ModCloth, True & Co. point the way to e-commerce’s future
Two beloved San Francisco startups just made bank — and they did it by selling soft goods, not software.
In a world of automated Amazon shipments and algorithmically inclined apps, clothing and accessories retailer ModCloth and intimates maker True & Co. attracted loyal followings by listening to their customers and making the ecommerce experience feel “personal” even while expanding their assortment and customer base. This approach, and appeal, stood out to two major legacy companies. In late March, 15-year-old ModCloth was sold to Jet.com (which is owned by Walmart), and 5-year-old True & Co. was sold to PVH, the corporation behind Calvin Klein and Tommy Hilfiger, for undisclosed sums.
ModCloth’s mission of inclusivity attracted a passionate following, from its six-month Fit Shop in San Francisco in 2015 to its pop-up in Los Angeles that was met with lines around the block. Their success inspired an IRL Tour through America last year. The company was among the first to stop using the word “plus” to classify sizes; featured a transgender customer as a model; and maintains a “no-Photoshop” policy for its marketing images.
The ModCloth community reacted passionately to a letter from founder Susan Koger characterizing the sale as “bittersweet.” Nearly 300 customers commented that they were dismayed to see the independent brand move under the Walmart umbrella.
“If you step back from it for a second, it really does show how much love ModCloth has created in the world,” said CEO Matt Kaness, noting he is empathetic to customer feedback and that he urges customers to hold ModCloth accountable.
“We will prove that this partnership is going to be not just better for our ability to amplify our message and have a bigger impact in the world,” he said, “but this will also be beneficial to our community through improving our business.”
True & Co. carved a niche by challenging a conventional approach to lingerie. It flatters a woman’s mental and physical comfort, rather than appeal to a prescribed notion of how one’s underthings dictate one’s sex appeal.
But customer loyalty only goes so far, and the time had come for both companies to phone an older, wiser and more moneyed friend. The startups gain an injection of capital and infrastructure that is typically inaccessible, even to large stand-alone e-commerce outfits.
Meanwhile, the 54- (Walmart) and 135-year-old (PVH) retail stalwarts can tap into the type of experimentation that has become currency in the Amazon era, and for which ModCloth and True & Co. have become known: in-depth customer feedback, bold approaches to personalization and a pioneering approach to physical stores.
In the new world order, a sale can be viewed as a failure to launch. But these deals are more a success story. They would make sense even if Amazon weren’t the Prime-enabled elephant in the room.
“I would not call (selling) a necessary evil,” said principal analyst Brendan Witcher at Forrester, a research and advisory firm. “It’s good business strategy. This is not an ‘Amazon is pressuring us’ move. It’s great acquisitions even if Amazon didn’t exist.”
It’s worth noting that some floundering retailers that were said to be looking for buyers have been unsuccessful (see: Nasty Gal, American Apparel, not to mention Macy’s and Neiman Marcus). “If they failed to capitalize, they would have failed in the acquisitions.”
Under the tenure of CEO Kaness, who came on board two years ago after a spate of layoffs, ModCloth introduced a branded line of apparel and experimented with its first physical offering, which manifested into a permanent Fit Shop in Austin, Texas, that is closely linked with the company’s digital experience.
The True & Co. sale marks PVH’s first digital-first e-commerce acquisition, which means, ostensibly, that more customers stand to gain more access to its offerings.
“This is very much an acquisition in the digital space,” said a PVH Corp. spokeswoman. “It’s a way for PVH to leverage the innovation and the data-driven mind-set in (founder Michelle Lam) and her team, and to leverage a brand that can grow on a great scale.”
The company’s Fit Quiz, which has been mimicked by others, allows True & Co. to make hyper-personal product recommendations. “Our marketing is extremely targeted and personalized, so that we don’t annoy our 5.5 million quiz-takers,” Lam said.
The data has informed True & Co.’s in-house line of intimates, introduced in 2013. At first, Lam said, she was reading the data literally — “purple bras are popular” — but she is now able to identify patterns. She saw customers moving away from pushup bras “from a mile away.” This led to the new True Body collection, which the company was able to bring to market in four months.
But a home-run product doesn’t necessarily translate into smooth sailing. Lam said that although the company had its best sales quarter in the past three months, it has had to replenish stock six times over. To that end, PVH will provide a global supply chain. Lam’s first goal will be for True & Co. to always have available inventory. “It’s a perfect union of new school and old school,” she said.
ModCloth’s Kaness said that when he came on board, he could not have foreseen a sale just 22 months into his overhaul. “It was impossible then to predict when the company would choose to pursue a transaction, and this doesn’t change my personal commitment to leading this brand in the future,” he said. “The changes we made in the last two years have created the kind of value in the business that allows us to now think about accelerating growth and scaling the business.”
Kaness said that Walmart CEO Doug McMillon and Jet.com founder Marc Lore were attracted to what ModCloth had built, and that being under the Walmart umbrella will provide the capital and resources that it lacked, in addition to a larger platform. He wouldn’t say what this meant for ModCloth’s possible retail expansion, or how and whether ModCloth would be available on Jet.com.
The emotional connection ModCloth attracts is one obvious element of appeal for Walmart. Amazon, which has made no secret of its fashion aspirations, is not known for a touchy-feely experience or emotional purchases.
“You can’t buy ModCloth on Amazon,” Kaness pointed out, “so there is an obvious advantage that Jet and Walmart now have. But we are small fish in a big pond. Most people don’t know us, but those who do love us. But we aren’t widely available.”
The timing of the sales is not coincidental, say retail analysts. E-commerceis experiencing a major shift, and mergers and acquisitions in fashion are “another indicator that 2017 will be the year apparel e-commerce really takes off,” said L2 research director Cooper Smith. He pointed out that e-commerce is approaching 20 percent penetration of the U.S. apparel market — historically the tipping point for when online shopping goes mainstream in a particular category.
“Expect Amazon to continue expanding its fashion assortment through third-party sellers and its own private label brands,” Smith said.
Lam, who was an investor in Rent the Runway, said the new climate is an “interesting harbinger of things to come in e-commerce.
“There was this belief that digital was a magical beast, but now we know that e-commerce is just another way for customers to buy. We live in an offline and online world, and soon the two will meet.”
Maghan McDowell is a Peninsula freelance writer. Email: email@example.com