Focus On Enterprise

Menswear E-Tailers Peddle Salvation in a BoxBy Sarah Frier on October 25, 2012

Steven Kaplan dreads everything about department-store shopping: the too-loud music, the harried salespeople, the 10 or more brands of identical pants and shirts. The good news is, he never has to go back. “I will literally just go online, push a button, and have something that fits delivered to my door,” says the 31-year-old music entrepreneur. The Brooklyn resident recently signed up with Bonobos, a menswear e-tailer that made its name marketing pants tailored to different body types. “I need someone to tell me what to wear and remember me.”

Fashion is the fastest-growing segment of online commerce, and its growth is being propelled by men. Like Kaplan, more and more guys are fleeing malls and department stores and flocking to websites that claim to have taken the pain out of shopping. Sites such as Bonobos and Thrillist are capturing a bigger share of the $41 billion U.S. fashion e-commerce market with services such as personalized recommendations based on purchase history or brief online surveys. Some will ship a trunk of clothes to a man’s home, so he can pick out the items he likes and return the rest free of charge. “Men don’t hate fashion, they just hate shopping the way it’s designed for women,” says Ben Lerer, co-founder of Thrillist, which bills itself as a “digital lifestyle publication” for men. “The young generation of guys love to shop, they love to talk about the brands they like, and they really care about how they look.” To cater to this demographic, Thrillist acquired the e-tailer JackThreads.com in May.

While women’s share of the online clothing market is still more than double men’s, the guys’ market is growing faster, at a 13 percent annual rate, compared with 10 percent for women, according to NPD Group. And that gap may widen. “It’s an area of e-commerce that companies are only just now starting to really figure out,” says Joshua Goldman of Norwest Venture Partners, which specializes in retail deals. Male-focused online fashion startups are going head-to-head with established brands like Gap’s (GPS) Banana Republic and J. Crew Group. Online sales of clothing and accessories in the U.S. are expected to grow 78 percent, to $73 billion, by 2016, according to EMarketer.

At Trunk Club, stylists consult with customers via e-mail and Skype before shipping out a trunkful of selections. The Chicago startup raised $11 million last year from a group of investors. Frank & Oak, a Montreal-based men’s website, announced on Oct. 11 that it had raised $5 million from investors. Visitors to the eight-month-old site can sign up to become members at no cost. Then each month they’ll receive a selection of clothes, including shirts and other items that the company designs and manufactures. Thrillist’s first round of VC funding netted $13 million in August. Lerer says his JackThreads customers snap pictures of themselves modeling their new threads and post them on Twitter, which is the best kind of advertising.

The boom in men’s fashion follows by a couple years the success of companies that started by catering to women, like Gilt Groupe and Rent the Runway. Men may be a better target for e-commerce sites because they are more likely to make big purchases in one swoop, while women often browse recreationally and may not buy, says Jeremy Liew of Lightspeed Venture Partners, a Bonobos backer. Men are also staying single longer, according to the U.S. Census Bureau, meaning they have more income to spend on themselves. Gilt, a high-end flash-sales site, added a men’s section in 2008. Its typical shopper is 35 years old and single, living in a coastal city and making a bit more than $100,000, says Keith George, who heads the division.

Investors are attracted to these sites because they have a more stable revenue stream than most technology startups, such as ad-supported social networking outfits. “A lot of the other companies are reliant on venture capital and don’t make a lot of money from advertising until they have a ton of users,” says Brian O’Malley of Battery Ventures, a backer of J. Hilburn, which sends representatives to measure men at their homes and then makes customized clothes.

That’s not to say the sites have been glitch-free. The creators of Frank & Oak pulled the plug on an earlier venture, a site called Modasuite that targeted 30- to 40-year-olds, while Gilt has stopped investing in Park & Bond, the stand-alone men’s site it rolled out last year. “I hear about a new menswear e-commerce thought every day,” says Andy Dunn, the founder and CEO of Bonobos, which this year opened a New York showroom where customers can try on its clothes.

In part because they don’t require intensive computer engineering to get off the ground, many of the companies are based outside the San Francisco Bay Area. Thrillist and Bonobos are in New York, where they can more readily tap into the fashion industry. “Think of the computer programmer, and then think of the banker,” Lerer says. “Fashion is much more likely to be a top focus here in New York.”

The bottom line: Thanks to the proliferation of menswear e-tailers, male shoppers have become key drivers of the $41 billion online clothing market.

E-Commerce

A Surprise in Every BirchboxBy Olga Kharif on February 16, 2012

Last fall Stephanie Niezgoda went online and signed up for Birchbox, which sends her a box of beauty product samples for $10 each month. The 22-year-old engineer was wowed by the expensive moisturizer she received in a recent shipment and decided to switch away from her longtime favorite brand, Clinique (EL). The new one “costs $125, and I normally spend $20,” she says.

That’s why brands such as Elizabeth Arden (RDEN) are scrambling to give away samples to Birchbox’s more than 100,000 subscribers. The success of the New York startup is inspiring a clutch of other online subscription services specializing in everything from tea to children’s clothing. It’s a new twist on an old idea, and the startups offer a way for big brands to get their products into the hands of young, tweet-happy customers with money to spend. They’re also attracting a lot of attention from venture capitalists. “It’s a business model we love,” says Kent Goldman, a principal at First Round Capital, which has invested in three box services,

including Birchbox. “You have regular subscribers; you have a direct relationship with them.”

Birchbox, launched in September 2010 by two women who met at Harvard Business School, is probably the best known of the subscription services. On top of the subscriber fees, Birchbox makes money by selling full versions of the samples. It has more than doubled its volume in the last six months, and has raised a total of $11.9 million. “We’ve had no marketing,” says Katia Beauchamp, a co-founder. “Once people received the boxes, they were making videos and blogs,” spreading Birchbox virally. The 50-person company is expanding and has been testing an offering for men.

The beauty company Stila has provided Birchbox with free samples of its lip gloss, eye shadow, and mascara. “They get it into the hands of people who want to try new things,” says Megan Mildrew, manager of business development at Stila. After the company started distributing samples through Birchbox about a year ago, “we definitely saw a bump in sales,” says Mildrew. Sucharita Mulpuru, an analyst at Forrester Research (FORR), says because they get some of their samples for free, Birchbox and its ilk may have profit margins from 50 percent to 80 percent.

Dozens of copycats have launched in the last year. Many pay for the products they ship and pass the costs along to consumers. The appeal, in those cases, is the convenience and the curation. “It’s an alternative to shopping,” says Michael Jones, a former chief executive officer for Myspace who invested in Wittlebee, which launched on Feb. 13. The startup targets busy, working parents with its subscription boxes full of children’s clothing, including T-shirts and onesies from Gap (GPS).

Lauren Thorp scours handicrafts shows and stores like Etsy.com for gems she ships to subscribers of her startup, Umba Box. Thorp built Umba Box using Memberly, another New York startup, which launched in summer 2011 and offers online templates that anyone can use to set up a subscription service in hours. Memberly handles billing and tracks order history and takes a 5 percent cut of sales. Some 20 box subscription businesses, offering everything from premium loose-leaf tea to men’s accessories, use the service. Hundreds more are on a waiting list as the site is still in the testing phase, says co-founder Jack Cheng. “Seeing the success of someone like Birchbox inspired a lot of people to get into the space,” he says.

The activity recalls the rabid frenzy around online coupons in 2009, when industry leader Groupon (GRPN) capitalized on recession-bred thriftiness to make a killing on daily deals. That frenzy has since cooled, and Groupon’s stock is now trading slightly below its initial public offering price. Says Mulpuru of the box boom: “It’s hard to know if it’s a fad or a long-term business opportunity.”

The bottom line: Big brands and venture capitalists like the business model pioneered by Birchbox, which has raised $11.9 million.

LEDs

Chattanooga's Radio-Operated StreetlampsBy Mary Jane Credeur on May 10, 2012

Almost a third of Chattanooga’s annual energy bill comes from old high-pressure sodium streetlamps. At any given time 5 percent of the bulbs are burned out, and they sometimes go on during the day, needlessly adding to electric bills. “You’ve got a certain amount of lights out but you have no idea where they are, so workers literally drive around in a truck looking for them, and it’s a real waste,” says David Crockett, director of the city’s office of sustainability.

After deciding to replace the streetlamps with light-emitting diodes (LEDs) that can cut energy use by 70 percent, Chattanooga officials discovered a local company with a further cost-saving proposal: a radio-controlled system that can also slash maintenance expenses. Combined, the changes promise dollar savings of 75 percent to 80 percent.

Following a successful test of 350 lights last year, Chattanooga contracted with Global Green Lighting to replace the city’s 26,500 streetlamps at a cost of $18.1 million. With estimated savings of $2.7 million annually when the project is completed in late 2013, the system will pay for itself within seven years, Crockett says. “If we’d just done LED, that would be like putting rocket boosters on horseshoes because it’s an old design,” he says. The radio control “gives us total flexibility in how we use each individual light.”

With the radio network, the city can turn streetlamps on and off and tailor brightness to a neighborhood’s lighting needs. The system records the GPS coordinates of each lamppost, which is correlated with dawn and dusk times, so the lights only come on when it’s completely dark. Traditional fixtures rely on photo cells that turn them on at dusk and off at dawn, and they can’t be programmed to go on at other times.

Chattanooga’s new lights tell maintenance workers when a bulb is burned out, when power is lost, or if other repairs are needed. Energy usage data is fed back to the local electric company, eliminating the need for manual meter readers. “Our lights meter-read themselves,” says Don Lepard, chief executive officer of Global Green Lighting. “If there’s a maintenance issue, they tell us what component is broken and what tools are needed to fix it.”

Dozens of companies compete in the LED business, including General Electric (GE), Philips Electronics (PHG), and Osram Sylvania (SI), which together control about 40 percent of the North American market, according to consulting firm Frost & Sullivan. Most LED streetlamp deployments simply replace older bulbs with more efficient ones but lack the controls that Global Green offers, says Frost & Sullivan analyst Konkana Khaund. “They’re trying out something that the bigger guys haven’t really done as far as auto metering and auto reporting, and it is very innovative,” Khaund says.

Global Green is working on a flash strobe mechanism so the lights can also serve as a warning system for tornadoes or security threats or help guide ambulances and fire trucks to a particular address. Cops can also control the brightness when they’re chasing a suspect in parks, alleys, or other areas with dimmed lights. “A policeman can sit in his car and double the intensity or turn the lights off if there was a need to cover a SWAT team,” Crockett says.

Global Green charges an ongoing service fee that’s typically about 25 percent of existing maintenance costs, says Lepard, who founded the company in 1997 as an electronics component maker and remains the sole owner. This summer, Global Green plans to open a manufacturing facility near Chattanooga that will create 250 jobs assembling lights for the city. The company also expects to hire 1,000 people to install and maintain the equipment.

Global Green and Sensus, a Raleigh (N.C.) company that makes the radios and metering equipment, are doing more demonstrations in Baltimore, Ottawa, and at several universities. The University of Alabama in Tuscaloosa began a test with 15 lights from Global Green in

April and plans to expand it in coming weeks. The system has helped enhance security, cut energy use, and trim maintenance costs, says Tim Leopard, the school’s assistant vice president for construction. It also allows control of lights at athletic facilities such as tennis courts from afar, he says. The technology “could solve a lot of challenges we have,” Leopard says. “Other manufacturers didn’t have the control options and the Web access to bring it all together.”

The bottom line: Chattanooga expects to cut its municipal lighting bills by more than 75 percent by switching to radio-controlled LED streetlamps.

Companies & Industries

Is Nike's Flyknit the Swoosh of the Future?By Matt Townsend on March 15, 2012

Footwear designers have long sought to satisfy a request from athletes: make shoes as comfortable as socks. Nike (NKE) in the 1980s tried with a flimsy mesh sneaker called the Sock Racer. The shoe offered comfort but wasn’t durable. Subsequent efforts ran into similar problems. Now the world’s largest sporting-goods company thinks it’s discovered the Holy Grail—a 5.6-ounce running shoe called the Flyknit, made from synthetic yarn ingeniously woven together by a knitting machine. But Nike executives are excited about more than a possible blockbuster product. They say the manufacturing advance that makes the Flyknit possible is the real find.

The computer-controlled weaving technology, which knits the entire upper part of the shoe in a single piece that’s then attached to the sole, promises to cut labor costs and production time while also increasing profit margins and opportunities for personalization. It may even bring

some shoe manufacturing jobs back to the U.S. In traditional shoemaking, machines cut scores of pieces that workers must then assemble. By reducing or removing that step, the most labor-intensive part of the process is eliminated—along with the main reason for making shoes in Asia’s cheaper labor markets. “This is a complete game-changer,” says Charlie Denson, president of the Nike brand. The process cuts costs so much “that eventually we could make these shoes anywhere in the world.”

Courtesy Nike (2)

Flyknit, which will cost $150 and hits U.S. stores in July, is the latest product aimed at the minimalist running movement, whose devotees advocate lightweight shoes to reduce injuries. Lightweight shoes accounted for 30 percent of the $6.5 billion U.S. running shoe market last year and were responsible for all of its 14 percent growth, according to researcher SportsOneSource. Running is Nike’s biggest category, generating $2.8 billion in annual global sales, about 50 percent more than basketball and soccer.

The most recent sock-shoe project started four years ago with a prototype of a sock attached to a foam bottom. The concept got early support when Chief Executive Officer Mark Parker, who joined Nike as a shoe designer in 1979, saw the sock during a visit to the so-called innovation kitchen at Nike headquarters in Beaverton, Ore. “I was going in to look at some other things, and it was sort of like, ‘What’s this?’ ” says Parker, whose design credits include a patent for the Nike Air sole cushioning system. “We got into it, and it was like ‘Wow, this has huge potential.’ ”

The designers soon decided that to create a shoe that replicates a sock, they had to mimic how a sock is made. Nike hired a team of computer programmers and engineers to take a machine used to knit sweaters and socks and reengineer it to weave the upper part of a sneaker. Spools of colored polyester yarn are fed into the 15-foot-long machine, which weaves together the top of the shoe and creates a “second skin” with tiny synthetic cables knitted into the weave around the midfoot for support. (The tongue is still a separate piece.)

In a process Nike calls “micro-level precision engineering,” proprietary software instructs the machine to minutely alter a shoe’s stability and aesthetics. If the toe needs more stretch, the design can be digitally altered instantly to add Lycra-infused thread. For added strength in the heel, the software uses multiple layers of yarn of varying thickness. Nike plans to patent the process.

Because the upper is made in one piece, the Flyknit has 35 fewer pieces to assemble than the popular Air Pegasus+ 28 runner. That makes production quicker with less labor and larger profit margins, Parker says, though the company won’t give precise figures for either. The Flyknit process also fits into Nike’s sustainability push because the amount of material wasted manufacturing each pair weighs only as much as a sheet of paper, or about one-100th of a pound. Nike says the Flyknit produces 66 percent less waste than the Air Pegasus+ 28.

“If you think about shoemaking, it largely hasn’t changed for decades,” says Parker. “There is no more cutting and stitching with this. The most labor-intensive part of the footwear manufacturing process is gone from the picture.”

Nike makes 96 percent of its shoes in Vietnam, China, and Indonesia, where labor costs are low. The downside is the time it takes for shoes to reach markets such as the U.S., says SportsOneSource analyst Matt Powell. “One of the critical issues our industry hasn’t figured out is how to get products to market more quickly,” he says. “The biggest time in the life cycle of getting a shoe to the U.S. is the time it spends on a boat coming from Asia. If you could eliminate that, that’s a huge chunk out of the time line.”

Consultants say actually manufacturing athletic shoes in the U.S. would still be more expensive than Asia, but the cost difference could be made up by spending less on shipping and being faster at filling demand or jumping on a hot trend in Nike’s largest market.

Nike typically expands innovations across its lines. Flywire, which uses synthetic cables to increase support, was released in 2008 and is now used in 60 percent of Nike’s footwear. And Air is included in some dress shoes at subsidiary Cole Haan. Nike has similar plans for Flyknit.

The flexibility created by more automated shoemaking could also lead to a day when a person can visit a Nike store and have their foot scanned for a customized fit. The customer would be able to design the shoe by color and style down to a single thread. That’s far more customization than allowed by NIKEiD, the company’s Web-ordering product that lets consumers pick specific colors and fabrics. Says Denson: “Because this is so revolutionary, and so comfortable, this one is going to hit from a revenue standpoint much quicker. What this gives us the ability to do is almost unlimited.”

The bottom line: Nike’s new computerized knitting process weaves an entire shoe upper in one piece. That’s 35 fewer pieces to sew than similar shoes.

A Startup Car-Sharing Service Has Neatly Sidestepped Zipcar's Biggest ProblemAlex Davies

Avis Budget acquired the car-sharing service Zipcar for $500 million, although Zipcar had made just $4.7 million in profits in the past year.

That may prove to be a smart move for Avis, but after testing out a new kind of car share, we're not sure.

The biggest problem for Zipcar, Neal Gorenflo, the co-founder of Shareable Magazine, argued on TriplePundit, is the high cost of maintaining a national fleet of cars, including paying for parking and insurance.

RelayRides, a startup that went live in June 2010, sidesteps that problem.

Rather than provide cars themselves, the startup connects car owners and potential renters, and sets ground rules. Unlike Zipcar, it does not have to buy cars people may not want, and owners themselves set their rates, based on what they think their car is worth.

The marketing pitch is simple: Owners can make money off their cars, and city dwellers who need four wheels from time to time can find them easily and securely.

It facilitates short term rentals, provides insurance, and makes its money off a sizeable commission.

Trying It Out

Monday night, I needed a car to get from Manhattan to the suburbs. A few days in advance, I looked for available cars near the Business Insider office, and found a 2012 Fiat 500 Sport.

Conway Liao, a user experience designer, offers his Fiat for $9.75/hour, $69/day, and $1,200/month. When he first moved to New York from California a few years ago, he signed up for Zipcar, which he used for weekend trips.

But he was unhappy with the cost of the service, he told Business Insider. In September, he bought the Fiat and discovered RelayRides. He was cautious at first about lending out the car, and started with a low price point.

But Liao describes his experiences with handing his keys over to strangers as positive. He met the founder of travel sales website JetSetter. The one time he found marijuana in the Fiat, he was more amused than troubled.

More importantly, the money he makes from RelayRides covers the cost of his car payments. Coupled with a good deal at a parking garage in Chinatown, his car costs him significantly less than it would without RelayRides.

My experience as a renter was similarly positive: Conway told his garage I would be picking up the car. When I got in, I checked for damage and took a photo of the odometer, which I sent to him. Then I drove out of the city.

This morning, I got back in and drove back to the garage, stopping on the way to replace the gas I had used. I took a photo of the odometer for my own records, texted Conway to tell him the car was back, and headed to the office.

RelayRides

Some cars for offer on RelayRides around our Park Ave. office.

Will It Work?

The idea, founder Shelby Clark says, is "inherently viral," because it makes sense. It is easy to use, saves some people money, and makes money for others.

With the insurance question answered, and public ratings of potential renters, car owners should not have to worry too much.

Rather, they can focus on getting the $250/month that founder Shelby Clark says is about average (after paying RelayRides' commission).

Clark adds that one owner of a BMW 6 Series clears about $1,400 a month, and another user makes $1,200 a month renting out his car in Chicago.

An extra bonus is a partnership with General Motors allowing users renting cars equipped with OnStar to access the vehicle by sending a text message, without getting the keys from the owner.

But even if the system of car owners rating renters, and vice versa, assuages concerns about who is driving whose car, legal and liability issues remain.

RelayRides operates nationally, and only a few states have laws that address personal vehicle sharing, according to the New York Times.

The biggest downside to renting out a car through RelayRides is the 40 percent commission the company takes on every transaction.

Most of that goes to paying for insurance, which is especially costly because RelayRides is covering drivers with a wide variety of experience and driving histories (all are screened, and those with major violations in the prior two years are not approved).

For car owners, the lost 40 percent represents a lot of money, but RelayRides can make the argument that without the insurance, renting out cars would be impossible, and the 60 percent the owner does get would not be possible.

The good news for RelayRides is that the sharing economy is booming. Airbnb, the online marketplace for spare rooms, could soon make $1 billion a year in revenues.

With the costs of insurance, RelayRides may never be so flush. But there's no reason it cannot succeed, if drivers want it to.

Full Disclosure: RelayRides gave us a $100 driving credit to test out their service.