The new digital merchants are putting everyone — from the early web flame-outs to the competition to the consumer — under the microscope, searching for clues about what will work in the new consumer world.

While much about the future remains in doubt, some things have become clear: Brands remain at the center of it all and, to succeed, companies have to keep moving and be ready to learn from the experiences of others. (That last part, at least, comes naturally. Tech and fashion have always been quick to borrow, and heavily, with new companies regularly charging into the market proclaiming themselves as the new Everlane of jackets or the Uber of blowouts).

The new age in e-commerce — which would be something like version 4.0 — looks to be “elegantly designed,” to use the latest buzzword. That has new entrants trying to meticulously stitch together communities, platforms and marketplaces, with the only constant from concept to concept being a steady push to continue to refine business strategies until the e-commerce puzzle fits together.

At the center of that puzzle is the brand.

Jessica Lee, the founder of the San Francisco contemporary online boutique Modern Citizen, learned this lesson while closely researching potential acquisition targets such as ModCloth and Nasty Gal while an executive involved in e-commerce strategy and business development at Gap Inc.


Modern Citizen showroom in San Francisco

The Modern Citizen showroom in San Francisco.  Courtesy Photo

“Those brands were retailers but they were also brands, and they were brands that really focused on their customer,” Lee said. “That focus and that clear picture of who their customer was, was what made them successful….Nasty Gal and ModCloth both had very different endings but the underlying concept of what they did is so fascinating and it touched a lot of customers.”

And both Nasty Gal and ModCloth drew lots of attention, which enticed other start-ups to mimic them.

The firms had different endings (a sale out of bankruptcy for Nasty Gal and an acquisition by Walmart for ModCloth), but both focused intently on serving niche communities of shoppers.

The wave of e-commerce companies following in their wake are maintaining that same focus — while trying to avoid the mistakes that caused Nasty Gal and ModCloth to flame out, trying to avoid runaway spending and to keep a close hold on their culture.

Lee said the current generation of e-commerce companies has increasingly zeroed in on getting smarter about warehousing operations and management of multiple points of sale online and off.

And companies that are able to build communities — much like what Modern Citizen aims to be for the stylish, working woman via its in-real-life events at its San Francisco showroom — have the potential to be $100 million or perhaps even $1 billion businesses, Lee pointed out.

Nasty Gal was also a point of inspiration for Australia-based Showpo founder and chief executive officer Jane Lu when it came to building a brand. Lu bootstrapped Showpo, has not taken outside funding, has been profitable from the start and thinks it can get to about $75 million in sales by 2020. The company, unlike peers in the marketplace, is not looking to dabble in physical retail, with Lu seeing other lower-hanging fruit in the international market.

“It’s funny because I remember at the time I thought I was coming in quite late to the online retail game and now realize what an early mark I had,” Lu said. “At the time, the environment wasn’t that mature and saturated.”

Now it is, and Lu is banking her success on influencers and her team’s ability to keep a continuous assortment of product moving onto the online store.

Jane Lu Showpo

Jane Lu of Showpo.  Courtesy Photo

It is constant motion and the ability to keep up with ever-changing consumers while staying true to one’s own brand that are propelling business forward today.

“Since Day One our customer has been our north star,” said Katie Warner Johnson, the cofounder and ceo of high-end fashionable activewear purveyor Carbon38, which recently raised $15 million from Foot Locker.

Saks Fifth Avenue, Neiman Marcus and Net-a-porter provided templates for how to create a luxury brand experience, but Carbon is also now studying Netflix when it comes to upping the game on personalization.

“There’s a lot of noise around ‘We have to be everything to everyone’ and I don’t think that’s quite true,” Johnson said. “I think it’s really important to focus in times of over-saturation of information. I think a lot of e-commerce companies, including us, are weary of Amazon.”

While brands are still trying to figure out exactly how to provide customers with the right “experience” whether  online or in stores, there is a broad acknowledgement that shopping today needs to be seamless regardless of selling channel.

“The holy grail that exists right now that I don’t think really anyone feels that they’ve truly figured out is how you can mirror that luxury experience in high-end retail and have a luxury experience through your e-commerce platform,” said Ryan Goldston, who founded the luxury footwear and apparel brand Athletic Propulsion Labs with his twin brother Adam Goldston. “I think that’s the thing that everyone’s hoping and shooting for, but no one’s figured out the formula yet.”

Ryan and Adam Goldston

Ryan and Adam Goldston of APL.  Courtesy Photo

Ryan pointed to Katrina Hodgson and Karena Dawn of the fitness firm Tone It Up as a prime example of a fitness brand that’s built a community online.

“For e-commerce web sites trying to figure out these communities where everyone’s truly connecting and people are supportive of one another, that’s the next wave of where everything’s evolving,” Adam added.

To be clear, he stressed, that’s not just about throwing money at the nebulous strategy of creating more content, slapping it on a site and calling that branding. How APL and others look at it is within the context of the entire brand ecosystem.

“It’s less about the editorial aspect,” Adam said. “It’s more about the continuity aspect. No matter how you experience the product, that there’s no disconnect.”

That starts with APL’s voice and aesthetic on Instagram and then onto its web site and eventually into what will be its first store later this year in downtown Los Angeles, which will be on the ground floor of the new headquarters it’s building out.

With brands seeking to build ever-stronger connections with customers, soliciting their feedback and input into the process, fashion is struggling with existential questions such as, “Who dictates a brand’s assortment?” or “What makes someone a merchant?”

“The conversation, in our opinion, has moved away from merchant-driven to customer-driven,” said Ministry of Supply cofounder and ceo Aman Advani. “We’re now with a customer who has infinite choices, has a ton of information at their fingertips. There’s a crazy amount of transparency. Because of that, we as brands born in an era where that was true from day one, have to be cautious and scientific in processing that.”

Two-thirds of Ministry of Supply’s business is done online, but the company is now opening physical locations in a bid to not only learn more about the consumer but also teach them about the 3-D printing technology it uses to create personalized product, in some cases on site, in store.

“Stores are an awesome opportunity for us to have 20-minute conversations with one customer instead of one-minute conversations with 20 consumers,” Advani said.

Tradesy founder and ceo Tracy DiNunzio thinks what the market is already seeing today with businesses such as Farfetch shows where e-commerce is going in the future with the marketplace model. It’s the suppliers that are incentivized to stay ahead of the pack when it comes to knowing what customers want. The retailer, or platform, then is able to offer a selection that in some cases is hyper-localized and tailored to a customer base for every region in which a company does business.

If companies such as Tradesy are able to get it right in terms of creating a network of sellers or distributors that are themselves anticipating and curating the next trends, it de-risks the actual platform in some ways, DiNunzio said.

“I do think it’s the future. I think the biggest successes in fashion e-commerce are going to have a component of that, which you can call crowd-source or distributed trend prediction and supply aggregation,” DiNunzio said. “So that is inevitably where it’s all heading. What that means though is that it’s a different landscape for some of these individual brands that we’ve seen be the stalwarts of e-commerce from years past. All of the digital fashion brands will then be engaged in this ecosystem where they sell, not just direct-to-consumer, but through platforms. And the platforms, like us, will be dependent on them to be able to produce or deliver inventory that they make themselves.”

In order to catch trends, platforms will have to keep a sharp focus the data sets they’re pulling in to understand shopper behaviors. For Tradesy, that could mean something as simple as seeing fanny pack sales triple, so the team moves to feature said product on the home page. Those data sets also, if harnessed properly, could provide a glimpse into broader shifts among trendsetters as opposed to being driven by single product items.

“As our data sets get larger and we take an even more sophisticated approach to the behavioral data surrounding products, we say, ‘Does it look like people are moving towards brands’ authenticity value and sustainability versus luxury and glamour, maybe?'” DiNunzio said. “So we experiment with the labeling of brands. It’s very experimental. We have a lot of questions and very few answers at this point because we’re still learning how to use data to be predictive.”

Tracy DiNunzio Tradesy

Tradesy ceo Tracy DiNunzio at the company’s Santa Monica showroom.  Getty Images for Tradesy

It’s too soon to call that specific trend, but the Tradesy team is so far seeing younger, urban women showing strong signs of that predisposition, and that would explain the rise of brands such as Everlane, Cuyana, Reformation and others that pride themselves on a transparent supply chain, sustainability and thoughtful purchasing.

Men’s subscription box firm Five Four Group LLC perhaps understands the word iterate more than most. The company started out in a very traditional way focused on selling wholesale and at one time had physical retail before making a complete turn in 2014 to an online subscription model. That’s since bloomed into a multibrand portfolio of men’s wear, ath-leisure and grooming products with over $60 million in sales last year.

Five Four management has drawn inspiration ranging from H&M and Zara to Amazon Prime and Costco’s membership program.

The question now for Five Four and others is a matter of how to scale up.

“I’ve always seen the challenges where people have struggled to scale in the men’s space specifically,” cofounder Dee Murthy said. “When you look at men’s fashion, we haven’t seen a large brand develop in quite some time and I think price unfortunately has prohibited a lot of people from scaling. We’ve lived through two recessions so we know what happens. We’ve really optimized ourselves from a price standpoint.”

Andres Izquieta, who started the business with Murthy, added: “E-commerce is everything now. I think that as consumers get more direct contact with people, that direct connection is just going to get stronger. There’s a big opportunity where content is going to become even more relevant and that real connection between friends, designers and consumers should be becoming more prevalent. Now that the dust is settling in terms of offline retail, there are select opportunities where offline can become relevant again.”

Five Four founders Andres Izquieta and Dee Murthy

Five Four founders Andres Izquieta and Dee Murthy  Michael Buckner

So scale could be the one thing keeping the new e-commerce executives up at night and lessons from the past don’t necessarily indicate where the answer lies — especially since only a handful of fashion players has been able to successfully gain serious size in the last few years.

Hil Davis, the recently installed chief operating officer of online denim and basics brand Dstld (pronounced “distilled”), has an interesting take as the founder of men’s made-to-fit brand J. Hilburn, which did $60 million in sales while Davis was ceo, and online beauty retailer BeautyKind.

In the past, online companies went out to raise money and acquire customers, sometimes at a price of up to $150 per customer, Davis pointed out. Things have changed. For starters, more brands are waking up to the fact that retail matters, product and price must be relevant and the idea that companies can spend whatever dollar amount on customer acquisition because e-commerce is infinitely scalable is dead.

Where the industry is headed is consolidation and the rise of holding companies, akin to VF Corp. for example, acting as platforms where the back-end operations are provided so that brands may go about their business of being brands, Davis said.

“I think what’s really going to be interesting, and we at Dstld have a big interest in this, is you’re going to have a really broad landscape of small companies because everybody’s going to have a niche,” Davis said. “They’ll scale their niche to $15 to $25 million on average and you’re going to have boutique digital concepts that don’t scale to $100 million because they’re not generating enough cash flow to accelerate marketing and secondarily they’re not growing fast enough.”


A look from contemporary denim line Dstld.  Courtesy Photo

So digital firms in the future flatten out to 10 percent annual growth companies, Davis went on to say, “and they just kind of exist and it becomes a lifestyle business. That becomes e-commerce 4.0.”

“At some point,” he said, “it’s going to be a sum of 10 to 20 brands that become a $1 billion company and there are going to be few standalone companies… You’re starting to see all the markets, all the different verticals getting saturated so I don’t know how much runway across the board there is for new companies. Everyone’s starting to get into the niche of the niches. I think you’re going to start to see that [consolidation] in the next three years.”

So is the solution for traditional retailers to create brands in-house, in the vein of what Target has done with the raft of brands its rolled out, or is it strategic acquisitions following the playbook of Walmart with its buys of Jet, ModCloth and Bonobos?

Maybe it’s a two-step process, Davis said, whereby someone like a Dstld begins padding its portfolio with other brands over the next 12 to 24 months and then a company such as a VF or even LVMH Moët Hennessy Louis Vuitton or Kering begin snapping up the matured digital assets in a few years.

“You have to buy your digital assets,” he said. “As a legacy offline business, whether you are a brand or a retailer, you have to acquire digital expertise. You cannot build it in-house. It’s a different mind-set. It’s a different world.”

And a world filled with inspiration.

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