The founders of online clothing e-tailer Chubbies have a thought or two on changing how manufacturing is done in the U.S., a move that could make it the latest entrant into the fast-fashion business.
Cofounders Kyle Hency, Tom Montgomery, Rainer Castillo and Preston Rutherford so far have raised more than $14 million since 2011, with the most recent Series A institutional round closing last month. The $9 million Series A round was led by IDG Ventures, where Montgomery was an associate while the four were putting together the touches of their start-up. The Series A also includes venture debt support from Square1 Bank. Existing investors and advisers Lerer Ventures, Burch Creative Capital and Blair Lambert also participated in the round, according to Hency.
Hency said the San Francisco-based firm has 50 employees. What began as a men’s shorts company for weekend fun has expanded to include a selection of men’s tops, with plans to expand into women’s products.
According to Hency and Montgomery — who were visiting New York in the last week of January wearing shorts during a period when parts of the city were still digging out from the prior weekend’s blizzard — the firm produces more than 200 stockkeeping units a year, many of which are experimental designs incorporating fast turns that sell out. The line is produced in the U.S. through contract manufacturers. Hency said prices for the shorts range from $49.50 to $59.50, while shirts average $59.50 and pullovers are $79.50. The firm does not discount its product line.
The brand has a primary customer base between the ages of 18 and 30. Montgomery said the firm would expand its digital marketing and include more content on its site. There are five videos posted to the site each week, and the financing round will help the firm scale out the content. About 2.5 million subscribers receive the distributed content. There are 1.2 million followers on Facebook, 124,000 on Twitter and 228,000 on Instagram.
Chubbies plans to use funding from the round to build out its own factory in San Francisco, which would make it a vertical operator.
“Modular manufacturing is used in factories in Mexico. We believe we can do that here, pay fair wages in the U.S. and be cost-effective,” Hency said.
The cut-and-sew process used in apparel requires each stage to be done in bulk for the assembly process, and the founders at Chubbies say that takes too much time, leaving product on the sidelines waiting to be finished as each stage is completed in bulk.
Castillo, who leads the manufacturing end of the business, said he saw a factory produce uniforms using a process that is an iteration of what Toyota does in the automobile industry — each piece is fully assembled one at a time. “The line in Mexico is modular, with each operator knowing how to do every operation. They don’t put a piece down until it is done,” he said.
The 5,000-square-foot factory, which should be operational in the next two months, will house 10 employees. “The total number of machines will be about 25 or 30, with six to eight operators. They will stand at one machine, complete that step, and move onto the next machine for the next step. The next person in line will then step up and continue to move forward down the line until the product is completed,” Castillo said, noting that the operators are all cross-trained on the different machinery.
Castillo explained the economics of the process: “The efficiencies — about 30 percent at the low-end — are greater, and wages can be higher than elsewhere because of the offset from those efficiencies.” Essentially the theory behind the modular process is that as completed goods come off the line faster, they can be sent to market sooner. According to Castillo, bonuses can be paid to the operators based on output on top of their base wage.
The company will test the manufacturing process initially with swimwear, and if their theory pans out, will then determine how to scale up production.
According to Hency, it takes about eight to 12 weeks to get product to market, from raw materials to concept and actual production time. Having its own factory would also allow the company to test quickly a 10-unit sample run, something it can’t do now given the size of the order.
Alexander Rosen, managing director at IDG Ventures, said, “We have been watching the company since early inception….We put in a small amount in seed financing a few years ago. We’ve seen how they’ve grown over the past couple of years, which led us to lead their Series A.”
The venture capitalist said there’s room to grow in the weekend apparel category, which he described as a “huge market without a single dominant player.” Rosen projected the weekend category as a “multibillion market.”