including peer to peer luxury), tailored fashion, prescription and eyewear, as well as fashion data analytics, will drive further high profile exits. EX H I B I T 1 – US MA R K E T SI Z E A N D CU M U L A T I V E AN N U A L GR O W T H B Y E-C O M M E R C E VE R T I C A L Source: eMarketer, September 2012; GP Bullhound analysis Social Nature of Purchase Drives Strong Social Media Engagement Online fashion content is one of the most engaging segments within e-commerce and highly integrated within the social sphere. In an analysis of visitors to apparel and Facebook sites, ComScore found that c.40% of Facebook’s audience visit apparel sites versus 30% of overall online audience, which implies that a Facebook user is 33% more likely to visit an apparel site than the average user. Furthermore, the shared audience between apparel and Facebook sites is 98m visitors 3 . 1 Source: eMarketer, September 2012 2 Source: Capital IQ; GP Bullhound analysis 3 Source: ComScore Media Metrix, Europe, May 2012 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% - 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 Computerand consumer electronics Apparel& accessories Books/music/ video Auto&parts Furniture& homefurnishings Health& personalcare Officeequipment& supplies Toys&hobby Food& beverage Other 2012-16CAGRinmarketsize Marketsize($bn) 2012 market size 2016 market size 2012-16 CAGR
  4. 4. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 3 GP Bullhound LLP EX H I B I T 2 – CR O S S -VI S I T A T I O N A C R O S S FA C E B O O K .C O M A N D AP P A R E L SI T E S – UN I Q U E MO N T H L Y VI S I T O R S (MA Y 2012) Source: ComScore Media Metrix, Europe, May 2012; GP Bullhound analysis Democratisation and Globalisation of Trends If before, high-end trends would take time to trickle down to mass market level, product trends are now shared across every segment of the industry, and selling out simultaneously across each segment too. An illustration from EDITD data analysis shows how the printed trousers trend in March 2013 was evident across the entire apparel price range. “Mainstream adoption of social media and the ease of access to the Internet have caused this democracy of trends…the average consumer is more informed about trends in fashion and their demand for newness, paired with the industry's ability to manufacture, swiftly results in high-end trends hitting mass market at the same time” Julia Fowler, EDITD 4 . Online fashion is also truly global. Newly launched sites are able to reach an international audience and leverage worldwide trends and influences. “Thanks to the evolution of the web and the social media revolution, fashion is now much more global than before. There is a global fashion community out there, and a global zeitgeist,” Jose Neves, Farfetch 5 . EX H I B I T 3 – IL L U S T R A T I O N : FA S T SE L L I N G PR I N T E D TR O U S E R S Market segment Price Styles Sold out rate Mass market Up to £65 277 19.5% Premium market £66 - £200 60 16.7% Luxury £201+ 55 7.3% Source: EDITD, March 2013 4 Source: EDITD, March 2013 5 Source: Informilo, January 2013
  5. 5. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 4 GP Bullhound LLP Fragmentation due to Market Idiosyncrasies As we predicted in our earlier research on online fashion (2008), no single “Amazon” for fashion has emerged globally. While in the UK online fashion department stores like ASOS and Net-a-Porter prevail, in France it is the private sales player, Vente-Privée, that has become dominant. Much of this has been driven by many factors, including:  Different shopping patterns: shopper behaviour varies across regions, making it tougher for businesses to expand international offerings without significant adjustments. For instance, on the logistics side, users in Germany are used to catalogue shopping, free returns and ordering several sizes of the same item to return the unsuitable ones. In the UK, on the other hand, return rates are significantly lower; however users expect rapid product delivery. These factors have hampered growth of apparel private / flash sales models, based on stock consignment and longer delivery times;  Offline fashion market structure, such as concentration and pricing level of local brands: the UK has a much higher prevalence of mid-range, high street brands, while in the US, outlet stores are highly popular within the mid-level offering;  Audience specialisation: consumers prefer to visit specialised sites, that either address a particular product niche or audience type. For instance, ASOS and Net-a-Porter will not have significant brand overlap as they cater for different audiences – there is no benefit to users to access both under one virtual roof;  Regulation: in France, Vente-Privée was able to attract numerous luxury brands to its limited time sales concept, as there are regulatory restrictions on the number of sales days that can take place through the traditional brick and mortar channel. It is our belief that the nature of the industry and consumer demand will drive further fragmentation and personalised sites. Traditional Brands Late in Digital Implementation Traditionally brick and mortar brands and retailers, particularly in the premium and luxury segments, have been slow to develop their online retail channel due to the fear of their offering becoming “lost” and undifferentiated amongst other retailers on the web. "Many luxury brands have been reluctant to embrace new technologies as their values rest on craftsmanship and tradition," says Olivia Solon, associate editor of Wired magazine 6 . Futhermore, there is risk of brand devaluation through losing control of the consumer shopping environment. Brick and mortar retailers are able to control how the product is presented and where, whereas in the online environment there are adjacency issues: a full price luxury product can be retailed next to a product from a lower value brand or one at a discount. “Big brands like PPR and LVMH are very afraid of pushing the Internet – it’s more of a company branding strategy which explains the story,” according to Xavier Court, co-founder of Vente-Privée 7 . For instance, Burberry is one of the more advanced brands in terms of online media campaings ranging from a bespoke trench coat ordering portal, to live catwalk show streaming; however it generates only 6% of its revenues online. The other hurdle for brick and mortar retailers is the complex logistics and customer service required for the Internet channel. Retailers with significant presence in the catalogue channel have been able to migrate online 6 Source: Independent, 24 September 2012 7 Source: Company information
  6. 6. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 5 GP Bullhound LLP more quickly – for example N Brown has over 50% revenues from the Internet 8 , and Otto Group online sales represent 53% of total multi-channel retail 9 . Our view is that brands will further develop their presence online, whether through collaborating with existing portals or establishing their own online activity. EX H I B I T 4 – E-C O M M E R C E PE N E T R A T I O N I N T H E AP P A R E L SE C T O R , 2012E Source: Citi Research, April 2013; Company information; GP Bullhound analysis Ecosystem Becoming Increasingly Crowded The online fashion space is getting crowded with traditional brands / retailers, e-commerce enablers, and pure-play e-tailers investing in the sector. Fashion Brands Although with some delay, traditional fashion brands have started to focus on their online presence, often relying on experienced third-party e-commerce services specialists to deliver logistics and customer services. For instance, YOOX Group launched its whitelabel e-commerce solution to brands, including logistics and customer care. Now the Group is powering over 30 mono-brand sites, such as Armani.com and Bally.com. YOOX is now driving 8.3m unique monthly visitors to such sites with a third of 2012 revenues coming from this segment 10 . Other brands have been aggressively investing into their online offering and digital branding independently. Superdry, a leading UK brand focusing on “urban” designs, has announced it will be increasing its focus and investment in its online store and mobile app to drive sales, as well as barring ASOS from selling its goods in certain countries. “It’s the most profitable part of our whole business,” says Julian Dunkerton, chief executive of Supergroup, Superdry’s parent company. “If shoppers go on to ASOS and find Superdry, I’m happy. But if they tap in Superdry to a search engine and it comes up with another website, that’s wrong 11 .” E-commerce Enablers On the e-commerce enablement side there is intense competition as solutions like eCommera, Shopify, Magento, and BigCommerce as well as SaaS tools like Mailchimp, RJ Metrics, Shipwire and the rise of 8 Source: Citi Research, financial year 2012 9 Source: Company information, financial year 2012 10 Source: YOOX Group, Q4 2012 11 Source: Financial Times, 21 February 2011 10% 10% 6% 6% 3% 2% 2% <1% <1% <1% <1%
  7. 7. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 6 GP Bullhound LLP Amazon Web Services have made it significantly easier and cheaper for retailers to build and manage e- commerce storefronts. Pure Play Start-Ups Numerous online pure-play start-ups have also emerged in the sector, attracted by market size and growth, high ticket prices and strong user monetisation: in the past year nearly $1.6bn has been invested in online fashion start-ups versus $1bn the year before12 . Increased Competition Online apparel industry is becoming increasingly crowded with the number of apparel sites growing by 126% year-on-year while traffic to the sector overall has grown only by 7% in December 2012 versus last year 13 . As a result, there is increasing competition for online users, and apparel suppliers have more choice than ever of online retailers to partner with. The sector is continuously reinventing itself through new ways of acquiring and engaging with audiences and operating within the supply chain, stemming both from new start-ups to traditional and online businesses launching or recreating their existing e-commerce offering. EX H I B I T 5 – TO T A L AP P A R E L WE B S I T E S A N D UN I Q U E MO N T H L Y VI S I T O R S RE P O R T E D B Y CO M SC O R E (EU R O P E ) Source: ComScore, 2013; GP Bullhound analysis With this flux in the online fashion sector, we believe businesses will increasingly be evolving to maintain competitive differentiation. 12 Source: Capital IQ; GP Bullhound analysis; Note: excludes transactions with undisclosed values 13 Source: ComScore, 2013; GP Bullhound analysis 100 105 110 115 120 125 130 135 0 500 1,000 1,500 2,000 2,500 Uniquemonthlyvisitors(m) Numberofwebsites Websites reported by ComScore Traffic reported by ComScore
  8. 8. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 7 GP Bullhound LLP SHOPPER ENGAGEMENT EVOLUTION Brand Building is Critical Users are unlikely to search for specific products online, unlike with electronic appliances or books, as they have a strong association with the brand itself rather than the product item. As a result, attracting users is less straight forward than investment into online acquisition marketing, such as search engines, price comparison websites or affiliate advertising. Retailers need to be differentiated from competition through curation and relaying the relevant brand story to their audience. Whether brick and mortar or online, retailers with significant product overlap differentiate themselves through their retail environments and brands (for instance, Harvey Nichols, Harrods and Liberty have very different branding and retail spaces). If in all retail categories building a brand is key, in fashion it is crucial to survival. Using sought-after fashion labels for promotion has also been highly effective and online apparel retailers have focused on building these relationships: for instance, ASOS launched Fashion Finder, a service that publicises the brands it does not sell in order to promote itself as a “fashion destination” rather than just a store. Similarly Vente-Privée used the power of the brands retailed through its flash sales to drive dramatic member-get-member growth without any spending on search engine marketing in France from 2003 onwards. Members grew from c.41 thousand to 18m during the decade to 2013 – a growth rate of 85% per year 14 . Celebrity endorsement has also been a highly effective driver, with new businesses such as Stylemint adopting celebrity ambassadors to promote their brands. As the competition in online apparel intensifies, successful players need to adapt their offering and brand to entice users away from competitors. We identify the key must-haves as content, social and mobile. Fashion is Media As Net-a-Porter has shown, editorial content is highly effective in engaging audiences and establishing a brand, subsequently the online magazine / store format has emerged as one of the key trends in online fashion: “If you work at a fashion magazine, your role in life is to guide the reader through the world of fashion and edit it for them. Why can’t shops do that?” – Nick Robertson, CEO of ASOS 15 . The convergence of content and commerce is evident from both sides: online magazines such as Harpers’ Bazaar (ShopBazaar) and influential bloggers are introducing storefronts within their sites, as traditional e- commerce sites are developing online content. Some sites are using several fashion-specific platforms such as 72Lux that enable e-commerce and magazine integration. Online content in fashion has been used predominantly to drive user engagement and to message the brand, rather than merely drive search engine optimisation. Burberry, for instance, had several initiatives such as the Burberry Bespoke, where users can design their own product with over 12m different variations. Another Burberry website, artofthetrench.com, allows visitors to post photos of them wearing their trench coats or send them to relatives and friends. "Honestly it makes no difference at all" how many custom coats Burberry sells,” says Angela Ahrendts, CEO of Burberry, "It's customer engagement. You want them to engage with the brand 16 ." 14 Source: Company information 15 Source: Financial Times, 21 February 2011 16 Source: Wall Street Journal, 3 November 2011
  9. 9. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 8 GP Bullhound LLP EX H I B I T 6 – IL L U S T R A T I O N O F BU R B E R R Y BE S P O K E Source: Wall Street Journal, 3 November 2011 Other rich media formats have emerged, such as online TV Shopping platform Joyus, which promotes selective products in short online videos. By offering a service to online customers in a similar way to TV networks such as QVC, the site drives engagement and conversion to purchase. Furthermore, the in-house technology platform enables behaviour analysis that can aid brands to understand user engagement and conversion. In the age where users are ever more demanding when it comes to entertainment from their mobile and desktop devices, this format is an effective way to differentiate the brand. Social Shopping Instagram-esque e-commerce platforms such as Fab.com and The Fancy, with online visual product catalogues and personalised subscription emails, attribute their phenomenal growth to highly engaging format and social sharing: 50% of Fab users in Europe come from social sites 17 . We believe that apparel is one of the earliest adopters of social commerce and will continue to develop: nearly 40% of Pinterest buyers purchased from the clothing category, and jewellery and accessories was the second most popular category with 23% of customers 18 . 17 Source: Guardian, 9 April 2013 18 Source: Company blog, 17 July 2012
  10. 10. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 9 GP Bullhound LLP EX H I B I T 7 – TO P 10 CA T E G O R I E S PU R C H A S E D O N PI N T E R E S T AC C O R D I N G T O US BU Y E R S (MA R C H 2012) Source: Company Blog, 17 July 2012 Cracking the viral effect is still difficult – it appears that most fashion players are using the social platforms for brand promotion and customer dialogue, rather than to acquire users. Nevertheless, it gives a more even playing ground for smaller retailers to establish their brand. Through establishing an effective social media strategy, online apparel properties are able to engage more with their user base: indeed out of the 25 fastest growing branded social communities in the UK, nearly half are online fashion and beauty retailers. In our view much experimentation has yet to be done with social channels, but online fashion businesses are certainly moving the dial in this sphere. EX H I B I T 8 – TO P 25 DI G I T A L BR A N D S B Y FA C E B O O K CO M M U N I T Y GR O W T H I N TH E UK Source: Tamar Brand Love, 2013 39% 23% 22% 18% 14% 11% 10% 8% 6% 5% Clothingandapparel Jewellery,handbags andaccessories Art,artsuppliesand hobbies Home,garden&pool/ spa Health&beauty Footwear Flowers,food,drink& gifts Babygear Entertainment(e.g. books,music, instruments,movies, tickets,etc.) Sportinggoods 513% 366%350% 194%192% 164%155%147%138%134%121%115%107%105% 93% 86% 75% 74% 73% 67% 63% 58% 52% 48% 47% Surfdome Ocado Missguided Toolbox Moonpig Gorgeousshop ChemistDirect Getlenses.co.uk UKhairdressers Boohoo.com FeelUnique AllSole OverclockersUK Mankind Wiggle eSpares SecretSales Net-a-Porter Kiddicare ASOS NotontheHighStreet MyProtein ebuyer.com play.com TheUrbanRetreat Boutique Fashion and beauty retail
  11. 11. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 10 GP Bullhound LLP On the Go – Capturing Users on Mobile is Key While there was scepticism as to whether users can effectively select apparel on smaller screens, in fact it is the top retail category on mobile: over 37% of smartphone shoppers have purchased clothing or accessories versus 28% for books and consumer electronics 19 . New visual social models such as Joyus, Fab and Fancy have strongly focused on the mobile channel to ensure higher engagement with users and spontaneous purchases, particularly through emails: 40% of Fab’s daily logins come from mobile – with iPad users being especially valuable members (twice the lifetime value of web users) and 10% of all iPad users on Fab convert to purchase in the first week of having the iPad app. In comparison, established models have some way to go – large online retailers, ASOS and YOOX have less than 20% of traffic from mobile. With a growing proportion of audience’s time spent on mobile devices, we believe that developing this channel will be paramount for online fashion sites. EX H I B I T 9 – MO B I L E A S PE R C E N T A G E O F TO T A L TR A F F I C Source: Companies’ information 19 Source: ComScore, December 2012 40% 30% 30% 25% 25% 25% 20% 20% Fab.com Botticca Lyst ThredUp Etsy Vente-Privée Yoox ASOS
  12. 12. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 11 GP Bullhound LLP SUPPLY CHAIN DISTRIBUTION Pure-Play Online Labels ASOS, the most visited fashion website on the planet 20 , was founded in 2000 retailing items emulating celebrity fashion. While it was initially selling third party brands that were similar to outfits seen on screen, in 2004 it launched its own range, which has been critical in driving its popularity and protecting itself from competitors such as Amazon and eBay. Furthermore, through vertically integrating the value chain, ASOS was able to offer better pricing to its user base and generate higher gross margins. Today, ASOS offers over 1,000 different brands and 55% of revenues come from its own brand 21 . One of the main challenges of the “online label” business model is designing a product that is valued by the target audience and establishing a new brand. Several sites have overcome this by investing in celebrity endorsement (Stylistpick, Shoemint). Others have introduced user personalisation – such as Shoedazzle, Gemvara and Send The Trend. There are significant operational complexities with the model, such as building a strong network of manufacturing partners and significant inventory risks if the products are not sold. Everlane has focused on a relatively narrow product range of essential items, maintaining full control over the design and production, and partnering with high quality manufacturers to keep prices affordable. Furthermore, the site aims to build a community around its products to collect feedback from its user base, currently at 400,000 active members – another way to ensure their designs remain popular 22 . Our view is that while the online channel is highly effective for distribution, particularly through driving social communities, the business is fundamentally an apparel label, which requires significant investment in designer and production talent. Whether selling the items online or through an offline boutique, businesses like Everlane need to provide fashionable and good quality items. The fact that this is possible through the Internet with a relatively minimalist business structure presents a threat to traditional fashion labels. Niche Selection Efficiently targeted sites are able to differentiate from other sites and establish a loyal customer base with repeat purchases. For instance several sites are now targeting the male audience – Mr. Porter, Dollar Shave Club, BrandiD, Menlook, Trunk Club, Outfittery. Not only do these sites reflect male shopping behaviour, but also different inventory management: assortment is narrower and the key basic articles do not change significantly from one season to the next. Vertical targeting also enables more favourable relationships with brands and suppliers – for instance, Sunglasses Shop’s high-end presentation of the site and product focus enabled them to retail luxury items, which were previously not sold online. Vertical specialisation may also enhance the site’s position in organic search and reduce the cost of customer acquisition. Online sports-focused private sales site, Sportpursuit, for instance, has been able to drive 5x year-on-year growth through strong member-get-member traction within its community of sports enthusiasts. Moreover we have seen the emergence of luxury apparel sites targeting the childrenswear verticals with players such as AlexandAlexa, backed by Tiger Global and MMC, and Smallable, headquartered in Paris, both showing strong year on year growth. Other examples of niche sites include accessories (Send the Trend, Boticca, MyOptique, Sunglasses Shop), pregnancy wear (Isabella Oliver), lingerie (Figleaves), denim (SoJeans), sportswear and equipment (Wiggle, Surfdome). The trade-off between specialist and generalist approaches is that the frequency of purchase may be lower within a specific category (for example lingerie versus general apparel) and fewer cross-selling opportunities, 20 Source: ComScore, 2012 21 Source: ASOS 2012 Annual Report 22 Source: Techcrunch.com, 13 December 2012
  13. 13. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 12 GP Bullhound LLP unlike for an online department store. Online shops such as Zalando have started diversifying into other categories to increase number of items per order and frequency of purchase. We believe this will also contribute to consolidation in the sector for businesses that opt for acquisition strategy rather than organic expansion into new verticals. Inventory Light – Marketplaces With a growing number of fashion boutiques, emerging independent brands and retailers both online and offline, numerous business models have emerged to aggregate and organise the offering. Marketplaces, such as Farfetch and Boticca, take advantage of global fashion trends and connect their global user base with local boutiques and brands from around the world. For instance, UK-based Boticca generates 50% of its revenues from Europe and 30% from the US. On the other hand, Not on the High Street, Kitsy Lane and Modcloth aggregate local communities of independent and professional designers and cater to audiences that are looking for unique pieces. Larger retailers are also following suit: ASOS launched Marketplace, which allows designers to set up boutique stores on its site, selling their own creations and one-off vintage items, with ASOS receiving c.10- 15% commission 23 . ASOS Marketplace has over 65,000 products listed, 500 boutique sellers from 95 countries, 28,000 individual sellers from 98 countries 24 . An emerging trend of luxury retail online is evident in the fast growing 1stdibs marketplace, which raised $42m in December 2012, following a series A round of $60m in 2011. The business sells rare antiques and desirable objects through a network of c.1,700 dealers, and has tripled its presence in Europe in 2012 25 . We are convinced that the marketplace model is particularly effective in fashion, where there is significant retailer fragmentation both offline and online (see Introduction section). The key is to establish strong branding and liquidity in this winner-takes-all business model. Offline – Online Convergence The convergence of offline and online is evident: on the one hand traditional retailers are promoting online offering as an extra retail channel, as well as a way to improve the service currently offered: for instance, Burberry offers iPads in-store for users to see what is available but not in stock. On the other hand, online retailers are also introducing offline presence. ASOS partnered with a number of high street retailer chains as well as small merchants to provide product delivery and pick-up points. Online sites are opening stores to further promote their offering. Everlane launched a pop-up Christmas store where users are offered extra personalisation features, while Trunk Club offers a luxury tailoring service to its members through their permanent showroom. Over time there will be deeper integration of the two channels: already 69% of recipients in a recent Nielsen study claimed the Internet is important in the decision-making process when purchasing new products offline 26 . Furthermore, apparel is the second most popular category for “showrooming” – examining the item in a brick and mortar store, but shopping online to find purchase the item at a lower price. We believe that omnichannel retail, where users view and shop online and offline, will be a major trend – if before pure-play online was seen as efficient, providing access across several channels is now becoming critical. 23 Source: Financial Times, 21 February 2011 24 Source: ASOS 2012 Results presentation 25 Source: Alt Assets, December 2012 26 Source: Nielsen Global Survey of New Product Purchase Sentiment, Q3 2012; Note: based on respondents with online access only; new products are defined as any product not purchased in the past
  14. 14. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 13 GP Bullhound LLP EX H I B I T 10 – CA T E G O R I E S O F IT E M S PU R C H A S E D V I A “SH O W R O O M I N G ” Source: ComScore, January 2013 Note: represents percentage of men / women who purchase the items via “showrooming” – or browsing in shops and searching for the best price and purchasing online 8% 18% 21% 22% 26% 39% 72% 10% 15% 29% 28% 29% 47% 56% Other Jewellery & watches Toys Appliances Books Apparel, clothing & accessories Consumer electronics %of women %of men
  15. 15. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 14 GP Bullhound LLP MODEL BEHAVIOUR Monetising Discovery Product discovery in fashion is more complex than in other verticals. Price comparison, text search and consumer reviews are less relevant: firstly, product taxonomy is not as well developed as in other sectors, and secondly, users relate much more with the brand itself than the product independently. There has been much experimentation in the last few years to differentiate from other numerous online retailers and enable users to discover relevant items:  Curated approach: where users follow stylists or celebrities to find new items (such as Send the Trend, Stylistpick, ShoeDazzle, Outfittery) – highly relevant for the fashion vertical, but may be more difficult to scale as there are only so many customers each stylist can serve. The consumer values the human touch in the process, and loses interest if the process starts to feel automated;  Personalised / algorithm based method: where users’ selections are analysed for new suggestions – similar to that of Last.fm in the music industry (such as Dressipi, Lyst) – classification and taxonomy of products in the fashion vertical make this difficult as a single tool to use, but over time this could be viable, particularly as it is combined with social graph data;  Social: where users share their fashion items with other users, predominantly through photos and other rich media (for instance Polyvore, Chicisimo, Go Try It On, Pose, Kaleidoscope, StyledOn) – has been shown to be highly engaging, but amongst a younger audience that does not necessarily have the spending power. Furthermore, a user may share or like certain products online, but may not necessarily buy. As a result monetisation has not been clear cut;  Visual search: impressive image recognition players like Snap Fashion enable users to search for items by taking photos on the app. While it is still fairly early stage in monetisation, it has the potential to revolutionise the user experience, as Shazam once did for music discovery. The models above vary in terms of user engagement and monetisation – for instance, social content sites like Go Try It On are further away from transactions versus curated sites like Send the Trend. There will be some convergence to bridge the gap between user engagement, monetisation and scaling, driven by the type of audience targeted and products sold. For instance, through personalisation and targeting, StylistPick was able to increase conversion by 33% 27 . Outfittery, on the other hand, is able to offer high stylist involvement, particularly on the first purchase, as the average basket value is at €300. It can then use a more data driven approach in subsequent purchases as its algorithm based system learns more about the user. In all cases, we believe there needs to be an element of human touch: in the fashion industry users require strong curation of content and offering, which can not be automated. Subscription – Not Viable for Fickle Users Subscription-based models effective in digital content sectors (for example Spotify, Netflix) have been replicated in the e-commerce sector with significant investment to date: over $65m raised for ShoeDazzle alone. While the model provides better revenue stream visibility, customer churn is an issue, particularly driven by increasing competition and the difficult task of sourcing relevant, highly sought after products every month. Furthermore, making the customer economics work is difficult due to higher delivery and return costs in comparison to those in the digital content sector. 27 Source: Econsultancy, 14 December 2012
  16. 16. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 15 GP Bullhound LLP Several sites that were previously subscription based, have pivoted the model to more traditional e-commerce offering – for instance, Stylistpick and Birchbox. Similarly, Bag Borrow or Steal – originally a subscription based rental service, is introducing a pay-as-you-go model and a standard e-commerce / outnet offering. Other models, such as Outfittery and Trunk Club, provide a more flexible subscription plan, where users are still contacted on a regular basis by the stylists to put together their preferred outfits. The users then pay only for the clothes they keep upon delivery. High average basket value ensures that the personalised service, which reduces user churn and returns, can be recouped within the first few orders. The main differentiation is the “pull” approach of the stylist, where the user requests the items to be sent, rather than the “push” approach, where products are sent on a regular basis. EX H I B I T 11 – CL A S S I F I C A T I O N O F SU B S C R I P T I O N BU S I N E S S E S Source: Company information; GP Bullhound analysis Luxury – No Longer Members Only Initially apparel labels were enticed to the online channel by the prospect of shifting unsold stock in a trusted high-end shopping space. The private sales model in particular, pioneered by Vente-Privée, experienced tremendous scalability in contrast to the standard outlet model due to: 1) Quick inventory turn-over through flash sales attracting premium brands; 2) Private membership and limited time sales offering brand protection from exposure in search results; 3) Exclusive membership model as an effective marketing tool for attracting loyal customers; 4) High-end brands more comfortable with the private premium shopping environment to conduct sales on the site. EX H I B I T 12 – VE N T E -PR I V É E A N D YOOX GR O S S RE V E N U E CO M P A R I S O N Source: Company information E-commerce Daily deals / Private sales Stylist Subscription VIP member / Loyalty fee Try then buy Rent Bag Borrow or Steal     Me Undies   Outfittery  Panty by Post    Shoedazzle      Stylemint / Jew elmint / Shoemint    Stylistpick    Trunk Club     Key  Current model  Prior model €0.0bn €0.2bn €0.4bn €0.6bn €0.8bn €1.0bn €1.2bn €1.4bn 2006A 2007A 2008A 2009A 2010A 2011A 2012A Yoox Vente Privée
  17. 17. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 16 GP Bullhound LLP The rapid growth of the private sales model has been strongly linked to the local idiosyncrasies: after over 10 years since founding, still around 80% of Vente-Privée’s sales are from France 28 , where there are relatively low return rates in contrast to other geographies (Vente-Privée’s return rates are below 5% versus 25% for YOOX’s). Local regulation, limiting the number of sales days in brick and mortar shops, also provides additional incentive to brands to sell their stock through online sales. In other geographies, the model has not been as effective. Despite over $240m investment and gross revenues of over $600m, Gilt has only just reached profitability on EBITDA basis 29 . The business has moved away from the private sales model to the flash sales concept like Fab.com – users do not need to subscribe to view the sales campaigns. Furthermore, the company has rapidly diversified into other verticals such as home ware, food and travel. In the UK, the private sales model has been successful for non-apparel verticals, such as homeware (Achica), as users are more tolerant of longer delivery times. One the other hand, the existing luxury apparel retailer, Net-a-Porter, has been able to offload excess stock via its outlet channel: Outnet.com. Luxury brands and high-end users are becoming more at ease with the online channel: last year online sales of personal luxury goods reached €6.2bn, growing three-times faster than the total personal luxury goods market, and are expected to reach €15bn by 2016 30 . It is estimated that 98% of affluent consumers are shopping online 31 . As this trend continues, the member-only private sales model becomes less relevant, and other models are starting to have strong traction, such as marketplaces in apparel (Farfetch, The Real Real) and other luxury sectors (1stdibs). Furthermore, we are seeing the emergence of hyper-luxury offerings online: Moda Operandi allows their price-insensitive user base to pre-order collections straight from the runway. Collaborative Consumption – Return of Vintage eBay was a pioneer and dominant player in the P2P vintage clothing and accessories market, but other sites are disrupting this segment. Focus on vertical specialisation and creating a luxury environment for users has proven critical in high-end vintage retail. Sites such as Covetique, Vestiaire Collective, Videdressing, The Real Real, Byronesque, Vaunte, 1 st dibs, ensure reliable product authentication and high quality control to promote users trust, and streamlined logistics for the increasingly demanding customers. Poshmark focuses on the social element of collaborative consumption where users can view each other’s virtual closets and shop. ThredUP specialises in children’s clothing, where clothes are of resale quality as children grow out of them very quickly. Commissions vary depending on the logistical involvement of the online marketplace – for instance Shop Hers takes 18% commission but does not take on the production of site content, instead the users are responsible for creating listings and marketing the items to fellow users. Covetique, on the other hand takes over 37% commission, but the site takes the pieces in, photographs and checks for authenticity, making it easier and hassle-free for users to unload unwanted pieces. As users are becoming comfortable with “sharing” clothes online, the apparel rental market is also moving to the Internet channel, with Bag Borrow or Steal and Rent the Runway in the US and Wish Want Wear in the UK. Rent the Runway allows women to rent designed clothes and accessories at 10% of retail price (or from $50 to $200 for a four night loan). The business has over 3m members and 170 designer brands, and recently raised $20m funding led by Condé Nast Publications in November 2012, as well as $4m in March 2013 led by American Express and Novel TMT Ventures 32 . This online rental model requires more complex inventory 28 Source: Bloomberg.com, 29 January 2013 29 Source: Techcrunch.com, 9 December 2012 30 Source: McKinsey & Co, 2012 31 Source: Luxury Society 29 Jan 2013 32 Source: Techcrunch, 11 March 2013
  18. 18. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 17 GP Bullhound LLP management and effective offering diversification to maximise orders per user or reduce working capital requirement, but is viable as users want to recreate red carpet glamour. Another trend in collaborative consumption is design crowdsourcing (for instance ModCloth has launched this buyer programme). While this offering is useful for understanding customer behaviour on the site, we believe it is a not a scalable model as users expect short delivery times, particularly for spontaneous purchases. Moreover, except for the few true fashionistas, the majority prefer to have the products ready and curated in a certain way that fits their lifestyle, rather than having to design them.
  19. 19. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 18 GP Bullhound LLP THE FEEDBACK LOOP Stock Cycle Management Inventory management is a critical factor for online retail in most sectors, but presents added complexity for the apparel vertical in unsold stock or returns:  Fashion trends are difficult to project, unlike other product verticals where new product design is driven by performance and feature improvements (for example electronics);  Several seasons per year means that the retailers need to manage different cycles of stock, particularly when their audience is sensitive to how old the stock is;  Quality of product, such as the cut, texture of fabric and colour are difficult to convey without physically touching or trying on the item;  Different sizing standards across apparel labels, styles and geographies. A number of business models are addressing these problems through compiling and analysing user, stock and market data to aid retailers who are selling via the online channel. Big Data: Unravelling User Behaviour and Market Trends Several of the new generation discovery sites (see Monetising Discovery Section) collect their users’ data to provide insights to brands and retailers. There is some way to go before these models are fully scaled and monetised. Complexities arise particularly in the fashion apparel segment, where product taxonomy needs to be created from scratch. For social data, it is especially difficult to monetise, as those who are more active in sharing their selections are not necessarily the buyers. Furthermore, many online retailers already have a formidable amount of data available from their existing users – the question remains whether these databases can really compete. Other sites are assessing the data available on the Internet – for instance fashion specific, EDITD, Fashionbi, as well as general social analytics companies like Social Bakers. EDITD is able to collect and analyse data from apparel retailer sites, social media, runways and newsletters to deliver fashion analytics to retailers, who are becoming increasingly mechanised in their product buying and design. While the use of data will continue to grow and evolve, the human touch is still fundamental to successful online retail. Retailers still heavily rely on strong buying teams that understand their customers: for example Nasty Gal buys only limited runs so as not to get stuck with stock that does not move, and sells 93% of its inventory at full price in an industry that usually marks down a third of all styles 33 . Nevertheless, we believe that data analytics will revolutionise the industry across retailers of all price ranges. Virtual Fitting Rooms One of the key difficulties facing online apparel retailers is the high rate of return of items: in the UK it is estimated that 60% of consumers order multiple sizes and almost one in three clothing purchases made online are returned in response to the UK’s lack of standard sizing 34 . Return rates vary depending on type of product and geography – ASOS reports returns of around 30%, it is closer to 50% for Zalando in Germany 35 . Estimated costs of returns include the following in addition to the postage and package fees:  Double visa costs: if the item is shipped from a different jurisdiction and there are import costs;  Product discount: garments generally take over a month to be returned, resulting in the item being resold out of season at a discount, resulting in an average value depreciation of 50%; 33 Source: Forbes, 28 June 2012 34 Source: Kelkoo, July 2011 35 Source: Kinnevik 2012 annual results
  20. 20. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 19 GP Bullhound LLP  Customer experience: users who are not satisfied with the delivered item are less likely to return to the site, reducing repeat purchase rates. In addition to returns, users are reluctant to make purchases online at all as they are unable to try on the item. According to an Internet shoppers' survey commissioned by Fits.me, 32% of users hesitate when buying clothes online as they are unsure what size fits them best, and a further 30% as they are unable to try before buying 36 . EX H I B I T 13 – RE A S O N S CU S T O M E R S HE S I T A T E W H E N BU Y I N G CL O T H E S ON L I N E Source: Internet Shoppers Survey, commissioned by Fits.me, July 2011 Several virtual fitting room solutions aim to reduce returns and improve conversion through: 1) Outfit configurations: software to superimpose outfits on models in order to better display the product for users while minimising production costs (such as My Virtual Model / Mimicme, Looklet). The segment is already seeing signs of monetisation, as online retail businesses are looking to minimise the costs of displaying their growing apparel ranges online; 2) Augmented reality solutions: aimed to show the product on a person through overlaying the item on their image. Agencies such as Holition have developed sophisticated online applications to engage the user and drive purchase conversion. For instance, when Holition worked with the Swatch Group watch brand Tissot to enable users to try on a virtual watch from the window in Selfridges, the revenues for the department store’s boutique increased by 85% during the course of the two week activity 37 ; 36 Source: Fits.me commissioned Internet Survey, July 2011 37 Source: Company information 6% 6% 10% 30% 32% 16% Too difficult to shop on a mobile device Slow shopping times Difficultly of return process Unable to try before buying Unsure what size fits best Shipping fees too high
  21. 21. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 20 GP Bullhound LLP EX H I B I T 14 – IL L U S T R A T I O N O F HO L I T I O N ’S AU G M E N T E D RE A L I T Y SO L U T I O N F O R TI S S O T Source: Holition company website, May 2013 3) Size recommendations engines: based on comparison of sizing specifications given by different brands, to give more guidance to users that are purchasing items from new brands (Truefit, Clotheshorse). This is not item specific, so does not take into consideration the size variation within brand collections, but is easiest to scale and implement; 4) Style specific sizing guidance: provides guidance for specific styles but either collecting measurements from the customer directly (the user inputs their measurements), for instance Fits.me uses a 3D robot to show the garment fit to the user, or comparing sizes of items (the user inputs the measurements of a previous garment they have purchased), such as Virtusize. The free returns standard that has been set by the apparel industry is difficult to reverse (62% of UK retailers offer free postage and returns 38 ). The challenge with the majority of virtual data room services is to encourage users to commit time to creating their virtual fitting room profile. In order for this sector to take off, online retailers need to provide an incentive for their users to provide additional data for the virtual fitting room solution. On the other hand, online retailers themselves may be able to implement an in-house size recommendation solution based on the returns data compiled from their regular customers, bypassing third party service providers. As a result, we believe this sector will take time to develop and will be dependent on the partnerships between retailers and the service providers. 38 Source: Source: Kelkoo, July 2011
  22. 22. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 21 GP Bullhound LLP INVESTMENT AND ACQUISITION DYNAMICS Growing Investment in New Business Models – Is there a bubble? The last few years have seen an explosion of deal activity: over half of online fashion M&A by volume and close to half of private placements by both volume and value have been announced or closed in the last twelve months. While the online fashion sector is clearly hot, we hesitate to call it a bubble: 1) For deals where transaction multiples are available valuations have been modest, typically at 1x to 2x LTM gross revenues, reflecting the margin profile of retail businesses; 2) Capital has been drawn to new and more innovative business models, showing that the sector remains in a healthy phase of development; 3) M&A activity has been dominated by bolt-on acquisitions and it is only in the last year or so that there has been consolidation between online fashion peers, which indicates the sector has plenty of time left to run. EX H I B I T 15 – VO L U M E O F PR I V A T E PL A C E M E N T S BY TA R G E T TY P E Source: Capital IQ; GP Bullhound analysis, YTD 2013 as at 30 April 2013 Note: as per date of announcement Investment Shifting to Vertical Specialists and Marketplaces Private and flash sales sites put online fashion on the map, but in recent years, like the daily deals and discount sector, have suffered from low barriers to entry, creating intense competition, depressing margins and making it hard to differentiate. Players such as Gilt Groupe and Vente-Privée, which dominate the private sales space in their respective markets, are the exception rather than the rule. Investors are looking for strong brands which will engage consumers and create a willingness to pay. Consequently they are continuing to invest heavily in vertical specialist models, which have more specific offerings, differentiated from incumbents like ASOS and Net-a-Porter. B2C and C2C marketplaces are of interest due to low inventory risk business models, although to-date these have comprised a relatively small slice of financing activity. Investors are likely to find C2C models, which connect buyers and sellers of used and new fashion item, particularly exciting (InstantLuxe – $2.6m raise in April 2013, Covetique – $20m raise in November 2012, and ThredUP – $14.5m raise in October 2012). 14 36 62 101 16 0 20 40 60 80 100 120 2009 2010 2011 2012 2013YTD Social discovery Online label / tailored Personalised discovery Unique curated discovery Private / flash sales Multi-brand e-commerce Vertical specialists Marketplaces
  23. 23. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 22 GP Bullhound LLP EX H I B I T 16 – VO L U M E O F M&A DE A L S BY TA R G E T TY P E Source: Capital IQ; GP Bullhound analysis, YTD 2013 as at 30 April 2013 Note: as per date of announcement Exit Predictions Given the high level of financing activity seen over the last few years compared to M&A activity, we believe the online fashion deal market still has a long way to run. Key trends include: 1) Online multi-brand stores: a significant number of recent exits have been by traditional department store-style players, which raised funding at the start of or before the online fashion wave – PriceMinister and Stylife Corporation to Rakuten, Magaseek to NTT Docomo and Mecox Lane to Sina Corp; 2) Cross-category / vertical specialists: attractive targets typically as bolt-on acquisitions for larger online fashion or e-commerce players, with Fab.com acquiring FashionStake, Amazon buying Quidsi and Zappos, N Brown Group buying Figleaves.com, and Kenkou Corporation acquiring Angeliebe, reaping cross-selling and logistics synergies; 3) Premium / Luxury: fashion is one of the first luxury sectors migrating online, with players like Matches.com and The Real Real having strong potential exit credentials, and Best Secret received €200m from AXA Private Equity for a majority stake; 4) Marketplaces: rapidly expanding models that have received significant investment to date are likely to make attractive acquisition targets – already some strategic investment is taking place (ASOS invested in Covetique, Condé Nast in Farfetch); 5) Online data: this segment is still in early stages of development, but we see it as a very significant niche as fashion buyers and designers become more analytical in their approach; 6) Pure online labels: the new wave of vertically integrated online labels such as Everlane will become highly attractive for large brand acquirers such as PPR, looking to introduce new business models into their portfolios; 7) Fashion tech: with social and mobile becoming key in driving user engagement, companies that have proven technology are sought after (for instance Etsy acquisition of Mixel); 8) Buyers from emerging markets: strong interest to bring in Western brands to emerging markets where consumer spending is on the increase – over 30% of online fashion M&A has been driven by Asian buyers; Japanese Rakuten, for instance, has both strengthened its domestic footprint and expanded abroad via three online fashion deals in the last twelve months; 4 9 8 25 12 0 5 10 15 20 25 30 2009 2010 2011 2012 2013YTD Other Unique Curated Discovery Online label / tailored Social Discovery Marketplaces Private / Flash Sales Multi-brand e-commerce Vertical Specialists
  24. 24. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 23 GP Bullhound LLP 9) Traditional retailers / retail enablers: seeking to shift their business online or acquire online distribution channels – Net-A-Porter by Compagnie Financière Richemont, HauteLook by Nordstrom and Brands4Friends by Tengelmann. Traditional non-apparel retailers are likely to look into this segment for growth – we expect supermarkets and department stores to be acquisitive. Other potential acquirers could be service providers (for instance American Express investment in Warby Parker and Rent The Runway); 10) Media players: with growing traction of inventory free models, such as marketplaces and fashion-specific lead generation players, media companies can gain an additional channel to monetise their existing audience (for example Condé Nast investment in Farfetch, Rent The Runway and Monoqi, Naspers’ acquisition of Markafoni).
  25. 25. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 24 GP Bullhound LLP SELECTED COMPANY PROFILES Multi-brand retailers Atelier-To-Go (UK) Founded in 2012, Atelier-to-go provides users with a highly edited selection of the best mid-high end contemporary designers. The site is presented as an online magazine through which the users can purchase items. The company produces all of its editorial content and fashion features, both in-house as well as through contributing editors and stylists from high end glossy magazines such as Vogue and Harper’s Bazaar. Meninvest (France) Founded in 2010, Meninvest has more than 2m unique visitors per month on its editorial and e- commerce online destinations. The Group’s flagship online store, Menlook, distributed apparel for men across more than 80 countries. Meninvest acquired oki-ni.com, UK-based online menswear retailer. The company has raised over $18m from 123 Venture, AXA Private Equity, Orkos Capital and Partech International. Net-a-porter (UK) Founded in 2000, Net-a-Porter is the world’s premier online luxury fashion retailer, viewed by over 2.5m women each month. Net-a-Porter pioneered magazine styled design of the website that users found particularly enticing, setting the trend for content-concentrated approach prevalent with apparel e-commerce today. Acquired by Compagnie Financière Richemont in April 2010 for an undisclosed amount. Zalando (Germany) Founded in 2008, Zalando initially specialised in selling shoes and has since expanded into clothing and other fashion and lifestyle products online. The company has raised undisclosed funding from DST Global, Emesco, Holtzbrinck Ventures, Investment Kinnevik, J.P. Morgan Asset Management, Quadrant Capital Advisors, Rocket Internet and Tengelmann Ventures.
  26. 26. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 25 GP Bullhound LLP Private Sales Achica (UK) Founded in 2009, Achica is the leading members-only luxury lifestyle store, offering 72 hour sales campaigns in furniture, furnishings, kitchenware, fashion accessories, children’s wear and other categories. The company has raised undisclosed funding from Balderton Capital and DFJ Esprit. Sportpursuit (UK) Founded in 2011, Sportpursuit is the UK’s leading sport flash sales site, selling best sports and outdoor brands at up to 70% off RRP. In 2012 the site won New e-Retailer of the Year Award at the e-Commerce Awards for Excellence. The company raised over $2m from DFJ Esprit in May 2012. Vente-Privée (France) Founded in 2001, Vente-Privée is the pioneer of the online private sales model in apparel. The company has worked with over 1,450 brands to provide discounts to its user base of up to 70%. The business generated gross revenues of €1.3bn in 2012. In June 2007, Summit Partners acquired a minority stake of 20% in the company at a valuation exceeding €800m. Unique curated content Joyus (US) Founded in 2011, Joyus is an online video platform that helps its users discover new products and brands through short demonstrations. Each clip shows a single product and are launched at a rate of 2-3 per day. Categories covered include fashion, beauty, home, lifestyle and food (through acquisition of Foodzie). The company has raised c.$20m from Accel Management, Harrison Metal Capital, InterWest Partners, Time Warner Investments.
  27. 27. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 26 GP Bullhound LLP B2C Marketplaces Boticca (UK) Founded in 2010, Boticca is an online marketplace for unique jewellery and fashion accessories by top emerging designers from around the world. The boutique aggregates designers from 40 different countries. The company has raised over $2m from DG Incubation and Isai Gestion. Farfetch (UK) Founded in 2008, Farfetch is an online marketplace for independent apparel boutiques. The site does not hold inventory but provides selling and payment services for 250 boutiques to 150,000 customers in 140 countries, spending on average $680 per order. The company’s annual run- rate is $129m and growing at 150% year-on-year. The company has raised over $23m from Condé Nast, Advent Venture Partners, e-ventures, Index Ventures. Not on the High Street (UK) Founded in 2005, Not on the High Street is an online marketplace of over 50,000 gifts and unique products from 3,000 creative small businesses around the UK. The company has raised c.$30m from Fidelity Growth Partners, Greylock Partners, Index Ventures, Venrex Investment Management and Spark Ventures. Rent the Runway (US) Founded in 2009, Rent the Runway is a website that rents out high-end clothing and accessories to consumers for a few days at a time. The site exposes its member base to new designers and products, where consumers are directed to brand and retailer websites where they can purchase the items. The company has raised over $55m from 2020 Ventures, Condé Nast, American Express, Bain Capital Ventures, Highland Capital, KPCB, Novel TMT Ventures. Wish Want Wear (UK) Founded in 2012, Wish Want Wear is an online clothes rental site, where users can rent out designer dresses and other fashion items for four days at a fraction of the actual cost. The site currently offers 300-350 styles and sends two different sizes of the dress in case one size does not fit.
  28. 28. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 27 GP Bullhound LLP C2C Marketplaces Covetique (UK) Founded in 2011, Covetique resells pre-owned luxury fashion pieces at accessible discounted prices. Its products include items from Alexander McQueen, Prada, Chanel and Gucci. The company arranges for items for sale to be picked up, photographed for the site and packaged for delivery to the buyer, ensuring high quality. The online personal wardrobe function allows users to follow others and be notified of new items listed on the site. In November 2012, ASOS invested an undisclosed amount for 30% stake in the company. Vestiaire Collective (France) Founded in 2009, Vestiaire Collective is an online platform for pre-owned luxury fashion items. The site has over 1.2m users as part of its online fashion community. The team requests pictures of the product to agree on the price with the seller, after which the item is collected and checked for quality control. In March 2012 the site launched in the UK. The company has raised over $13m from Balderton Capital and Ventech. Videdressing (France) Founded in 2009, Videdressing is a social marketplace for fashion lovers who buy and sell their previously owned clothing and fashion accessories, with over 2m visits per month and around 500, 000 members. Videdressing is the only C2C site to offer a money back guarantee and thereby provide their customers with a level of service similar to what they would encounter on a traditional B2C fashion e-commerce site. The company has raised over $5m from DN Capital Limited, Earlybird Venture Capital, Generis Capital Partners and Piton Capital. The Real Real (US) Founded in 2011, The Real Real is a premier online luxury resale store, selling authenticated pre-owned brands. Members can pay an additional fee to get exclusive access to the sales. The company has raised over $14m from Canaan Partners, e-ventures, Greycroft Partners, InterWest Partners, Novel TMT Ventures, Panarea Capital, Expansion VC and 2020 Ventures.
  29. 29. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 28 GP Bullhound LLP Verticals Alex and Alexa (UK) Founded in 2007, Alex and Alexa is an online store specialising in high-end children’s clothing, toys and sportswear from 200 brands including prestigious heritage fashion labels such as Burberry, Chloé, Fendi and Dolce & Gabbana, as well as niche labels sourced from all over the world, such as Finger In The Nose and Muchacha. The company has raised undisclosed funding from MMC Ventures and Tiger Global. SoJeans (France) Founded in 2010, SoJeans is an online retailer specialising in jeans, offering more than 1,200 models from 75 brands, stocking all sizes. The company offers free shipping, fitting at home and returns. Surfdome (UK) Founded in 2006, Surfdome is an online retailer of lifestyle, fashion, outdoor and sports brands. The company offers over 750 well-known brands, covering men’s, women’s and children’s clothing and accessories, including Hunter, Superdry, Vans, The North Face. The website won the 2011 Shopzilla’s Circle of Excellence award for top customer satisfaction. In 2013, Surfdome was the fastest growing Facebook community retailer in the UK with 513% growth in likes (Tamar Brand Love Report, 2013). Warby Parker (US) Founded in 2010, Warby Parker sells prescription eyewear online and through its showrooms. The company has crafted 27 limited run styles, plus one monocle aiming to provide more affordable eyewear. Warby Parker has partnered with non-profit organisations to ensure that for every pair of glasses sold, a pair is distributed to someone unable to afford prescription eyewear. The company has raised over $56m from American Express, General Catalyst, Lerer Ventures, Menlo Ventures, Spark Capital, Thrive Capital, Tiger Global, First Round Capital and SV Angel.
  30. 30. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 29 GP Bullhound LLP Online label / tailored Cuyana (US) Founded in 2011, Cuyana works with local craftsmen in Ecuador, Peru, India, Argentina, Japan and Mexico to bring apparel items made from premium textiles and metal materials. Each piece is intended to encompass the country’s culture, heritage and its people. Cuyana also supports the local community by donating and percentage of its profits to charity Water. Cuyana has received undisclosed funding from Canaan Partners. Everlane (US) Founded in 2010, Everlane sells online its own selection of apparel items. The pieces are created in-house by a small team of designers, who source the fabrics from around the world and seek out the best factories to product the items. Through bypassing any middlemen, offline stores and retail partners, Everlane aims to offer a highly competitive price for its products. The company has received over $1m funding from Betaworks, KPCB, Lerer Ventures and SV Angel. Spreadshirt (Germany) Founded in 2001, Spreadshirt is an online personalised apparel platform. Users can print their own design on over 100 different articles of clothing. Users can also create their own Spreadshirt shops to sell their designs. There are more than 400,000 Spreadshirt shops open. The company has raised over $12m funding from Accel Management, Kennet Partners and Kreos Capital. Wool and the Gang (UK) Founded in 2008, Wool and the Gang is an online DIY fashion brand, offering knitting kits as well as ready to wear knitted products. The company sources its yarn from Peru, where it also recruits local women to knit the ready to wear items. Wool and the Gang organises knitting events and has an expanding online community of knitters.
  31. 31. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 30 GP Bullhound LLP Personalisation, Curation & Social Discovery Chicisimo (Spain) Founded in 2010, Chicisimo is an online fashion community, where users share their pictures of various outfits and get inspiration about what items work well with others. The site aims to collect data on the fashion industry from its user base, similar to that of Last.fm. Chicisimo is also working with brands directly to create branded profiles on the site. The company has raised over $1.4m from investors including VitaminaK. Dressipi (UK) Founded in 2009, Dressipi is an online personal recommendation engine. The site has several in-house stylists that suggest various items of clothing for the users. Users input their statistics and answer quiz questions so that the suggestions are closer to their tastes and preferences. The company has integrated various known fashion brands including Boden and BrandAlley, which use its recommendation service for its own shoppers. Lyst (UK) Founded in 2010, Lyst is an online personalised fashion brand aggregator. Lyst sends recommendations and updates on brand collections via email, personalised for brand selection of the user and behavioural data on the site. Lyst aggregates inventory of online and offline retailers, such as department stores, boutiques and brand stores, taking commission for each purchase. The company has raised over $5m from Accel Management, DFJ Esprit, Venrex Investment Management. Outfittery (Germany) Founded in 2012, Outfittery is an online men’s stylist platform. Users discuss their preferences with a stylist on the phone to be recommended a selection of fashion items. The push subscription model means that the items are delivered after user confirmation and can be paid for at delivery or returned. The company has raised undisclosed funding from High-Tech Gründerfonds Management, Holtzbrinck Ventures, IBB Beteiligungsgesellschaft, Mangrove Capital, RI Digital Ventures.
  32. 32. GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT? 31 GP Bullhound LLP Other EDITD (UK) Founded in 2009, EDITD collects trend-forecasting market intelligence for the fashion sector, from sources including online apparel retailers, consumer intelligence from social media, runway data, and newsletters. The data is aimed to help retailers on assortment, price points, competitive positioning in real time, as well as helping financial investors and consultants in analysis of fashion businesses. The company has raised c.$1.8m funding from Atlas Ventures, High Line Venture Partners, Index Ventures and Seedcamp. Fits.me (UK) Founded in 2010, Fits.me is an online fitting room SaaS solution for retailers, including Otto, Boden, Adidas. The service enables users to try the clothes on virtually through the site before purchasing, to ensure that the fit is optimised and returns are lowered. The company uses highly sensitive robot technology to measure the dimensions of clothing items, which are then compared to the size metrics entered by the user to create an image of how the item would fit in real life. The company has raised over $10m funding from AS SmartCap, Conor Venture Partners, Entrepreneurs Fund Management, Estonian Development Fund and Webmedia Group. Holition (UK) Founded in 2008, Holition provides augmented reality solutions to the retail sector. The company has worked with leading retailers such as De Beers, Tissot, TAG Heuer, Dunhill and Georg Jensen, to develop virtual 3D imaging applications for users to try on apparel items online at home or within a store. Snap Fashion (UK) Founded in 2012, Snap Fashion is a fashion search engine that uses images, taken on the mobile app, to search for matching items of clothing. The company’s data base includes items from over 100 major retailers, such as Topshop, Gap, Jigsaw, and online retailers, such as Net- a-Porter, ASOS, MyWardrobe. The app also allows users to share choices and purchases with friends and create tailor-made personal wishlists and giftlists. The company has raised undisclosed funding from Venrex Investment Management. Virtusize (Sweden) Founded in 2011, Virtusize is an online virtual fitting room solution that helps users assess their correct apparel size, by comparing the item measurements with the metrics of another item specified as a good fit by the user. Virtusize has consumers in more than 100 countries and is available for 25,000 garments or 150,000 SKUs. The company has raised undisclosed funding from Investment AB Öresund.
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