I stumbled across an infographic that really made my blood boil. It lays out with full transparency the true manufacturing and retailing costs associated with a high end T-shirt. I felt like I’m a pretty saavy shopper especially when I generally buy at a 20-30% discount off the retail price. Boy was I wrong and way off base.
On my work commute my mood lightened after listening to the podcast, This week in Startups with Jason Calacanis. I downloaded Episode #253 where Jason echoes my thoughts exactly. He interviews Michael Presyman Co-founder of Everlane. His goal is to change the world of retail in an extremely disruptive manner.
Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors. An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill. Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics. Its been done before as in the following examples: Napster (Good bye Tower Records), Netflix (So sorry you failed Hollywood Video). The Most Notable one is in part to Amazon as they have crushed Mom and Pop bookstores, Borders Book, and soon to be Barnes and Noble.
While doing some research on Everlane I found this great article that explains perfectly the business model:
Most of the time (but not always), price in the fashion world is associated with higher quality–your sweater from H&M may look nice, but it probably won’t last as long as one from Barney’s or Banana Republic. And while the recession may have scaled back the number of people who can afford to buy pricey, high-quality clothes, it hasn’t changed the amount of people who still want these items. The evidence: Everlane, a web-only brand that offers designer-quality goods for under $100, already has 100,000 members since launching November 1.
Everlane, which is billing itself as the first major lifestyle brand to be built entirely online, offers “luxury essentials”–T-shirts, ties, bags–at H&M prices. It’s all made possible because Everlane eschews any sort of physical presence; because Everlane sells direct to the consumer and doesn’t have a physical store, it can remove 50% to 75% of traditional retail costs