Next Wave of Online Commerce

8/2/2019 Next Wave of Online Commerce

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We all know that E-Commerce is accelerating its assault on brick and mortar retail. Lets take a look at theoverall Online Retail Market Revenue & Growth Rate:

One of the main segents of E-Commerce that is prime for disruption is Apparel & Fashion. Historically(i.e. before 10 years ago), if a fashion-savvy teenager wanted to purchase an item from Abercrombie &Fitch & there wasn't one located in the local mall - there were two options: 1. purchase via mail order

catalog or 2. wait until they took a vacation to a location that had an Abercrombie retail store. The webostensibly flattened the playing field by enabling anyone in the contiguous US to purchase any item froman online retailer.

This article is going to focus on fashion and brands driving the next waves of innovation in E-Commerce:

Rationale forFocusing on Fashion & Brands Driving of the Next Waves of Innovation in E-Commerce

Social Facilitated the Generation of Economies of Scale of Users: Prior to '07, it was inordinatelychallenging to generate sufficient online traffic for most E-Commerce startups, brands, and onlineretailers in general. In order to generate traffic, an online retailer had to build significant customer

mindshare, to even have, the customer "think" to go to their website to check out a brand or product &make significant investments to put online retailers in the workflow process of the user (i.e. sending anemail with product information relevant to the users). In addition, the technology, required to power thesesystems, was expensive, specialized, and young/immature. Over the past 5-years, we have seen 850m+people join Facebook, a massive boom in tech startups building & refining solutions for workflow processproblems (i.e. email marketing), and a drastic reduction in the cost of implementing these solutions.

Hence in 2011, the process to generate significant audiences and thereby acquire new customers ismuch easier. As such, E-Commerce is one of the pillars to building a modern brand & a significantmonetization tool for consumer web products.


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In Q3 '11:Online Sales up 13.1% (to $36.3b from $32.1)

22% Increase in the # of buyers in the marketplace (diffusion & tech. assimilation)

74% of ALL web users made a purchase online in Q3 '11

Powerful Relationship between Individual & Product - One of the most important aspects of fashion isthat it is a highly emotional experience for purchasers of the products & the payoff of its use. Humansare inherently social animals & have a powerful desire to be accepted by the herd (i.e. social &professional networks) - thereby, your choice of what you wear is a direct reflection of who you are as anindividual (or how you want to be perceived as a member of the herd).

Over several hundred thousand years of evolution, humans have learned to draw immensely on visualcues as a means of assessing character risk about the people we interact with &, therefore, leveragingapparel as a means of establishing an individual's similar to me visual references (i.e. if I wear tightpants + gingham check collard shirt = SOMA startup hipster). Fashion is one of the main externalmanifestations of whom we are as individuals and serves as the impetus for visual feedback to observerabout our personalities.

Recognizable Transition - The purchasing of apparel online represents a systemic behavioral changefrom the old way of doing things (i.e. purchasing apparel from a limited assortment at a physical retaillocation). Everyone pretty much associates purchasing of apparel with physicality of being in a store,engaging in an economic transaction (i.e. purchasing product), and immediate satiation of the desire topurchase (i.e. walking out of the store with the product in hand). We were able to try on clothing prior topurchasing and we received immediate satisfaction from the transaction (we walked out with the productimmediately following the conclusion of the transaction). Thereby, purchasing online separates thetransaction from the satiation of the desire (i.e. the impetus for engaging in an economic transaction).

Direct Communication - Brands have embraced the web & social media with voracious enthusiasm.Before the social revolution, brands had a tertiary relationship with the customer, whereby the customerhad dealt with the retailer & the brand served as the product of the retailer. If the customer loved the

brand, the retailer received the customers goodwill/happiness as the provider of the garment (versus thebrand as the producer of the product - it's a level of abstraction away from a direct relationship betweenproduct & consumer). The retailer controlled the relationship and therefore is the recipient of thecustomer's projected satisfaction or enjoyment of the product (as opposed to the brand that created theproduct).

Social media transformed the ability of a brand to communicate with their target demographic - from aproxy relationship (brand -> retailer -> customer) to a direct relationship (brand -> customer -> retailer).

Strategic Focus on Building E-Commerce - More so than most other areas of consumer products(aside from books, music, & video), brands have started to strategically focus on building their directbusiness with customers. Currently, direct business (brands selling product directly to the customer (viaits website) has been an ancillary consideration to most brands (i.e. the direct business took the back

seat to wholesale (Major retailers like Nordstrom & Bloomingdales). A couple of reasons behind this are:

Lack of Experience- One of the main reasons for this was that it was E-Commerce was relatively newand most CEOs didnt have enough direct experience to champion investments in E-Commerce as astrategic priority. Based on this inexperience with this channel as a significant revenue driver, mostCEOshave not devoted significant financial resources to cultivating this revenue channel. Conversely, themaybe stymied from investments in E-Commerce in the '04 - '05 boom that didn't generate miraclereturns (that's a combination timing (just too early), technology assimilation (pre-Facebook & Pre-iPhone),and artificial macroeconomic growth incorrectly supporting dying business models).


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Inability to Gain Considerable Audiences- Prior to the social media revolution, engaging in a directrelationship with a brand required a fairly substantive investment on behalf of the customer to find thebrand. Supporting the previously mentioned Direct Communication trend, the customer associated abrand with a particular retailer (i.e. Nordstrom) and was accustom to, comfortable with, and meta-taggedas going to that retailer for the brand. Therefore, the Brands website (and subsequently the E-Commerce business) had insufficient traffic to signal an area of material concern.

After years of languishing in the single-digits, most brands finally get it & have made building their directbusinesses as a core new growth opportunity. In addition, with the huge cost pressures that fashion isunder fire from (See Secondary themes) along with retail pricing pressure - brands are turning to the 65-70% margins from their direct businesses as a huge opportunity. Furthermore, the ability to harness adirect dialogue and engage the customer in a long term relationship (through the massive adoption ofsocial media) means that this represents a huge opportunity for most brands.

Let's take a look at how this can impact margin.

==========================================================Three Forces that are Fueling Future Innovation==========================================================

Fashion is also the industry that leads tech trends in terms of marketing & branding - leveraging onlinetools to craft a relationship with customers that facilitates & fosters dialogue and aspirational affinity forthe brand (99% of brands are aspirational in one form or another regardless of the market segment). Inan effort to understand where the next waves are going to be, we need to understand the current wavesthat are driving the market.

1. Social is hands down one of the most significant influencers of the next wave of E-Commerce - that isdriving the current wave of E-Commerce 2.0. Social (primarily Facebook) transformed web behavior (inthe aggregate) from receivers of information (i.e. reading a news article) to interactive engagement(commenting or sharing - anything that basically promotes a user action). As incredibly important &transformative as Social is, its the current wave - Signs that tell you that this trend is in motion: Since Facebook Fan Pages/Like pages were introduced, Fashion Brands were socializing their

marketing efforts to facilitate E-Commerce (i.e. Check out our new collection).


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Retailers like ASOS, Urban Outfitters, et al have Facebook Shops open - and major retailers are

currently running major campaigns around informing the Retailer's Facebook followers about the

channel and developing the revenue channel

Startups are currently being built around Facebook Commerce (Social) Commerce, ranging from

white label stores (al la Payvment) to analytics (al la AddShoppers) - an ecosystem rising around

trends supports it's current position in the product lifecycle and state of diffusion - it's happening now.

This isnt really a new waveor an innovation - its just something that is a logical extension of thetechnology. We are in the early adopter stage of this trends evolution - its new, but its definitely not thenext wave.

For example, Forrester Research predicted that Social Commerce would reach $14b by 2015. Granted,its a current trend in motion, but it is forecasted to represent ~5% of Online Retails revenue in 2015 - andthats after ~10 years! (lets say that the social trend really kicks off in 06 when Facebook is released to awider audience - so that means this trend (by 2016) will be in motion for 10 yrs. Think about Google wasafter 10 years and the contribution they made to Online Sales development over the period - $14B is fairlymuted when compared to overall theme).

2. Private Sales are a glorified email marketing fad that exploded onto the retail landscape and, over thepast two years, has been quickly commoditized with 100s of players jumping into the space. Thistrend truly represents a wave because of its voracious growth over the past 4 years and subsequentcrashing of this industry as a business model as 100s of competitors have ostensibly commoditized theindustry out of existence.

Private Sale Sites and their corresponding incredible growth rates have imbued some profounddevelopments in the marketplace:

Time Value of Economic Value- The most incredible development in E-Commerce was that Private Salessites (al la Gilt Groupe, JackThreads, Rue La La, Plndr, HauteLook) conditioned the customer to tradecost savings for product delivery. Before this, Zappos was setting the expectation of Free Shipping & GiltGroupe (primarily) fundamentally transformed this expectation.

Price is a Deadly Value Proposition- Competing on price is one of the most challenging positioningdecisions in business. When a brand makes the decision to market itself purely on price (i.e. purchasethese items at 50% discounts), then there is no place to go but down (citation Wal-Mart stalled growth asprices have continued to increase). By virtue of focusing on the price, you are inherently devaluing theproduct the Private Sales Site is purveying. The retailer is in a falling knife market environment that isextremely challenging to navigate and almost always ends up in a bad place.


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The Pivot Out of Deals- Gilt Groupe has been the only player to being the transition (pivot) out of pureDaily Deals (into Park & Bond - but more on this later) - something that all of the Private Sales playersneed to figure out their pivot out of the deadly margin game. 90% of the time this is going to be a PrivateLabel play that will support a blended margin near the levels of those Gilt enjoyed when it still held it's firstmover advantages.

[NOTE: To update & expand my most successful Quora article(Matthew Carroll's answer to Gilt Groupe:How does Gilt's business model work?) - I am writing a follow-up about the industry and the state of thegame - So stay tuned to a lot more on this front.]

3. Mobile / Location is one of the most powerful tsunamis that was introduced in the marketplace in 07.The pervasive adoption of smartphones (lead by theiPhone's introduction in 07) - consumers beganinteracting with the web in a fundamentally new way - on the go (away from their desk/laptop)The smartphone revolution championed a new world of the internet as a physical manifestation of the

digital world (al lafoursquareled by the brilliant work of the laudableTristan Walker). There are twomajor factors to this wave: Check-ins- a new interaction with the on the go lifestyle of most consumers to earn rewards

and receive discounts based on the interaction of the real world and the digital world.

M-Commerce- (Mobile Commerce) was an entirely new genre of E-Commerce whereby a user is

enabled to purchase products regardless of geographic proximity to a computer.

Forrester Researchpredicts thatM-Commercewill grow to $31 Billion over the next 5 years in the US -thereby doublingSocial Commerce. Let's take a look atForrester's estimate:
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Forrester Researchestimates thatM-Commercewill grow into $31b industry, nearly double their forecast

forSocial Commerce(Hence why I am not very big on it becoming the Next Wave, when it's a wave that'salready in motion) by 2016. Let's take a look at how they predict the next 5 years will evolve:

This wave ofE-Commercewhere an individual's physical location facilitates purchasing of goods orservices in three main forms: Purchase Online & Pick-up in Store

Geographically Targeted Discounts

Mobile Check-Ins for Loyalty Points & Discounts

However, like Social, the Mobile / Location wave is currently underway diffusing in through themarketplace and does not represent the next wave.

Tertiary Trends[Note: There are some fairly profound secondary / tertiary trends that support my position on the nextwaves of innovation, but these will be discussed in a later post. Some of the most salient secondarythemes are:

Experiential Development of Web Users - as people gain more experience with the internet, they

will become more competent and willing to more fully integrate E-Commerce into new aspects of the

their lives.

Collapse of Inexpensive Foreign Goods & Increasing Input Costs - The era of cheap

manufacturing is quickly dying with 20% YoY wage inflation in China compounded by BRIC'sascension into the middle class. Competition for input commodities in all products will systemically

change how we all purchase goods & services.

Rise of US Manufacturing - With rising Chinese RMB and a depreciating US Dollar, the US is

strongly positioned to champion a manufacturing boom over the next 5 -7 years (pretty much all the

good t-shirt & jeans factories in LA are at full capacity. Made in USA will become increasingly

important (as it was for 150 yrs prior to 1950s, when we GDP per capita (PPP) rapidly appreciated).
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Although this trend is in its infancy & has considerable hurdles (lack of vertical supply chain, a labor

force (look at what happened to Alabama's tomato crop after the immigration legislation), and

infrastructure) to overcome - it is a major theme that could enable the US to realize something similar

to what we are seeing with Germany's GDP in Early - Mid 2011.

There are two really important themes that are necessarily Innovations in E-Commerce right now.

1. Retailers Driving Content Creation: I first noticed this at the beginning of the year with a Carnival CruiseWeb Commercial about a family on a holiday. In addition, tonight I read about Karmaloop (a street E-Commerce player that I reference a lot in my posts) having users upload vids to create a new web series.[More on this later (when I flush it out more but it's pretty interesting).]

2. Private Label: I have a REALLY long post on Private Label and why it's becoming a critical aspect ofthe Revenue Development of a Fashion Brand. I would go so far as to say that it's going to be one of themain pillars of brand strategy over the next 10 years - but more on this later.

These tertiary themes will be discussed in excruciating detail in a subsequent post - Ill update with links]

Summary - These three trends lay the foundation for the next waves (all of which would not be possible

without at least 1 of these trends. In addition, the next waves of innovation will be built upon these threetrends. Therefore, for purposes of looking forward, the consumption medium has been set and thenext waves will not be an entirely new means of interacting with or engaging in E-Commerce - thenext waves of innovation will be within the same context (web-based & mobile).

==========================================================Three Waves of Innovation in E-Commerce==========================================================

All three of these trends are fairly independent - the order is fairly arbitrary

1. Curated Personal Style Subscription

Over the past 6-years social and E-Commerce have evolved into a way of life for the vast majority ofinternet users. However, recommendation of products pretty much sucks. Forexample, Amazon Recommendation Engine is useless (maybe its just my experience - but every singlerecommended item I have either purchased or a competing product that I have decided againstpurchasing) & the best in the business, Netflix, is only moderately insightful.I am fairly well versed in machine learning & NLP, but have failed to see an implementation ofrecommendation algorithms on a product basis (although Hunch is getting pretty close) that present asubstantively compelling recommendation that compelled me to purchase a product.

The next wave of E-Commerce will be services that fundamentally leverage the massive data sets inconjunction with expert curation - to drive purchases by introducing the product to the customer thatpresents a clear value proposition.

There are three salient aspects of this model:

Leveraging of Data:Online Retailers of all shapes and sizes have vast treasure troves of data that arecurrently not fully being employed - most of the time they are not even being connected. This next waveof innovation will involve the connection of various data sources into a central platform that delivers moreinsight into the product selection, procurement, & merchandising process.

Subscription as a Business Model:The first time that I really noticed subscription gaining product/marketfit (in online fashion) was ShoeDazzle. Smaller E-Commerce Fashion Sites should be focusing on adeeper, more personal relationship with the customer - thereby leveraging the power of the subscription


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model to deliver more product and round out their cash flow cycle.

Expert Curation --> Personalization: As I mentioned before, pure algorithmic recommendations suck - Imean if Amazon's "you would also like" can't produce a decent recommendation so save it's life - then Idon't believe that anything is ready for prime time. However, if done correctly, these algorithms couldfocus the selection criteria. Thus, making the work of a stylist / expert easier and more efficient.

There has been loads published in the last 6 months about the coming revolution in Mens fashion E-Commerce into style curation (a la StyleBop - Buy the Look - and MrPorter.com- The Look & The Story).It is well understood that men purchase fashion very differently than women and want to buy style that isput together or curated (Man Shops Net - WSJ).

Heres the real kicker - no onehas fundamentally implemented this process into a product. The majorslike Mr. Porter, Gilt Man, and ShopBop have jumped way out in front with editorialized content. However,their scale is an inherent weakness to the personalized approach that a curated personal stylistsubscription model could offer for men. In addition, these major players are positioning themselves tocompete with the Bloomingdales of the world with expensiveitems - Mr. Porter, for example, has most oftheir items at $500+ and there is a huge market for everyone else who simply doesnt have this kind ofdisposable income to spend on fashion.

Why is this the next wave:

People Want Cool Stuff:The web will progressively become more individualized as users find their niche,form new relationship, and discover new ideas/products/art etc. This wave fully embraces this trend anddelivers a service to monetize the relationship.

Tech. Maturity & Sophistication:To a certain extent, this evolution was not possible until probably 2011.The Social Web needed to mature (and an ecosystem built on top of it), users needed to mature andgain more experience (and sophistication) with the web and interacting with it (versus being receivers ofthe web al la Web 1.0), and the analytical environment to build a better web needed to mature asdevelopers tailored their offering into the appropriate Product/Market Fit.

Personal Relationship:The web will become increasingly personal and E-Commerce must respond to

deliver products and services that feel like they are made for the user. As youll see in the startupmodel, the relationship is paramount in delivering a subscription fashion service.

==========================================================FULL Startup Business Model Analysis at the end of this overview - most of you know how I reallyhate it when authors give copy-blogger generics to shorten the post - or textbook over-simplifications thatdont reallyarticulate the complexity of the real world. So I have added a full business model withscreenshots & financials to showcase what a curated fashion site would look like, how it couldbeimplemented, and what the potential revenue would look like.

Enjoy! Feedback, Flaming, Comments, and Funding (al la me!) available if you are so inclined==========================================================

2. Open, Vertically-integrated, Analytical Demand Signaling & PlanningFast Fashion (Zara & H&M) has fundamentally revolutionized the fashion-industry by upending thetraditional seasonal approach* for retail primarily through their analytics driving a modern, verticallyintegrated manufacturing beast. This transformation is akin to Toyota kaizen(along with the other Asiancar manufacturers) that reshaped the automobile landscape in the United States where foreignmanufacturers wiped the floor with its US competitors.

The ability to transform actionable analytical insights into demand-responsive product compositionspresents the core strategic value proposition for fast fashion & the driving factor that will revolutionize theindustry as a whole (we are moving to a whole new level above the prompts innovation mandate).
http://porter.com/http://porter.com/http://porter.com/http://porter.com/


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The traditional way does not work and is ever increasingly augmented by the under-performance oftraditional seasonal firms and out-performance by those fast fashion market leaders. In an effort to fullyinvestigate this wave, we need: Understand the background as to how industry norms were established as a means to illustrate

how disruptive Fast Fashion is.

Define the push factors & technical developments that will foster in the next wave of E-Commerce.

Layout the How the Solution Works.

There is an emerging trend for each E-Commerce site to try and harvest their own proprietary "demandsignals" based on like / want data. For example, Bonobos has their new "Want" feature, Amazon has theiryellow "like" button, Bluefly similarly with a "Want" feature. Individual players in the space are all trying togo it alone - which never results in a favorable outcome in the aggregate.

I completely understand the need to begin to harness demand signals based on analytics, but havingevery E-Commerce site build out their own functionality is ridiculous. What makes this ridiculous is thatno one player has sufficient scale to truly capitalize on these data points to make constructive decisions.

In addition, this information needs to be distributed to all stakeholders. There must be standardization forthe implementation and utilization of demand signals.

In the traditional retail model, retailers guard sales data and statistics about product performance. Brandshave been significantly inhibited for maximizing revenue & being a true partner in delivering the bestproduct in the correct quantities to the retailer by virtue of the disconnect (and often discord) between thetwo player. Traditionally, brands have not had access to the retail performance data and have beenforced to proxy methods for estimating demand &, therefore, production quantities for products. Byretailers controlling this data today inhibits brands (vendors to the retailers) from delivering products thatmaximize the retailer's merchandise offering. The current information asymmetries heavily rely on buyers(who let's face it REALLY aren't factoring customer mindshare, the brands level of diffusion, or theindividual factors of the brand - buyers are buying in their overall patterns for the category as a whole).This is the same thing with proprietary demand signaling products like wants / likes as a proxy forunderstanding market & audience.

The one retailer in the space that I have MAD respect for is Amazon's Vendor Central. They are definitelyleading the charge, but it still needs a lot of work - to flatten data communication and leverage all partiesworking together.

Please don't suggest that Facebook Like Button solves this - the company is evil and can't put somethinglike this together that will actually benefit other companies businesses. COME ON - It's Facebook theywon't even let the users of their products have their data - do you REALLY think that they would doanything that presents monetary value to other stakeholders?

When you take a look around the internets, the only company positioned to do this is Amazon - but it hasto be an open standard that:

What Does this Innovation Look Like?

Distributed System - This wave will be about massive distribution of a service that harnesses demand,centralizes and then distributes it to all the stakeholders


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Vertical Integration - This wave embraces the spirit of the internet - pushing development to take on theMan. In order to compete with larger, better financed, and highly efficient teams - the web needs to pullpartners together and build a better ecosystem. Although the 2011 prevailing tech theory revolvesaroundApple Inc./iPhonecontrolledApple AppStorefor quality - this simply wont exist in the web as awhole for the better part of 8 - 10 yrs.Retailers need to communicate better with suppliers to maximize capitalizing on demand based onsupply-based opportunities & brands need to leverage marketing & promotion to drive the retail & brand

businesses together.

Integrated into workflows - don't make me log into another dashboard. The demand signaling productshould push toGoogle Analytics(the fairly universal tool that everyone uses, even if they have moreadvanced analytics tools). This is a big limitation ofBitlyin the fact that they aren't making data analysiseasy for me by controlling my analytics within their product - I'll use your product more if you give me thedata to put to work. The way that this tool is going to create value is by making data widely available andlocated in a place where people can actually see it & use it.

* The traditional seasonal approach is where product available for purchase at retail (i.e. what you seeat the stores) is produced in two main production cycles - Spring/Summer & Fall/Winter.

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3. Infrastructure as a Service - The Missing LinkThis gilded age of the consumer/mobile web has it roots in the commoditization of technical infrastructurethat Amazon championed stemming from their CapEx investments from the early/mid-00s (what ultimatelybecomes Amazon EC2 through Amazon's excess server capacity).** Now as the incredible technicaldevelopments of the web gave rise to Amazon EC2, the huge growth ofE-Commerce will push the back-end infrastructure to innovate.The world before Amazon EC2, tech startups were forced to engage in a massive CapEx build out. Anarticle that beautifully illustrates this is Marc Andreessens Wall Street Journal OpEd - Why Software isEating the World). This is ostensibly the same thing that is still happening in Online Retail & retail ingeneral. The Majors are building out the infrastructure:

Walmart Takes over Supplier Logistics -http://buswk.co/nhJ7dz& (B-Net Article -

http://www.bnet.com/blog/retail-... )

Urban Outfitters Prepares to Grow Online - Internet Retailer - (http://www.internetretailer.com/...

Macys Breaks Ground on Fulfillment Center in WV - Internet Retailer -http://www.internetretailer.com/...

Now these retailers have hundreds (and in some cases thousands) of different brands. Forexample, Zappos has 312 Mens Footwear brands ALONE and Walmart has something in the order of50,000. There needs to be a scalable, easily implemented solution for the brands that the retailers sell.
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Think about how beautiful Amazon EC2 load balances and effectively responds to traffic spikes. It also isextremely easy to implement - even a pretty JV coder like me can get an instance up and running withoutmuch fuss. There needs to be a player that delivers order fulfillment & inventory management (rememberwe already established how much larger E-Commerce is going to become) in a capacity that enablesleveraging of economies of scale through services only an aggregated player can provide.

Now there are two main players that kindado this:

1.ShipwireFulfillment - Shipwire is a specialized E-Commerce Fulfillment company that lead theindustry in formalizing a pricing structure & delivering 3rd party logistics services as a service. Althoughthey are small and relatively new, they are hands down one of the market leaders in the space and on theright track. They need to drop prices considerably and flush out their model, but all things considered itsa good start.

2. Amazon Fulfillment Services (Fulfillment By Amazon (Amazon FBA) - Amazon is currently operatinga fulfillment service, but its not dialed and its pretty expensive. With Amazon operating 13 Fulfillmentfacilities in the US, and opening 4 more (as of the week of Sept. 12 Amazon made in-roads to openingfulfillment facilities in CA - W00T!). If the server infrastructure buildout of the early 00s is emblematic ofAmazon's future fulfillment capabilities in 5 years, then this could be in the innovation that the industry

desperately needs.

The killer part about this is that there is already the physical infrastructure built - in every city there are3PL (third-party logistics) warehouses that will store, pick-n-pack your orders. However, they dont solvethe critical aspect of inventory management.

Here is what the solution to this wave will look like:

Load Balancing Inventory Between Warehouses: By virtue of clarity in the demand signals, the newservice can shift inventory from Warehouse A to Warehouse B (thats located closer to the demandsource) to drive cost efficiencies.

Long Haul Injection Shipping: The main profit center for United Parcel Service & FedEx is the volume

of packages driven to any one location on any given day that allows them to combine hundreds ofshipments into one large container. By virtue of aggregating hundreds of brands and coordinating thelogistics, the entire ecosystem derives cost efficiencies from scale.
http://www.quora.com/E-Commercehttp://www.quora.com/E-Commercehttp://www.quora.com/E-Commercehttp://www.quora.com/E-Commerce


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Great Clarity into the Supply Chain: A system like this will reinforce Wave 2 in that all players willbetter understand where their supply is and how to structure product promotion strategies accordingly.

Social Proof: Here are some recent developments that support this becoming a major wave:

GoogleTargetsAmazon's 'Prime' with 1-Day Delivery -http://on.wsj.com/tvrhbq

Demonstrates the strategic priority ofE-Commerce

Illustrates market opportunity for new players with the resources and strategic alignment to get

into the industry

This problem is 'insanely' logistically complex - the math & algorithmic complexity of conquering

something like is perfectly geared forGoogle

FedExSaid to Plan Order of 30 Wide-Body Boeing Freighters (http://buswk.co/uGfXMg)

$5.26 BILLION in CapEx for these 30 new planes - FedEx is a finance wiz and would not take a

major order on like this if it did not forecast an even larger increase in volume

17 million packages will be shipped on Dec 12, 2011

~10.26%+ in shipment volume in 2011 from 2010

15.6 million shipments shipped on Dec 17, 2010

12 million shipments on Dec 15, 2008 10.6 million shipments on Dec 16, 2006Source:http://on.wsj.com/tkRuAl

==========================================================Wave 1: Deep Dive Investigation into Curation==========================================================[Note: I want to define a couple of terms so we are all playing on the same level - here are somedefinitions that I am going to use:
http://www.quora.com/Googlehttp://www.quora.com/Googlehttp://www.quora.com/Amazonhttp://www.quora.com/Amazonhttp://www.quora.com/Amazonhttp://on.wsj.com/tvrhbqhttp://on.wsj.com/tvrhbqhttp://on.wsj.com/tvrhbqhttp://www.quora.com/E-Commercehttp://www.quora.com/E-Commercehttp://www.quora.com/E-Commercehttp://www.quora.com/Googlehttp://www.quora.com/Googlehttp://www.quora.com/Googlehttp://www.quora.com/FedExhttp://www.quora.com/FedExhttp://buswk.co/uGfXMghttp://buswk.co/uGfXMghttp://buswk.co/uGfXMghttp://on.wsj.com/tkRuAlhttp://on.wsj.com/tkRuAlhttp://on.wsj.com/tkRuAlhttp://on.wsj.com/tkRuAlhttp://buswk.co/uGfXMghttp://www.quora.com/FedExhttp://www.quora.com/Googlehttp://www.quora.com/E-Commercehttp://on.wsj.com/tvrhbqhttp://www.quora.com/Amazonhttp://www.quora.com/Google


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Majors: The 800lb gorillas in Fashion E-Commerce like Nordstrom Bloomingdales (Macys), Saks FifthAvenue, Net-A-Porter,Urban Outfitters. To get an idea of their scale:

Independents: These are the Online Retail / Fashion sites that are primarily focused on being boutiques-> they mainly sell the new, high-end consumer fashion. The main players in this space are

RevolveClothing, Tobi, eModa (even though they suck and dont pay their bills), and KarmaloopHere are the push factors to why this trend will emerge:

1. Low Competitive Advantage in Product OfferingIn the mid-late-00s the Majors (i.e. Macys, Bloomingdales, et al) were facing a problem - they all sold +/-the same brands, at the same price level, and were in the same locations - thereby commoditizing theirentire retail segment by virtue of growth aspirations fueling homogenization (and thereby progressivelydestroying value proposition. During the Mid-00s consumption boom - the Majors all sold the samebrands, focused on Jack Welch-Style Efficiencies & Synergies (like cutting customer service to increaseprofitability -http://on.wsj.com/nC98ZM, and ultimately destroyed any discernible value proposition thatenabled them to be price setters in the industry. In the same manner, most fashion E-Commerce sitesare in direct competition with the majors - offering the same brands and pretty much the same prices.

Back in the mid-00s the Majors were still riding high on engendered brand positions & established

customer mindshare (from the last 40 years of evolution - customers, only just maturing with the internet,still primarily held a mental association that I go to Nordstrom to buy nice Clothes:). Most of these Majorretailers simply didnt understand the true threat that Zara & H&M posed to their core businesses -instantaneously responding to demand signals that delivers product in the emerging trend and atsufficient quantities that the customers wants.

Simply put - they had better product in the right places & the Macys and the Bloomingdales of theworld could not compete (and arguably are still only in 2011 beginning to achieve substantive marketprogress in response to the massive changes in the macro-retail environment. Surprisingly, JCPenny isleading the charge through a fast fashion boutique approach with their Mango partnership.(WSJ - Penny Introduces New Weaves ofhttp://wsj.com/article/SB1000142... )

Currently, most independent online fashion sites are falling victim to this same trend (that Major

Department stores did in the mid-00s - commoditized product offering). The Independents(RevolveClothing.comorTobi.com, or Karmaloop) compete with the Majors(Nordstrom.com,Bloomingdales.com, Net-a-Porter) - they have VERY similar product offerings inthe consumer fashion space(i.e. not when it comes to High Fashion like Zegna, Loutboutin, Gucci, etc)

2. Portable & Effective Data Extraction Best Suited for the Smaller PlayersTraditionally speaking, boutiques were a place that the shop owner knew who you were and was thefashion expert that provided some value add services (being in the know and having a relationship withthe customer to make recommendations about purchases).
http://on.wsj.com/nC98ZMhttp://on.wsj.com/nC98ZMhttp://on.wsj.com/nC98ZMhttp://wsj.com/article/SB10001424052748703435104575421580334396678.htmhttp://wsj.com/article/SB10001424052748703435104575421580334396678.htmhttp://wsj.com/article/SB10001424052748703435104575421580334396678.htmhttp://revolveclothing.com/http://revolveclothing.com/http://revolveclothing.com/http://tobi.com/http://tobi.com/http://tobi.com/http://nordstrom.com/http://nordstrom.com/http://nordstrom.com/http://bloomingdales.com/http://bloomingdales.com/http://bloomingdales.com/http://bloomingdales.com/http://nordstrom.com/http://tobi.com/http://revolveclothing.com/http://wsj.com/article/SB10001424052748703435104575421580334396678.htmhttp://on.wsj.com/nC98ZM


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E-Commerce has exploded in the last 5-6 years as the process matured and more people haveexperience with it.

- The advantage of E-Commerce is the ability to emotionally engage your customer base by virtue ofyour smaller scale - its a lot easier to apply qualitative customers insights that fosters your customerdevelopment strategy

3. Buying Traffic Sucks! Play to your Strengths

- Google AdWords drives significant traffic to the fashion retailers & the smaller guys simply dont have

the financial resources to compete.

- The big boys have crazy, advanced tools, like Marin Softwares Pay Per Click Management Solution. Inaddition, they have the staff & the tools to blow the little guys out of the water.

- The Independent Players wont have the ad-buying budgets, highly specialized Pay Per Click or dataanalysis staff, or advanced tools to win against the big boys. Even if you do have some of it, they majorfashion sites will simply copy your strategy. For example, some of Internet Retailers most recentestimates have paid Search Taking up a significant portion of ad budgets:

4. Understand Your Position & Embrace Strengths to Maximize Value Proposition

- Leverage your small scale to have a direct communication strategy that emotionally connectsconsumers to the E-Commerce channel.

- Just think about it - trying to effectively segment an email list to 1m people (like lets say Nordstrom's)

versus an smaller competitor who is segmenting a 4k email list is completely different. The smaller chainshave the luxury of dealing with 000s of visitors/orders/customers versus the majors like Nordies that has000,000s - use this to your advantage. For Example, a smaller player has the considerable strength of: Over the course of 1 month, 5 stylists (who are most likely already on the team as customer

service reps) would add build out profiles for each customer

It would take 5-mins a day & be a rather fun exercise for customer service (who have the most

customer insights about people) to say hey we need your help in building out who you think these

customers are - to be more effective at reaching them


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Everyone loves to people watch, we are now just applying that past time to building profiles that

will help the company more effectively target customers

This approach also engages the EEs of the independents in a new capacity - They are

contributing insights that value a different range of a traditional customer services skill sets. Thereby

(according to Herzbergs Hygeniene Principles) will lead to greater job satisfaction & productivity

(good for org. culture!)

- Once you have built customer profiles over a couple of months, you can have more insights about how

to segment an email list to effectively engage & communicate with your customers.

5. The Big Boys in Online Retail Are Swamped in Data

- Many of you know, that I have a personal vendetta against the big boys and believe that they scale

inherently their ability to innovate.

- The big boys have xx millions of visitors per month & trying to add customer insights requires such a

significant investment that its really not possible at scale

- As a smaller player you are at a significant advantage to have substantive insights that drive profoundimpacts on your product offering.

===========================================================

The Startup Model - Just-Your-Style

===========================================================

This is what I see Personalization site / Product line Looking Like:

Just-Your-Style Mens Fashion Subscription Investigation & Analysis

Just-Your-Style.com(JYS) is a placeholder name for this prospective business model analysis that

flushes out the personalization concept for E-Commerce next wave of innovation. This company is

intended to be built as a new business line to the 100s of fashion sites out there so for example, it would

exist on top ofRevolveClothing.comorTobi.comor an application of Net-A-Porters Predictive Algorithm.

Just-Your-Style was one of the first fashion E-Commerce sites to fundamentally embrace the boutique

atmosphere on the web through the stylist approach to fashion E-Commerce. Based on a couple of

brief conversations, the Mens aspect of Just-Your-Style has been an opportunity that Just-Your-Style has

not completely dialed in.

Summary

Just-Your-Style should embrace that boutique/niche position and offer a subscription fashion model for

men that replicates a stylist at a local boutique making recommendations for a guy about what to buy. Itdoesnt make sense for Just-Your-Style to invest an incredible amount of resources into styling users

without them coming back - This model employs a Subscription basis to realize the monthly benefits of

recurring revenue from customers as compensation for the costs incurred for stylists time & energy.

Here are some of the main goals/aspects for the products design/development:

1. Personally Selected Items - Just-Your-Style is a boutique and this model needs to begin at its core

with a personal interactions between the Just-Your-Style Stylist and the Subscriber. This is something
http://just-your-style.com/http://just-your-style.com/http://revolveclothing.com/http://revolveclothing.com/http://revolveclothing.com/http://tobi.com/http://tobi.com/http://tobi.com/http://tobi.com/http://revolveclothing.com/http://just-your-style.com/


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that the larger players like Mr. Porter & Gilt cant do - they simply have too many customers to be able to

fundamentally implement a project based on personality like this! Every time fashion is attempted to be

recommended programmatically at scale - it consistently fails (i.e. Google &Boutiques.com).

Having a stylist to think about the wardrobe, make suggestions, & engage with the subscribers creates a

compelling competitive advantage that will emotionally lock in subscribers

2. Integrated Workflows - The subscriber is making a trade off when they sign up for this product I

(subscriber) will give you my monthly budget for apparel in return you make me look good without me

having to think about it. A product like this should understand that the guy is not going to log-in -

otherwise, they would be making purchasing decisions for themselves.

Emails that prompt the subscriber to complete explicit actions should be key. For example, on

the simplemock-up on the next page - Clicking on the image of a shirt should lock in the selection for the

subscribers monthly shipment

3. Customer Insight - This subscription business line will enable Just-Your-Style to grab deepcustomer

insight that can be directly applied to the main business. Utilizing the subscription business as

representative samples for the demographic & style preferences of the overall mens business atJust-
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Your-Style.com.

Value Proposition for Just-Your-Style
http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/


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1. Revenue

2. Markdown Planning (Profit Optimization)

I have received 4 emails in the last two weeks from Just-Your-Style about the Summer Sale that you

guys are pushing pretty hard. One of the biggest problems of End-of-Season / Closeout Sales is letting

the people know that these markdown items that they would want are available. This subscription model

enables you to target people whose taste preferences are best suited for the particular inventory.

With this model you can direct inventory that you might be getting long on to their most effective source

for acquisition & enjoyment by Just-Your-Style subscribers -onlythrough the deep customer insights that

this business generates can allocation & planning optimization be done dynamically as part of the

standard workflow process of the company.

3. Cash Flow Stability

A monthly subscription models creates a fairly consistent source of income for Just-Your-Style that is less

volatile than strictly relying on Email & Inbound traffic generation. In addition, the predictability of

shipments means that out-of-stock items can be secured (reducing the opportunity costs of lost sales)

weeks in advance and under-performing inventory has a new life to be appropriated to the right customer.

A subscription model enables the financial stability provided by the benefits of predictable shipping cycles

for lean inventory management

4. Buying Traffic Sucks - A More Effective Revenue Generation Tool

Buying traffic through AdWords is an expensive proposition that turns markets the Just-Your-Style, but

mainly as the purveyor of the item that the potential customer was searching for. Fashion E-Commerce

has become fairly commoditized over the last two years and a great purchasing experience does not

carry the same weight as it did 3 or 4 years ago when Zappos was King - now everyone has free shipping

& easy returns.

A stylist-based subscription model builds on the core competencies of Just-Your-Style and can beleveraged into a distinct value proposition - a virtual boutique that understands the customer & is

committed to filling out the whole closet.

Example Pricing Structure
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Notes:

- If the monthly $ value of the shipped item is below the Monthly Subscription Price, then it is carried overto the next month as a credit OR used to credit the Complimentary Good that is shipped with every order

The Up-Sell Model - Every Month Receive a Wear it With Item with the Shipment

Every month, the subscriber should be sent an additional item that complements the Subscription Items

per their Level. The Wear it with items are specifically chosen to be paired with a piece from the

current months shipment or from the previous months (As the service gets off the ground, the Wear it

with item should specifically take into account items that the subscriber says are his all-time favorites)

Here is the beauty of the model - guys are lazy and (Im willing to make a big bet) the overwhelming

majority of the time, they are going to keep the Wear it with complementary item.

How it Works:Every Month the subscriber is sent something that the Just-Your-Style Stylist believes will fill out their

profile. In addition, an item is selected that looks good or complements the subscribed item. For

example,

Subscription Item Complementary Item

Jeans Collard Shirt

T-Shirt Jeans

Collard Shirt Jeans

Collard Shirt Jacket or Outwear

Jacket Collard Shirt

3 Days after the Shipment Arrives, the subscriber receives an email to lock in the order and provide

feedback on the
http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/


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items. Feedback &

Improvement

When the item is delivered, Just-Your-Style sends an email to the customer requesting that they rate the

complementary item. There are three elements that should be included in this email:

1. Subscribed Item

Rate It Automatically builds out your customer returns

How Did it Fit Add a 3 aspects (like Google is doing with Google Places)

Keep It Authorizes Just-Your-Style to charge the subscribers CC for the subscriber price

Return it Creates a shipping label & Feedback box for rasons

2. Complementary Item

Rate It Automatically builds out your customer returns

How Did it Fit Add a 3 aspects (like Google is doing with Google Places)

Keep It Authorizes Just-Your-Style to charge the subscribers CC for the subscriber priceReturn it Creates a shipping label & Feedback box for reasons

Returns:

One of the most successful E-Commerce startups of the last 5 years was Zappos - whose free shipping &

free returns systemically changed the industry. By virtue of employing these two policies, the consumer

was incentivize to purchase two items with almost zero risk for the purchaser. As a direct result of this

program, Zappos experienced a return rate of 37% in 2010 or $374m - however, customers loved the
http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/


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fact that they got to try before they buy.

Sending a complementary good that the customer did not specifically purchase does present significant

risks in this model. However, there are several ways to ideas

1. Guys are Suckers for Hot Girls Approvals

On the packing slip, show a picture of a cutegirl introducing herself as his stylist & why she thinks that he

will look good in these choices - as a guy, I can tell you that I will wear whatever a hot girl says that I look

good in. This also creates a sense of connection and social contract between the subscriber & Just-Your-

Style - if Just-Your-Style gets these complementary goods right over a couple of months, then a

significant level of trust and goodwill will be harvested between the subscriber and Just-Your-Style

2. Discount

Market the fact that by virtue of being a subscriber they got this 2nd item at a reduced rate - you increase

the probability that the subscriber will keep the item simply because its a good deal

3. Encourage the Subscriber to Photograph the Himself with the Return

If the subscriber elects to return the item, then he should be prompted to take a picture with his phone toshow Just-Your-Style what he didnt like (Also, the take a photo to return should be incentivized

because the subscriber is having to do extra work & Just-Your-Style is extracting value out of it). Just-

Your-Style grabs an incredible new piece of information, a visual idea of what the customer looks like -

making the stylists job easier next shipment.

Building Out the Closet

- Stealing a page from Expensify, building out the wardrobe of a person is going to be shitty, time

consuming, and hardwork.

- The solution to this is easy, build a web app, (much like expensify), have people take photos of the stuffthat they like on a daily basis (or as they wear them).

- Additionally setup a forwarding email address so that people can forward email order confirmations for

the items that are purchased online.

On-boarding Process

1. Style Image of What you Would Like to Dress Like

Goal: Have the subscriber qualitatively select the trend that they want to dress like

Defines: Defines the major trend that will be used to make recommendations - Example trends:Americana Urban Sophisticate Euro-60s Summer Sendagaya-Hipster

2. Select a number that broadly defines where you thinkyour style

lies

3. Select the number that broadly defines where you wantyour style to

be 4. Select the Looks that you could see yourself
http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/http://just-your-style.com/


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wearing 5. Do you

have core/staple items (Jeans, Jackets, etc - generally more expensive items that will be gradually

added to your subscription) that we should plan into the subscription?

6. Connect Facebook to personalize your recommendations (We wont post anything to your

profile) Information that is helpful:

- Gender (Obviously, you dont want to see recommendations for girls stuff, if youre a guy)

- Location (If you live in NYC then the clothes for winter we suggest will be different than if you lived in

the constant summer of Los Angeles)

- Fans (If you like house music, it implies certain aspects helpful for style recommendations - likewise if

you listen to Dave Matthews, its incredibly useful for style insights)7. What items that you have

purchased from Just-Your-Style do you love the most!

Purchase History

- Display Thumbnails of the items that the user has purchased

- Grab Feedback from the subscriber about fit & how much he wears it.

OR

Want/Like Demand Signaling

- If they arent a customer, list items that fall into the Trends the user selected in Step 1 - have them

Want the items that they like the best

- Want items will help the stylist to better understand what products appeal to the subscriber & present

items that the subscriber is most likely to be stoked
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with.

Financial Model
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http://just-your-style.com/

Documents

Next Wave of Online Commerce