Fashion startups used to be just about fashion. If it fit right, was priced right and looked great you had a winner. But now, before consumers will consider those things a brand has to get the consumer’s attention online and that makes the business much more complicated.
Getting noticed online is about values. Consumers want brands that are like-minded about things like sustainability, fair wages and other personal values and that makes getting new customers more expensive, more complicated and more demanding than ever.
A new study from Syte, a product discovery platform, has data that shows how much harder it is now.
Almost half of online fashion consumers use direct load (where they don’t search but type in the url or website name). Because consumers go directly to a site, no amount of google ad words or search engine optimization will reach them. Even before a brand starts looking for new customers, almost half the market is unavailable.
Even if a brand gets a consumer to type in the url, there’s only have a 3% chance that a sale will happen. That’s higher than if they come to a brand’s site any other way. If they come from a paid Facebook or Instagram ad, the chance of a purchase is under 1%.
Over 80% of online fashion consumers are shopping on a mobile device. Even if a brand attracts a consumer to shop on their site, the consumer is most likely distracted because they’re doing something else while they’re shopping.
The data say that fashion consumers on mobile spend almost 20% less time shopping compared to desktop users. They also look at fewer pages and spend less than on desktop, about 30% less, and they order fewer items.
With consumers on mobile devices and shopping when they’re distracted, capturing their attention is harder than ever. That means more messaging is required and that’s driving customer acquisition costs higher and higher.
And it’s not just fashion. The Syte report data for jewelry and home decor have similar data.
All these changes in consumer behavior make consumers harder and more expensive to attract and when a brand finally gets them, they spend less.
How Was It Different Before?
Anthony Choe, Founder and Managing Partner of Provenance, an investor in consumer brands including Dagne Dover, Marine Layer, Knot Standard and MeUndies, explains that the years 2014 to 2021 were entirely different for young brands starting out. At that time, capital was far more available than it is now and marketing, especially on Facebook, was far cheaper and more effective. That environment enabled startups to establish a strong customer base at a reasonable cost.
Now Facebook is no longer ascendant, capital is harder to access and online marketing is much more complicated. The campaign you run on Facebook is different than the one on Instagram and different again from Tik Tok. The human and financial resources to develop and manage those disparate channels are far greater than what was formerly required.
In those early years, you could build substantial businesses just by being online. Today that’s harder. Having physical stores and being in wholesale is now more necessary than ever to build awareness and cut through the marketing clutter.
Many investors now are asking whether consumer product startups can aspire to become multi-billion dollar companies the way Ralph Lauren and others did many years ago. Choe and many other investors I’ve talked to think they can’t.
They believe the world is more fragmented now and that makes becoming large less likely. Choe believes that a successful consumer brand now should be thinking about a revenue goal of $250 million and not $2.5 billion.
How They Do It
When I see brands that are successful now they have these characteristics:
Multi-channel. Gone are the days where being online-only made a brand cool and desirable. Brands now have to choose among numerous channels including wholesale, their own stores, their own website, Amazon
A clear voice. Marketing online is full of clutter and getting noticed is expensive. Successful brands now often have a unique way to reach their consumers that gets them around the high cost of online marketing.
Some brands use channels as a strategy to get noticed, like being in large, well-known multibrand stores or having showcase stores of their own in well-trafficked locations. Some use influencers. Others use their very message like outdoor brand Cotopaxi whose foundational mission is fighting poverty.
It’s the product, stupid. Of course, the product can never be second-rate, that’s basic for any brand.
But after a brand has great products, it’s not true that “if you build it they will come” because first they have to know you’re there.
The numbers have to work. In the past it’s been ok for brands to spend more than they make but investors now want profits.
Two numbers are key: gross margin (revenue less the cost of the actual product plus shipping) and customer acquisition costs. Generally, there needs to be 30-40 cents left after deducting those costs and if there isn’t, it’s going to be hard to be profitable.
Getting everything else right won’t matter if those two numbers don’t work. Investors now are more discriminating. If the path to profits isn’t clear, they are not game for endless rounds of financing to get there.
What The Future Holds
In a word, the future is: uncertain. No one knows what social media channel will dominate next and what it will cost to use for marketing. No one knows what will happen to shipping costs and supply chain issues (although the next year appears promising). And no one knows what will happen to the economy and whether we are in, or going into, a recession.
Uncertainty makes people risk-averse. Investors get more reluctant to invest and consumers get more skittish about spending. Marketing costs are likely to keep going up and the importance of having a unique voice or channel to consumers will be more important in the foreseeable future.
Some things we know: the era of super-sized marketing budgets pouring money into marketing to build scale is over. The likelihood of building a multi-billion dollar consumer product business is lower. Consumers will continue to want more than just great product and they will only buy it if it’s convenient, priced right and expresses value that harmonize what they believe.
Reader, if you’ve gotten this far, I’m sorry to say that the ending has no better news than the beginning: it’s harder than ever for new fashion and related businesses to get new customers and it won’t get easier anytime soon.