LOS ANGELES — The word "pivot" is often overused in tech, but there’s no other way to more accurately describe what Andres Izquieta and Dee Murthy have done with their digital men's company Five Four.The two owners of the Los Angeles firm are readying for the launch of two brands that push the business into new categories. First up next month is the launch of the streetwear-inspired activewear brand Grand Athletic Club. T-shirts will be priced from $18 to $22, shorts $29 to $35 and outerwear $49 to $69.Men’s grooming — everything from bodywash and deodorant to shampoo and conditioner — launches in March under the name Mercer and Clay. Murthy described pricing as slightly higher than those of competitors such as Right Guard and Dove, but made in the same places as brands such as Kiehl’s or Baxter Finley Barber & Shop.“When we think about the landscape of a guy’s wardrobe or a girl’s wardrobe, no person is completely committed to wearing one brand all the time for every category,” Murthy said. “We wouldn’t do that with our brand, so why would our customer?”Five Four Club members pay $60 a month to receive a curated box of two to three items from the company. If members want more, they can go online and buy additional items at a discount of 25 percent off plus free shipping to entice additional purchases. Grand Athletic Club and Mercer and Clay will have their own branding and sites to ensure they have their own identities separate from Five Four.The two brands follow the July launch of the company’s footwear line, New Republic by Mark McNairy.The members' model appears to be serving the fashion tech company well. They gather loads of data about their customers on the back-end and consumers take a no-brainer path to shopping.The first full-year of the implementation of the subscription model strategy, in 2014, saw $17 million in subscription revenue, which grew to $31 million in 2015 and this year is on track to be about $50 million. The projection for 2017 is more than $100 million. The company has been running what Murthy said has been “mildly profitable to break even,” reinvesting money into growth, and next year sees an opportunity to realize income.But Murthy and Izquieta took a circuitous — and bumpy — path to hitting on their current business model. Their careers could be a case study in the story arc of retailing.The company launched in 2002 in the traditional wholesale space, introducing denim three years later to push the brand into better retailers and boutiques such as Macy’s, Nordstrom and The Buckle. By 2009, the brand was in about 1,500 stores and the founders decided to go direct, signing three leases with the Westfield Group at a time when brick-and-mortar was being hammered in the wake of the Great Recession. To get people into the stores, they lowered their price points, sometimes slashing them 50 percent.“We launched our web site and it was the same issue,” Murthy said. “The only time we had any real traffic is when we were at 50 percent off. And at that point we sat there and said both these models are broken. We had done wholesale for a decade at that point and we weren’t getting anywhere. We had done retail and for men’s stand-alone retail, it didn’t seem to be working. E-commerce, which was supposed to be the way of the future, that wasn’t working. So we tried everything and pretty much ended up back in the same place.”Five Four began testing the subscription-based business in 2012 and in late 2013 walked away from wholesale and company-owned retail completely.There’s a value story to be had offering a $60 box monthly but they’ve toyed with the idea of a more expensive service. As the company continues its expansion into additional categories, it could become feasible to try new pricing, Izquieta pointed out, estimating that in the next year a beta brand could launch to test the concept of a new price point or expanded service. It could also mean an “Amazon Prime-esque pass” paid on an annual basis for access to all brands, Murthy said.The company is next looking at expanding into eyewear and is also targeting a fourth-quarter 2017 launch in China, where much of Five Four's men's wear is made.“No one’s really paying attention to the guy so, for us, we want to own the man and create that digital department store where we can sell you almost anything in your style,” Izquieta said. “So we constantly look at potential categories to be able to disrupt.”Five Four has so far raised a friends and family round, which closed nine years ago, and has otherwise been self funded, saying the additional effort it took to build the business without venture capital backing in some ways was character building.“When we lost money, we would figure out how we would make it back,” Izquieta said. “That’s the idea. A lot of these fashion start-ups now in this tech world, they don’t respect money. They just spend, spend, spend to acquire the consumer, but they don’t really know what they’re doing.”Customer acquisition costs are down 25 percent this year for Five Four. The company pumps out videos, how-to guides and other ways of marketing that involves a dialogue with customers on Facebook, Twitter and its web site, among other channels.“That’s the power of the new digital world,” Murthy said.They likely wouldn’t have really understood any of that, the two said, were it not for the bumps and bruises spent going the more traditional routes of wholesale and brick-and-mortar.“We had to go through those experiences to understand,” Izquieta said. “Our business model is unique but it’s only a derivative of our prior experiences."
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