GP Bullhound Research / Online Fashion / May 2013

Online Fashion

WHICH BUSINESSES WILL MAKE THE CUT?

From Boo.com to $5bn+ Exits for Investors

Despite much scepticism that initially surrounded the migration of the fashion

vertical to the online channel, at $41bn it is now the second largest and fastest

growing e-commerce category in the US. The sector has yielded some of the

best returns in the Internet space for investors, for instance Net-a-Porter and

YOOX. It is our belief that a second wave of businesses will drive further

lucrative exits.

No “Amazon” for Fashion Drives Opportunities

Strong association with fashion labels rather than apparel items makes it

difficult for a single online destination to cater to all audiences. Instead, the

ecosystem is becoming increasingly complex with the number of apparel sites

up by a staggering 126% year-on-year.

New Models Challenging the Old Guard

With increased confidence in the Internet channel, inventory light models such

as marketplaces have emerged, bringing independent brands and boutiques

directly to the consumer. We view luxury P2P in particular as one of the key

growth verticals. The Internet has also been an effective launch pad for

vertically integrated pure-play online labels – with exclusive collections these

sites may be a potential threat to the established online department stores.

Big Data Defining Trends

With complex product descriptions and an overwhelming volume of brands,

the fashion industry is lacking the taxonomy necessary to help retailers

organise their merchandise for consumers and understand the key market

trends. Our view is that new data-driven models will redefine the industry.

“Unfashionable” Companies Desperate to Enter the Fray

Exit trends are shifting from consolidation strategy to acquisitions by

businesses outside the apparel and e-commerce spaces, as the sector is

perceived to be a high growth and profitable opportunity. New entrants, such

as media groups, supermarkets and generalist retailers, are pushing up

valuations. We review the major investment trends and potential exits.

MANISH MADHVANI

[email protected] London: +44 207 101 7567

SASHA AFANASIEVA

[email protected] London: +44 207 101 7569

INDEPENDENT TECHNOLOGY RESEARCH

SECTOR UPDATE MAY 2013 DIGITAL MEDIA

Important disclosures appear at the back of this report GP Bullhound LLP is authorised and regulated by the Financial Conduct Authority

Table of Contents Introduction ......................................................................................................................................... 2

Apparel – Attractive Category .................................................................................................. 2

Social Nature of Purchase Drives Strong Social Media Engagement ..................................... 2

Democratisation and Globalisation of Trends .......................................................................... 3

Fragmentation due to Market Idiosyncrasies ........................................................................... 4

Traditional Brands Late in Digital Implementation .................................................................... 4

Ecosystem Becoming Increasingly Crowded ........................................................................... 5

Shopper Engagement Evolution ......................................................................................................... 7

Brand Building is Critical .......................................................................................................... 7

Fashion is Media ...................................................................................................................... 7

Social Shopping ........................................................................................................................ 8

On the Go – Capturing Users on Mobile is Key ..................................................................... 10

Supply Chain Distribution ................................................................................................................. 11

Pure-Play Online Labels ......................................................................................................... 11

Niche Selection ....................................................................................................................... 11

Inventory Light – Marketplaces .............................................................................................. 12

Offline – Online Convergence ................................................................................................ 12

Model Behaviour ............................................................................................................................... 14

Monetising Discovery ............................................................................................................. 14

Subscription – Not Viable for Fickle Users ............................................................................. 14

Luxury – No Longer Members Only ....................................................................................... 15

Collaborative Consumption – Return of Vintage .................................................................... 16

The Feedback Loop .......................................................................................................................... 18

Stock Cycle Management ...................................................................................................... 18

Big Data: Unravelling User Behaviour and Market Trends .................................................... 18

Virtual Fitting Rooms .............................................................................................................. 18

Investment and Acquisition Dynamics .............................................................................................. 21

Growing Investment in New Business Models – Is there a bubble? ...................................... 21

Investment Shifting to Vertical Specialists and Marketplaces ................................................ 21

Exit Predictions ....................................................................................................................... 22

Selected Company Profiles .............................................................................................................. 24

This reports looks into the latest trends in the online fashion market, following on from our first research

coverage of the sector in October 2008. The first section provides an overview of the development of the

market. We then look at the changing behaviour of consumers online and how apparel sites are addressing

this with new engagement methods. The next section assesses how the supply chain has been impacted by

new online fashion business models. The fourth section examines new business models that have established

differentiating ways to engage with the consumer, while the next assesses new B2B business models. In the

sixth section, we reveal our views on the latest investment and exit trends in the online fashion segment.

Finally, we profile some of the most promising players in the space.

GP BULLHOUND ONLINE FASHION – WHICH BUSINESSES WILL MAKE THE CUT?

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INTRODUCTION

Apparel – Attractive Category

The apparel e-commerce vertical has overcome many challenges to become one of the most lucrative sectors

for investors and entrepreneurs alike. Since the shaky early boo.com beginnings in 1998, its online future has

been frequently questioned: will users ever feel comfortable to purchase fashion items without trying them on;

will brands ever allow their products to be sold outside of the carefully curated shop environment? Despite

being perceived as one of the least suited verticals for online consumption it has become the second largest

e-commerce sector after computer electronics (18% of total e-commerce), and the fastest growing in the US1.

Forecast to reach $73bn in market size by 2016, it will contribute nearly a quarter of total e-commerce growth

in the US between 2012 and 2016 1 . With achievable gross margins around double that of consumer

electronics, and the fact that it has become one of the first product categories to attract the luxury brands en

masse, it is of little surprise that exits in excess of $5bn have been achieved over the past four years2. It is our

belief that innovative new models in the online fashion sector such as marketplaces (including peer to peer

luxury), tailored fashion, prescription and eyewear, as well as fashion data analytics, will drive further high

profile exits.

E X H I B I T 1 – U S M A R K E T S I Z E A N D C U M U L A T I V E A N N U A L G R O W T H B Y E - C O M M E R C E V E R T I C A L

Source: eMarketer, September 2012; GP Bullhound analysis

Social Nature of Purchase Drives Strong Social Media Engagement

Online fashion content is one of the most engaging segments within e-commerce and highly integrated within

the social sphere. In an analysis of visitors to apparel and Facebook sites, ComScore found that c.40% of

Facebook’s audience visit apparel sites versus 30% of overall online audience, which implies that a Facebook

user is 33% more likely to visit an apparel site than the average user. Furthermore, the shared audience

between apparel and Facebook sites is 98m visitors3.

1 Source: eMarketer, September 2012 2 Source: Capital IQ; GP Bullhound analysis 3 Source: ComScore Media Metrix, Europe, May 2012

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E X H I B I T 2 – C R O S S -V I S I T A T I O N A C R O S S F A C E B O O K . C O M A N D A P P A R E L S I T E S – U N I Q U E M O N T H L Y

V I S I T O R S ( M A Y 201 2 )

Source: ComScore Media Metrix, Europe, May 2012; GP Bullhound analysis

Democratisation and Globalisation of Trends

If before, high-end trends would take time to trickle down to mass market level, product trends are now shared

across every segment of the industry, and selling out simultaneously across each segment too. An illustration

from EDITD data analysis shows how the printed trousers trend in March 2013 was evident across the entire

apparel price range. “Mainstream adoption of social media and the ease of access to the Internet have

caused this democracy of trends…the average consumer is more informed about trends in fashion

and their demand for newness, paired with the industry's ability to manufacture, swiftly results in

high-end trends hitting mass market at the same time” Julia Fowler, EDITD4.

Online fashion is also truly global. Newly launched sites are able to reach an international audience and

leverage worldwide trends and influences. “Thanks to the evolution of the web and the social media

revolution, fashion is now much more global than before. There is a global fashion community out

there, and a global zeitgeist,” Jose Neves, Farfetch5.

E X H I B I T 3 – I L L U S T R A T I O N : F A S T S E L L I N G P R I N T E D T R O U S E R S

Market segment Price Styles Sold out rate

Mass market Up to £65 277 19.5%

Premium market £66 - £200 60 16.7%

Luxury £201+ 55 7.3%

Source: EDITD, March 2013

4 Source: EDITD, March 2013 5 Source: Informilo, January 2013


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Fragmentation due to Market Idiosyncrasies

As we predicted in our earlier research on online fashion (2008), no single “Amazon” for fashion has emerged

globally. While in the UK online fashion department stores like ASOS and Net-a-Porter prevail, in France it is

the private sales player, Vente-Privée, that has become dominant. Much of this has been driven by many

factors, including:

Different shopping patterns: shopper behaviour varies across regions, making it tougher for

businesses to expand international offerings without significant adjustments. For instance, on the

logistics side, users in Germany are used to catalogue shopping, free returns and ordering several

sizes of the same item to return the unsuitable ones. In the UK, on the other hand, return rates are

significantly lower; however users expect rapid product delivery. These factors have hampered

growth of apparel private / flash sales models, based on stock consignment and longer delivery

times;

Offline fashion market structure, such as concentration and pricing level of local brands: the

UK has a much higher prevalence of mid-range, high street brands, while in the US, outlet stores are

highly popular within the mid-level offering;

Audience specialisation: consumers prefer to visit specialised sites, that either address a particular

product niche or audience type. For instance, ASOS and Net-a-Porter will not have significant brand

overlap as they cater for different audiences – there is no benefit to users to access both under one

virtual roof;

Regulation: in France, Vente-Privée was able to attract numerous luxury brands to its limited time

sales concept, as there are regulatory restrictions on the number of sales days that can take place

through the traditional brick and mortar channel.

It is our belief that the nature of the industry and consumer demand will drive further fragmentation and

personalised sites.

Traditional Brands Late in Digital Implementation

Traditionally brick and mortar brands and retailers, particularly in the premium and luxury segments, have

been slow to develop their online retail channel due to the fear of their offering becoming “lost” and

undifferentiated amongst other retailers on the web. "Many luxury brands have been reluctant to embrace

new technologies as their values rest on craftsmanship and tradition," says Olivia Solon, associate

editor of Wired magazine6. Futhermore, there is risk of brand devaluation through losing control of the

consumer shopping environment. Brick and mortar retailers are able to control how the product is presented

and where, whereas in the online environment there are adjacency issues: a full price luxury product can be

retailed next to a product from a lower value brand or one at a discount.

“Big brands like PPR and LVMH are very afraid of pushing the Internet – it’s more of a company

branding strategy which explains the story,” according to Xavier Court, co-founder of Vente-Privée7.

For instance, Burberry is one of the more advanced brands in terms of online media campaings ranging from

a bespoke trench coat ordering portal, to live catwalk show streaming; however it generates only 6% of its

revenues online.

The other hurdle for brick and mortar retailers is the complex logistics and customer service required for the

Internet channel. Retailers with significant presence in the catalogue channel have been able to migrate online

6 Source: Independent, 24 September 2012 7 Source: Company information


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more quickly – for example N Brown has over 50% revenues from the Internet8, and Otto Group online sales

represent 53% of total multi-channel retail9.

Our view is that brands will further develop their presence online, whether through collaborating with existing

portals or establishing their own online activity.

E X H I B I T 4 – E - C O M M E R C E P E N E T R A T I O N I N T H E A P P A R E L S E C T O R , 2 012 E

Source: Citi Research, April 2013; Company information; GP Bullhound analysis

Ecosystem Becoming Increasingly Crowded

The online fashion space is getting crowded with traditional brands / retailers, e-commerce enablers, and

pure-play e-tailers investing in the sector.

Fashion Brands

Although with some delay, traditional fashion brands have started to focus on their online presence, often

relying on experienced third-party e-commerce services specialists to deliver logistics and customer services.

For instance, YOOX Group launched its whitelabel e-commerce solution to brands, including logistics and

customer care. Now the Group is powering over 30 mono-brand sites, such as Armani.com and Bally.com.

YOOX is now driving 8.3m unique monthly visitors to such sites with a third of 2012 revenues coming from this

segment10.

Other brands have been aggressively investing into their online offering and digital branding independently.

Superdry, a leading UK brand focusing on “urban” designs, has announced it will be increasing its focus and

investment in its online store and mobile app to drive sales, as well as barring ASOS from selling its goods in

certain countries. “It’s the most profitable part of our whole business,” says Julian Dunkerton, chief

executive of Supergroup, Superdry’s parent company. “If shoppers go on to ASOS and find Superdry,

I’m happy. But if they tap in Superdry to a search engine and it comes up with another website, that’s

wrong11.”

E-commerce Enablers

On the e-commerce enablement side there is intense competition as solutions like eCommera, Shopify,

Magento, and BigCommerce as well as SaaS tools like Mailchimp, RJ Metrics, Shipwire and the rise of 8 Source: Citi Research, financial year 2012 9 Source: Company information, financial year 2012 10 Source: YOOX Group, Q4 2012 11 Source: Financial Times, 21 February 2011

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Amazon Web Services have made it significantly easier and cheaper for retailers to build and manage e-

commerce storefronts.

Pure Play Start-Ups

Numerous online pure-play start-ups have also emerged in the sector, attracted by market size and growth,

high ticket prices and strong user monetisation: in the past year nearly $1.6bn has been invested in online

fashion start-ups versus $1bn the year before12.

Increased Competition

Online apparel industry is becoming increasingly crowded with the number of apparel sites growing by 126%

year-on-year while traffic to the sector overall has grown only by 7% in December 2012 versus last year13. As

a result, there is increasing competition for online users, and apparel suppliers have more choice than ever of

online retailers to partner with. The sector is continuously reinventing itself through new ways of acquiring and

engaging with audiences and operating within the supply chain, stemming both from new start-ups to

traditional and online businesses launching or recreating their existing e-commerce offering.

E X H I B I T 5 – T O T A L A P P A R E L W E B S I T E S A N D U N I Q U E M O N T H L Y V I S I T O R S R E P O R T E D B Y C O M S C O R E

(E U R O P E )

Source: ComScore, 2013; GP Bullhound analysis With this flux in the online fashion sector, we believe businesses will increasingly be evolving to maintain

competitive differentiation.

12 Source: Capital IQ; GP Bullhound analysis; Note: excludes transactions with undisclosed values 13 Source: ComScore, 2013; GP Bullhound analysis

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SHOPPER ENGAGEMENT EVOLUTION

Brand Building is Critical

Users are unlikely to search for specific products online, unlike with electronic appliances or books, as they

have a strong association with the brand itself rather than the product item. As a result, attracting users is less

straight forward than investment into online acquisition marketing, such as search engines, price comparison

websites or affiliate advertising. Retailers need to be differentiated from competition through curation and

relaying the relevant brand story to their audience. Whether brick and mortar or online, retailers with significant

product overlap differentiate themselves through their retail environments and brands (for instance, Harvey

Nichols, Harrods and Liberty have very different branding and retail spaces). If in all retail categories building a

brand is key, in fashion it is crucial to survival.

Using sought-after fashion labels for promotion has also been highly effective and online apparel retailers

have focused on building these relationships: for instance, ASOS launched Fashion Finder, a service that

publicises the brands it does not sell in order to promote itself as a “fashion destination” rather than just a

store. Similarly Vente-Privée used the power of the brands retailed through its flash sales to drive dramatic

member-get-member growth without any spending on search engine marketing in France from 2003 onwards.

Members grew from c.41 thousand to 18m during the decade to 2013 – a growth rate of 85% per year14.

Celebrity endorsement has also been a highly effective driver, with new businesses such as Stylemint

adopting celebrity ambassadors to promote their brands.

As the competition in online apparel intensifies, successful players need to adapt their offering and brand to

entice users away from competitors. We identify the key must-haves as content, social and mobile.

Fashion is Media

As Net-a-Porter has shown, editorial content is highly effective in engaging audiences and establishing a

brand, subsequently the online magazine / store format has emerged as one of the key trends in online

fashion: “If you work at a fashion magazine, your role in life is to guide the reader through the world of

fashion and edit it for them. Why can’t shops do that?” – Nick Robertson, CEO of ASOS15.

The convergence of content and commerce is evident from both sides: online magazines such as Harpers’

Bazaar (ShopBazaar) and influential bloggers are introducing storefronts within their sites, as traditional e-

commerce sites are developing online content. Some sites are using several fashion-specific platforms such

as 72Lux that enable e-commerce and magazine integration.

Online content in fashion has been used predominantly to drive user engagement and to message the brand,

rather than merely drive search engine optimisation. Burberry, for instance, had several initiatives such as the

Burberry Bespoke, where users can design their own product with over 12m different variations. Another

Burberry website, artofthetrench.com, allows visitors to post photos of them wearing their trench coats or send

them to relatives and friends. "Honestly it makes no difference at all" how many custom coats Burberry

sells,” says Angela Ahrendts, CEO of Burberry, "It's customer engagement. You want them to engage

with the brand16."

14 Source: Company information 15 Source: Financial Times, 21 February 2011 16 Source: Wall Street Journal, 3 November 2011


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E X H I B I T 6 – I L L U S T R A T I O N O F B U R B E R R Y B E S P O K E

Source: Wall Street Journal, 3 November 2011

Other rich media formats have emerged, such as online TV Shopping platform Joyus, which promotes

selective products in short online videos. By offering a service to online customers in a similar way to TV

networks such as QVC, the site drives engagement and conversion to purchase. Furthermore, the in-house

technology platform enables behaviour analysis that can aid brands to understand user engagement and

conversion. In the age where users are ever more demanding when it comes to entertainment from their

mobile and desktop devices, this format is an effective way to differentiate the brand.

Social Shopping

Instagram-esque e-commerce platforms such as Fab.com and The Fancy, with online visual product

catalogues and personalised subscription emails, attribute their phenomenal growth to highly engaging format

and social sharing: 50% of Fab users in Europe come from social sites17.

We believe that apparel is one of the earliest adopters of social commerce and will continue to develop: nearly

40% of Pinterest buyers purchased from the clothing category, and jewellery and accessories was the second

most popular category with 23% of customers18.

17 Source: Guardian, 9 April 2013 18 Source: Company blog, 17 July 2012


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E X H I B I T 7 – T O P 1 0 C A T E G O R I E S P U R C H A S E D O N P I N T E R E S T A C C O R D I N G T O US B U Y E R S (M A R C H

201 2 )

Source: Company Blog, 17 July 2012

Cracking the viral effect is still difficult – it appears that most fashion players are using the social platforms for

brand promotion and customer dialogue, rather than to acquire users. Nevertheless, it gives a more even

playing ground for smaller retailers to establish their brand. Through establishing an effective social media

strategy, online apparel properties are able to engage more with their user base: indeed out of the 25 fastest

growing branded social communities in the UK, nearly half are online fashion and beauty retailers.

In our view much experimentation has yet to be done with social channels, but online fashion businesses are

certainly moving the dial in this sphere.

E X H I B I T 8 – T O P 2 5 D I G I T A L B R A N D S B Y F A C E B O O K C O M M U N I T Y G R O W T H I N T H E UK

Source: Tamar Brand Love, 2013

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On the Go – Capturing Users on Mobile is Key

While there was scepticism as to whether users can effectively select apparel on smaller screens, in fact it is

the top retail category on mobile: over 37% of smartphone shoppers have purchased clothing or accessories

versus 28% for books and consumer electronics19. New visual social models such as Joyus, Fab and Fancy

have strongly focused on the mobile channel to ensure higher engagement with users and spontaneous

purchases, particularly through emails: 40% of Fab’s daily logins come from mobile – with iPad users being

especially valuable members (twice the lifetime value of web users) and 10% of all iPad users on Fab convert

to purchase in the first week of having the iPad app. In comparison, established models have some way to go

– large online retailers, ASOS and YOOX have less than 20% of traffic from mobile.

With a growing proportion of audience’s time spent on mobile devices, we believe that developing this channel

will be paramount for online fashion sites.

E X H I B I T 9 – M O B I L E A S P E R C E N T A G E O F T O T A L T R A F F I C

Source: Companies’ information

19 Source: ComScore, December 2012

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Fab.com Botticca Lyst ThredUp Etsy Vente-Privée Yoox ASOS


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SUPPLY CHAIN DISTRIBUTION

Pure-Play Online Labels

ASOS, the most visited fashion website on the planet20, was founded in 2000 retailing items emulating

celebrity fashion. While it was initially selling third party brands that were similar to outfits seen on screen, in

2004 it launched its own range, which has been critical in driving its popularity and protecting itself from

competitors such as Amazon and eBay. Furthermore, through vertically integrating the value chain, ASOS

was able to offer better pricing to its user base and generate higher gross margins. Today, ASOS offers over

1,000 different brands and 55% of revenues come from its own brand21.

One of the main challenges of the “online label” business model is designing a product that is valued by the

target audience and establishing a new brand. Several sites have overcome this by investing in celebrity

endorsement (Stylistpick, Shoemint). Others have introduced user personalisation – such as Shoedazzle,

Gemvara and Send The Trend. There are significant operational complexities with the model, such as building

a strong network of manufacturing partners and significant inventory risks if the products are not sold.

Everlane has focused on a relatively narrow product range of essential items, maintaining full control over the

design and production, and partnering with high quality manufacturers to keep prices affordable. Furthermore,

the site aims to build a community around its products to collect feedback from its user base, currently at

400,000 active members – another way to ensure their designs remain popular22.

Our view is that while the online channel is highly effective for distribution, particularly through driving social

communities, the business is fundamentally an apparel label, which requires significant investment in designer

and production talent. Whether selling the items online or through an offline boutique, businesses like

Everlane need to provide fashionable and good quality items. The fact that this is possible through the Internet

with a relatively minimalist business structure presents a threat to traditional fashion labels.

Niche Selection

Efficiently targeted sites are able to differentiate from other sites and establish a loyal customer base with

repeat purchases. For instance several sites are now targeting the male audience – Mr. Porter, Dollar Shave

Club, BrandiD, Menlook, Trunk Club, Outfittery. Not only do these sites reflect male shopping behaviour, but

also different inventory management: assortment is narrower and the key basic articles do not change

significantly from one season to the next.

Vertical targeting also enables more favourable relationships with brands and suppliers – for instance,

Sunglasses Shop’s high-end presentation of the site and product focus enabled them to retail luxury items,

which were previously not sold online. Vertical specialisation may also enhance the site’s position in organic

search and reduce the cost of customer acquisition. Online sports-focused private sales site, Sportpursuit, for

instance, has been able to drive 5x year-on-year growth through strong member-get-member traction within its

community of sports enthusiasts. Moreover we have seen the emergence of luxury apparel sites targeting the

childrenswear verticals with players such as AlexandAlexa, backed by Tiger Global and MMC, and Smallable,

headquartered in Paris, both showing strong year on year growth. Other examples of niche sites include

accessories (Send the Trend, Boticca, MyOptique, Sunglasses Shop), pregnancy wear (Isabella Oliver),

lingerie (Figleaves), denim (SoJeans), sportswear and equipment (Wiggle, Surfdome).

The trade-off between specialist and generalist approaches is that the frequency of purchase may be lower

within a specific category (for example lingerie versus general apparel) and fewer cross-selling opportunities, 20 Source: ComScore, 2012 21 Source: ASOS 2012 Annual Report 22 Source: Techcrunch.com, 13 December 2012


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unlike for an online department store. Online shops such as Zalando have started diversifying into other

categories to increase number of items per order and frequency of purchase. We believe this will also

contribute to consolidation in the sector for businesses that opt for acquisition strategy rather than organic

expansion into new verticals.

Inventory Light – Marketplaces

With a growing number of fashion boutiques, emerging independent brands and retailers both online and

offline, numerous business models have emerged to aggregate and organise the offering. Marketplaces, such

as Farfetch and Boticca, take advantage of global fashion trends and connect their global user base with local

boutiques and brands from around the world. For instance, UK-based Boticca generates 50% of its revenues

from Europe and 30% from the US. On the other hand, Not on the High Street, Kitsy Lane and Modcloth

aggregate local communities of independent and professional designers and cater to audiences that are

looking for unique pieces.

Larger retailers are also following suit: ASOS launched Marketplace, which allows designers to set up

boutique stores on its site, selling their own creations and one-off vintage items, with ASOS receiving c.10-

15% commission 23 . ASOS Marketplace has over 65,000 products listed, 500 boutique sellers from 95

countries, 28,000 individual sellers from 98 countries24. An emerging trend of luxury retail online is evident in

the fast growing 1stdibs marketplace, which raised $42m in December 2012, following a series A round of

$60m in 2011. The business sells rare antiques and desirable objects through a network of c.1,700 dealers,

and has tripled its presence in Europe in 201225.

We are convinced that the marketplace model is particularly effective in fashion, where there is significant

retailer fragmentation both offline and online (see Introduction section). The key is to establish strong branding

and liquidity in this winner-takes-all business model.

Offline – Online Convergence

The convergence of offline and online is evident: on the one hand traditional retailers are promoting online

offering as an extra retail channel, as well as a way to improve the service currently offered: for instance,

Burberry offers iPads in-store for users to see what is available but not in stock. On the other hand, online

retailers are also introducing offline presence. ASOS partnered with a number of high street retailer chains as

well as small merchants to provide product delivery and pick-up points. Online sites are opening stores to

further promote their offering. Everlane launched a pop-up Christmas store where users are offered extra

personalisation features, while Trunk Club offers a luxury tailoring service to its members through their

permanent showroom.

Over time there will be deeper integration of the two channels: already 69% of recipients in a recent Nielsen

study claimed the Internet is important in the decision-making process when purchasing new products

offline26. Furthermore, apparel is the second most popular category for “showrooming” – examining the item in

a brick and mortar store, but shopping online to find purchase the item at a lower price.

We believe that omnichannel retail, where users view and shop online and offline, will be a major trend – if

before pure-play online was seen as efficient, providing access across several channels is now becoming

critical.

23 Source: Financial Times, 21 February 2011 24 Source: ASOS 2012 Results presentation 25 Source: Alt Assets, December 2012 26 Source: Nielsen Global Survey of New Product Purchase Sentiment, Q3 2012; Note: based on respondents with online access only; new products are defined as any product not purchased in the past


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E X H I B I T 1 0 – C A T E G O R I E S O F I T E M S P U R C H A S E D V I A “ S H O W R O O M I N G ”

Source: ComScore, January 2013

Note: represents percentage of men / women who purchase the items via “showrooming” – or browsing in shops and searching for the best price and purchasing online

8%

18%

21%

22%

26%

39%

72%

10%

15%

29%

28%

29%

47%

56%

Other

Jewellery & watches

Toys

Appliances

Books

Apparel, clothing& accessories

Consumerelectronics

%of women

%of men


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MODEL BEHAVIOUR

Monetising Discovery

Product discovery in fashion is more complex than in other verticals. Price comparison, text search and

consumer reviews are less relevant: firstly, product taxonomy is not as well developed as in other sectors, and

secondly, users relate much more with the brand itself than the product independently.

There has been much experimentation in the last few years to differentiate from other numerous online

retailers and enable users to discover relevant items:

Curated approach: where users follow stylists or celebrities to find new items (such as Send the

Trend, Stylistpick, ShoeDazzle, Outfittery) – highly relevant for the fashion vertical, but may be more

difficult to scale as there are only so many customers each stylist can serve. The consumer values

the human touch in the process, and loses interest if the process starts to feel automated;

Personalised / algorithm based method: where users’ selections are analysed for new

suggestions – similar to that of Last.fm in the music industry (such as Dressipi, Lyst) – classification

and taxonomy of products in the fashion vertical make this difficult as a single tool to use, but over

time this could be viable, particularly as it is combined with social graph data;

Social: where users share their fashion items with other users, predominantly through photos and

other rich media (for instance Polyvore, Chicisimo, Go Try It On, Pose, Kaleidoscope, StyledOn) –

has been shown to be highly engaging, but amongst a younger audience that does not necessarily

have the spending power. Furthermore, a user may share or like certain products online, but may not

necessarily buy. As a result monetisation has not been clear cut;

Visual search: impressive image recognition players like Snap Fashion enable users to search for

items by taking photos on the app. While it is still fairly early stage in monetisation, it has the potential

to revolutionise the user experience, as Shazam once did for music discovery.

The models above vary in terms of user engagement and monetisation – for instance, social content sites like

Go Try It On are further away from transactions versus curated sites like Send the Trend. There will be some

convergence to bridge the gap between user engagement, monetisation and scaling, driven by the type of

audience targeted and products sold. For instance, through personalisation and targeting, StylistPick was able

to increase conversion by 33%27. Outfittery, on the other hand, is able to offer high stylist involvement,

particularly on the first purchase, as the average basket value is at €300. It can then use a more data driven

approach in subsequent purchases as its algorithm based system learns more about the user. In all cases, we

believe there needs to be an element of human touch: in the fashion industry users require strong curation of

content and offering, which can not be automated.

Subscription – Not Viable for Fickle Users

Subscription-based models effective in digital content sectors (for example Spotify, Netflix) have been

replicated in the e-commerce sector with significant investment to date: over $65m raised for ShoeDazzle

alone. While the model provides better revenue stream visibility, customer churn is an issue, particularly

driven by increasing competition and the difficult task of sourcing relevant, highly sought after products every

month. Furthermore, making the customer economics work is difficult due to higher delivery and return costs

in comparison to those in the digital content sector.

27 Source: Econsultancy, 14 December 2012


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Several sites that were previously subscription based, have pivoted the model to more traditional e-commerce

offering – for instance, Stylistpick and Birchbox. Similarly, Bag Borrow or Steal – originally a subscription

based rental service, is introducing a pay-as-you-go model and a standard e-commerce / outnet offering.

Other models, such as Outfittery and Trunk Club, provide a more flexible subscription plan, where users are

still contacted on a regular basis by the stylists to put together their preferred outfits. The users then pay only

for the clothes they keep upon delivery. High average basket value ensures that the personalised service,

which reduces user churn and returns, can be recouped within the first few orders. The main differentiation is

the “pull” approach of the stylist, where the user requests the items to be sent, rather than the “push”

approach, where products are sent on a regular basis.

E X H I B I T 1 1 – C L A S S I F I C A T I O N O F S U B S C R I P T I O N B U S I N E S S E S

Source: Company information; GP Bullhound analysis

Luxury – No Longer Members Only

Initially apparel labels were enticed to the online channel by the prospect of shifting unsold stock in a trusted

high-end shopping space. The private sales model in particular, pioneered by Vente-Privée, experienced

tremendous scalability in contrast to the standard outlet model due to:

1) Quick inventory turn-over through flash sales attracting premium brands;

2) Private membership and limited time sales offering brand protection from exposure in search results;

3) Exclusive membership model as an effective marketing tool for attracting loyal customers;

4) High-end brands more comfortable with the private premium shopping environment to conduct sales on

the site.

E X H I B I T 1 2 – V E N T E - P R I V É E A N D YO O X G R O S S R E V E N U E C O M P A R I S O N

Source: Company information

E-commerce

Daily deals / Private sales Stylist Subscription

VIP member / Loyalty fee Try then buy Rent

Bag Borrow or Steal

Me Undies

Outfittery

Panty by Post

Shoedazzle

Stylemint / Jew elmint / Shoemint

Stylistpick

Trunk Club

Key Current model Prior model

€0.0bn

€0.2bn

€0.4bn

€0.6bn

€0.8bn

€1.0bn

€1.2bn

€1.4bn

2006A 2007A 2008A 2009A 2010A 2011A 2012A

YooxVente Privée


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The rapid growth of the private sales model has been strongly linked to the local idiosyncrasies: after over 10

years since founding, still around 80% of Vente-Privée’s sales are from France28, where there are relatively

low return rates in contrast to other geographies (Vente-Privée’s return rates are below 5% versus 25% for

YOOX’s). Local regulation, limiting the number of sales days in brick and mortar shops, also provides

additional incentive to brands to sell their stock through online sales.

In other geographies, the model has not been as effective. Despite over $240m investment and gross

revenues of over $600m, Gilt has only just reached profitability on EBITDA basis29. The business has moved

away from the private sales model to the flash sales concept like Fab.com – users do not need to subscribe to

view the sales campaigns. Furthermore, the company has rapidly diversified into other verticals such as home

ware, food and travel. In the UK, the private sales model has been successful for non-apparel verticals, such

as homeware (Achica), as users are more tolerant of longer delivery times. One the other hand, the existing

luxury apparel retailer, Net-a-Porter, has been able to offload excess stock via its outlet channel: Outnet.com.

Luxury brands and high-end users are becoming more at ease with the online channel: last year online sales

of personal luxury goods reached €6.2bn, growing three-times faster than the total personal luxury goods

market, and are expected to reach €15bn by 201630. It is estimated that 98% of affluent consumers are

shopping online31. As this trend continues, the member-only private sales model becomes less relevant, and

other models are starting to have strong traction, such as marketplaces in apparel (Farfetch, The Real Real)

and other luxury sectors (1stdibs). Furthermore, we are seeing the emergence of hyper-luxury offerings online:

Moda Operandi allows their price-insensitive user base to pre-order collections straight from the runway.

Collaborative Consumption – Return of Vintage

eBay was a pioneer and dominant player in the P2P vintage clothing and accessories market, but other sites

are disrupting this segment. Focus on vertical specialisation and creating a luxury environment for users has

proven critical in high-end vintage retail. Sites such as Covetique, Vestiaire Collective, Videdressing, The Real

Real, Byronesque, Vaunte, 1stdibs, ensure reliable product authentication and high quality control to promote

users trust, and streamlined logistics for the increasingly demanding customers. Poshmark focuses on the

social element of collaborative consumption where users can view each other’s virtual closets and shop.

ThredUP specialises in children’s clothing, where clothes are of resale quality as children grow out of them

very quickly.

Commissions vary depending on the logistical involvement of the online marketplace – for instance Shop Hers

takes 18% commission but does not take on the production of site content, instead the users are responsible

for creating listings and marketing the items to fellow users. Covetique, on the other hand takes over 37%

commission, but the site takes the pieces in, photographs and checks for authenticity, making it easier and

hassle-free for users to unload unwanted pieces.

As users are becoming comfortable with “sharing” clothes online, the apparel rental market is also moving to

the Internet channel, with Bag Borrow or Steal and Rent the Runway in the US and Wish Want Wear in the

UK. Rent the Runway allows women to rent designed clothes and accessories at 10% of retail price (or from

$50 to $200 for a four night loan). The business has over 3m members and 170 designer brands, and recently

raised $20m funding led by Condé Nast Publications in November 2012, as well as $4m in March 2013 led by

American Express and Novel TMT Ventures32. This online rental model requires more complex inventory

28 Source: Bloomberg.com, 29 January 2013 29 Source: Techcrunch.com, 9 December 2012 30 Source: McKinsey & Co, 2012 31 Source: Luxury Society 29 Jan 2013 32 Source: Techcrunch, 11 March 2013


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GP Bullhound LLP

management and effective offering diversification to maximise orders per user or reduce working capital

requirement, but is viable as users want to recreate red carpet glamour.

Another trend in collaborative consumption is design crowdsourcing (for instance ModCloth has launched this

buyer programme). While this offering is useful for understanding customer behaviour on the site, we believe it

is a not a scalable model as users expect short delivery times, particularly for spontaneous purchases.

Moreover, except for the few true fashionistas, the majority prefer to have the products ready and curated in a

certain way that fits their lifestyle, rather than having to design them.


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GP Bullhound LLP

THE FEEDBACK LOOP

Stock Cycle Management

Inventory management is a critical factor for online retail in most sectors, but presents added complexity for

the apparel vertical in unsold stock or returns:

Fashion trends are difficult to project, unlike other product verticals where new product design is

driven by performance and feature improvements (for example electronics);

Several seasons per year means that the retailers need to manage different cycles of stock,

particularly when their audience is sensitive to how old the stock is;

Quality of product, such as the cut, texture of fabric and colour are difficult to convey without

physically touching or trying on the item;

Different sizing standards across apparel labels, styles and geographies.

A number of business models are addressing these problems through compiling and analysing user, stock

and market data to aid retailers who are selling via the online channel.

Big Data: Unravelling User Behaviour and Market Trends

Several of the new generation discovery sites (see Monetising Discovery Section) collect their users’ data to

provide insights to brands and retailers. There is some way to go before these models are fully scaled and

monetised. Complexities arise particularly in the fashion apparel segment, where product taxonomy needs to

be created from scratch. For social data, it is especially difficult to monetise, as those who are more active in

sharing their selections are not necessarily the buyers. Furthermore, many online retailers already have a

formidable amount of data available from their existing users – the question remains whether these databases

can really compete.

Other sites are assessing the data available on the Internet – for instance fashion specific, EDITD, Fashionbi,

as well as general social analytics companies like Social Bakers. EDITD is able to collect and analyse data

from apparel retailer sites, social media, runways and newsletters to deliver fashion analytics to retailers, who

are becoming increasingly mechanised in their product buying and design.

While the use of data will continue to grow and evolve, the human touch is still fundamental to successful

online retail. Retailers still heavily rely on strong buying teams that understand their customers: for example

Nasty Gal buys only limited runs so as not to get stuck with stock that does not move, and sells 93% of its

inventory at full price in an industry that usually marks down a third of all styles33. Nevertheless, we believe

that data analytics will revolutionise the industry across retailers of all price ranges.

Virtual Fitting Rooms

One of the key difficulties facing online apparel retailers is the high rate of return of items: in the UK it is

estimated that 60% of consumers order multiple sizes and almost one in three clothing purchases made online

are returned in response to the UK’s lack of standard sizing34. Return rates vary depending on type of product

and geography – ASOS reports returns of around 30%, it is closer to 50% for Zalando in Germany35.

Estimated costs of returns include the following in addition to the postage and package fees:

Double visa costs: if the item is shipped from a different jurisdiction and there are import costs;

Product discount: garments generally take over a month to be returned, resulting in the item being

resold out of season at a discount, resulting in an average value depreciation of 50%;

33 Source: Forbes, 28 June 2012 34 Source: Kelkoo, July 2011 35 Source: Kinnevik 2012 annual results


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GP Bullhound LLP

Customer experience: users who are not satisfied with the delivered item are less likely to return to

the site, reducing repeat purchase rates.

In addition to returns, users are reluctant to make purchases online at all as they are unable to try on the item.

According to an Internet shoppers' survey commissioned by Fits.me, 32% of users hesitate when buying

clothes online as they are unsure what size fits them best, and a further 30% as they are unable to try before

buying36.

E X H I B I T 1 3 – R E A S O N S C U S T O M E R S H E S I T A T E W H E N B U Y I N G C L O T H E S O N L I N E

Source: Internet Shoppers Survey, commissioned by Fits.me, July 2011

Several virtual fitting room solutions aim to reduce returns and improve conversion through:

1) Outfit configurations: software to superimpose outfits on models in order to better display the product

for users while minimising production costs (such as My Virtual Model / Mimicme, Looklet). The segment

is already seeing signs of monetisation, as online retail businesses are looking to minimise the costs of

displaying their growing apparel ranges online;

2) Augmented reality solutions: aimed to show the product on a person through overlaying the item on

their image. Agencies such as Holition have developed sophisticated online applications to engage the

user and drive purchase conversion. For instance, when Holition worked with the Swatch Group watch

brand Tissot to enable users to try on a virtual watch from the window in Selfridges, the revenues for the

department store’s boutique increased by 85% during the course of the two week activity37;

36 Source: Fits.me commissioned Internet Survey, July 2011 37 Source: Company information

6% 6%

10%

30%32%

16%

Too difficult toshop on a mobile

device

Slow shoppingtimes

Difficultly ofreturn process

Unable to trybefore buying

Unsure what sizefits best

Shipping feestoo high


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E X H I B I T 1 4 – I L L U S T R A T I O N O F H O L I T I O N ’ S A U G M E N T E D R E A L I T Y S O L U T I O N F O R T I S S O T

Source: Holition company website, May 2013

3) Size recommendations engines: based on comparison of sizing specifications given by different

brands, to give more guidance to users that are purchasing items from new brands (Truefit,

Clotheshorse). This is not item specific, so does not take into consideration the size variation within brand

collections, but is easiest to scale and implement;

4) Style specific sizing guidance: provides guidance for specific styles but either collecting measurements

from the customer directly (the user inputs their measurements), for instance Fits.me uses a 3D robot to

show the garment fit to the user, or comparing sizes of items (the user inputs the measurements of a

previous garment they have purchased), such as Virtusize.

The free returns standard that has been set by the apparel industry is difficult to reverse (62% of UK retailers

offer free postage and returns38). The challenge with the majority of virtual data room services is to encourage

users to commit time to creating their virtual fitting room profile. In order for this sector to take off, online

retailers need to provide an incentive for their users to provide additional data for the virtual fitting room

solution. On the other hand, online retailers themselves may be able to implement an in-house size

recommendation solution based on the returns data compiled from their regular customers, bypassing third

party service providers. As a result, we believe this sector will take time to develop and will be dependent on

the partnerships between retailers and the service providers.

38 Source: Source: Kelkoo, July 2011


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INVESTMENT AND ACQUISITION DYNAMICS

Growing Investment in New Business Models – Is there a bubble?

The last few years have seen an explosion of deal activity: over half of online fashion M&A by volume and

close to half of private placements by both volume and value have been announced or closed in the last

twelve months. While the online fashion sector is clearly hot, we hesitate to call it a bubble:

1) For deals where transaction multiples are available valuations have been modest, typically at 1x to 2x

LTM gross revenues, reflecting the margin profile of retail businesses;

2) Capital has been drawn to new and more innovative business models, showing that the sector remains in

a healthy phase of development;

3) M&A activity has been dominated by bolt-on acquisitions and it is only in the last year or so that there has

been consolidation between online fashion peers, which indicates the sector has plenty of time left to run.

E X H I B I T 1 5 – V O L U M E O F P R I V A T E P L A C E M E N T S B Y T A R G E T T Y P E

Source: Capital IQ; GP Bullhound analysis, YTD 2013 as at 30 April 2013

Note: as per date of announcement

Investment Shifting to Vertical Specialists and Marketplaces

Private and flash sales sites put online fashion on the map, but in recent years, like the daily deals and

discount sector, have suffered from low barriers to entry, creating intense competition, depressing margins

and making it hard to differentiate. Players such as Gilt Groupe and Vente-Privée, which dominate the private

sales space in their respective markets, are the exception rather than the rule.

Investors are looking for strong brands which will engage consumers and create a willingness to pay.

Consequently they are continuing to invest heavily in vertical specialist models, which have more specific

offerings, differentiated from incumbents like ASOS and Net-a-Porter.

B2C and C2C marketplaces are of interest due to low inventory risk business models, although to-date these have

comprised a relatively small slice of financing activity. Investors are likely to find C2C models, which connect buyers

and sellers of used and new fashion item, particularly exciting (InstantLuxe – $2.6m raise in April 2013, Covetique –

$20m raise in November 2012, and ThredUP – $14.5m raise in October 2012).

14

36

62

101

16

0

20

40

60

80

100

120

2009 2010 2011 2012 2013YTD

Social discovery

Online label / tailored

Personalised discovery

Unique curated discovery

Private / flash sales

Multi-brand e-commerce

Vertical specialists

Marketplaces


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GP Bullhound LLP

E X H I B I T 1 6 – V O L U M E O F M &A D E A L S B Y T A R G E T T Y P E

Source: Capital IQ; GP Bullhound analysis, YTD 2013 as at 30 April 2013

Note: as per date of announcement

Exit Predictions

Given the high level of financing activity seen over the last few years compared to M&A activity, we believe the

online fashion deal market still has a long way to run.

Key trends include:

1) Online multi-brand stores: a significant number of recent exits have been by traditional department

store-style players, which raised funding at the start of or before the online fashion wave – PriceMinister

and Stylife Corporation to Rakuten, Magaseek to NTT Docomo and Mecox Lane to Sina Corp;

2) Cross-category / vertical specialists: attractive targets typically as bolt-on acquisitions for larger online

fashion or e-commerce players, with Fab.com acquiring FashionStake, Amazon buying Quidsi and

Zappos, N Brown Group buying Figleaves.com, and Kenkou Corporation acquiring Angeliebe, reaping

cross-selling and logistics synergies;

3) Premium / Luxury: fashion is one of the first luxury sectors migrating online, with players like

Matches.com and The Real Real having strong potential exit credentials, and Best Secret received

€200m from AXA Private Equity for a majority stake;

4) Marketplaces: rapidly expanding models that have received significant investment to date are likely to

make attractive acquisition targets – already some strategic investment is taking place (ASOS invested in

Covetique, Condé Nast in Farfetch);

5) Online data: this segment is still in early stages of development, but we see it as a very significant niche

as fashion buyers and designers become more analytical in their approach;

6) Pure online labels: the new wave of vertically integrated online labels such as Everlane will become

highly attractive for large brand acquirers such as PPR, looking to introduce new business models into

their portfolios;

7) Fashion tech: with social and mobile becoming key in driving user engagement, companies that have

proven technology are sought after (for instance Etsy acquisition of Mixel);

8) Buyers from emerging markets: strong interest to bring in Western brands to emerging markets where

consumer spending is on the increase – over 30% of online fashion M&A has been driven by Asian

buyers; Japanese Rakuten, for instance, has both strengthened its domestic footprint and expanded

abroad via three online fashion deals in the last twelve months;

4

98

25

12

0

5

10

15

20

25

30

2009 2010 2011 2012 2013YTD

Other

Unique Curated Discovery


Social Discovery

Marketplaces

Private / Flash Sales

Multi-brand e-commerce

Vertical Specialists


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GP Bullhound LLP

9) Traditional retailers / retail enablers: seeking to shift their business online or acquire online distribution

channels – Net-A-Porter by Compagnie Financière Richemont, HauteLook by Nordstrom and

Brands4Friends by Tengelmann. Traditional non-apparel retailers are likely to look into this segment for

growth – we expect supermarkets and department stores to be acquisitive. Other potential acquirers

could be service providers (for instance American Express investment in Warby Parker and Rent The

Runway);

10) Media players: with growing traction of inventory free models, such as marketplaces and fashion-specific

lead generation players, media companies can gain an additional channel to monetise their existing

audience (for example Condé Nast investment in Farfetch, Rent The Runway and Monoqi, Naspers’

acquisition of Markafoni).


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SELECTED COMPANY PROFILES

Multi-brand retailers

Atelier-To-Go (UK)

Founded in 2012, Atelier-to-go provides users with a highly edited selection of the best mid-high

end contemporary designers. The site is presented as an online magazine through which the

users can purchase items. The company produces all of its editorial content and fashion

features, both in-house as well as through contributing editors and stylists from high end glossy

magazines such as Vogue and Harper’s Bazaar.

Meninvest (France)

Founded in 2010, Meninvest has more than 2m unique visitors per month on its editorial and e-

commerce online destinations. The Group’s flagship online store, Menlook, distributed apparel

for men across more than 80 countries. Meninvest acquired oki-ni.com, UK-based online

menswear retailer. The company has raised over $18m from 123 Venture, AXA Private Equity,

Orkos Capital and Partech International.

Net-a-porter (UK)

Founded in 2000, Net-a-Porter is the world’s premier online luxury fashion retailer, viewed by

over 2.5m women each month. Net-a-Porter pioneered magazine styled design of the website

that users found particularly enticing, setting the trend for content-concentrated approach

prevalent with apparel e-commerce today. Acquired by Compagnie Financière Richemont in

April 2010 for an undisclosed amount.

Zalando (Germany)

Founded in 2008, Zalando initially specialised in selling shoes and has since expanded into

clothing and other fashion and lifestyle products online. The company has raised undisclosed

funding from DST Global, Emesco, Holtzbrinck Ventures, Investment Kinnevik, J.P. Morgan

Asset Management, Quadrant Capital Advisors, Rocket Internet and Tengelmann Ventures.


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Private Sales

Achica (UK)

Founded in 2009, Achica is the leading members-only luxury lifestyle store, offering 72 hour

sales campaigns in furniture, furnishings, kitchenware, fashion accessories, children’s wear and

other categories. The company has raised undisclosed funding from Balderton Capital and DFJ

Esprit.

Sportpursuit (UK)

Founded in 2011, Sportpursuit is the UK’s leading sport flash sales site, selling best sports and

outdoor brands at up to 70% off RRP. In 2012 the site won New e-Retailer of the Year Award at

the e-Commerce Awards for Excellence. The company raised over $2m from DFJ Esprit in May

2012.

Vente-Privée (France)

Founded in 2001, Vente-Privée is the pioneer of the online private sales model in apparel. The

company has worked with over 1,450 brands to provide discounts to its user base of up to 70%.

The business generated gross revenues of €1.3bn in 2012. In June 2007, Summit Partners

acquired a minority stake of 20% in the company at a valuation exceeding €800m.

Unique curated content

Joyus (US)

Founded in 2011, Joyus is an online video platform that helps its users discover new products

and brands through short demonstrations. Each clip shows a single product and are launched at

a rate of 2-3 per day. Categories covered include fashion, beauty, home, lifestyle and food

(through acquisition of Foodzie). The company has raised c.$20m from Accel Management,

Harrison Metal Capital, InterWest Partners, Time Warner Investments.


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B2C Marketplaces

Boticca (UK)

Founded in 2010, Boticca is an online marketplace for unique jewellery and fashion accessories

by top emerging designers from around the world. The boutique aggregates designers from 40

different countries. The company has raised over $2m from DG Incubation and Isai Gestion.

Farfetch (UK)

Founded in 2008, Farfetch is an online marketplace for independent apparel boutiques. The site

does not hold inventory but provides selling and payment services for 250 boutiques to 150,000

customers in 140 countries, spending on average $680 per order. The company’s annual run-

rate is $129m and growing at 150% year-on-year. The company has raised over $23m from

Condé Nast, Advent Venture Partners, e-ventures, Index Ventures.

Not on the High Street (UK)

Founded in 2005, Not on the High Street is an online marketplace of over 50,000 gifts and

unique products from 3,000 creative small businesses around the UK. The company has raised

c.$30m from Fidelity Growth Partners, Greylock Partners, Index Ventures, Venrex Investment

Management and Spark Ventures.

Rent the Runway (US)

Founded in 2009, Rent the Runway is a website that rents out high-end clothing and

accessories to consumers for a few days at a time. The site exposes its member base to new

designers and products, where consumers are directed to brand and retailer websites where

they can purchase the items. The company has raised over $55m from 2020 Ventures, Condé

Nast, American Express, Bain Capital Ventures, Highland Capital, KPCB, Novel TMT Ventures.

Wish Want Wear (UK)

Founded in 2012, Wish Want Wear is an online clothes rental site, where users can rent out

designer dresses and other fashion items for four days at a fraction of the actual cost. The site

currently offers 300-350 styles and sends two different sizes of the dress in case one size does

not fit.


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C2C Marketplaces

Covetique (UK)

Founded in 2011, Covetique resells pre-owned luxury fashion pieces at accessible discounted

prices. Its products include items from Alexander McQueen, Prada, Chanel and Gucci. The

company arranges for items for sale to be picked up, photographed for the site and packaged

for delivery to the buyer, ensuring high quality. The online personal wardrobe function allows

users to follow others and be notified of new items listed on the site. In November 2012, ASOS

invested an undisclosed amount for 30% stake in the company.

Vestiaire Collective (France)

Founded in 2009, Vestiaire Collective is an online platform for pre-owned luxury fashion items.

The site has over 1.2m users as part of its online fashion community. The team requests

pictures of the product to agree on the price with the seller, after which the item is collected and

checked for quality control. In March 2012 the site launched in the UK. The company has raised

over $13m from Balderton Capital and Ventech.

Videdressing (France)

Founded in 2009, Videdressing is a social marketplace for fashion lovers who buy and sell their

previously owned clothing and fashion accessories, with over 2m visits per month and around

500, 000 members. Videdressing is the only C2C site to offer a money back guarantee and

thereby provide their customers with a level of service similar to what they would encounter on a

traditional B2C fashion e-commerce site. The company has raised over $5m from DN Capital

Limited, Earlybird Venture Capital, Generis Capital Partners and Piton Capital.

The Real Real (US)

Founded in 2011, The Real Real is a premier online luxury resale store, selling authenticated

pre-owned brands. Members can pay an additional fee to get exclusive access to the sales. The

company has raised over $14m from Canaan Partners, e-ventures, Greycroft Partners,

InterWest Partners, Novel TMT Ventures, Panarea Capital, Expansion VC and 2020 Ventures.


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Verticals

Alex and Alexa (UK)

Founded in 2007, Alex and Alexa is an online store specialising in high-end children’s clothing,

toys and sportswear from 200 brands including prestigious heritage fashion labels such as

Burberry, Chloé, Fendi and Dolce & Gabbana, as well as niche labels sourced from all over the

world, such as Finger In The Nose and Muchacha. The company has raised undisclosed

funding from MMC Ventures and Tiger Global.

SoJeans (France)

Founded in 2010, SoJeans is an online retailer specialising in jeans, offering more than 1,200

models from 75 brands, stocking all sizes. The company offers free shipping, fitting at home and

returns.

Surfdome (UK)

Founded in 2006, Surfdome is an online retailer of lifestyle, fashion, outdoor and sports brands.

The company offers over 750 well-known brands, covering men’s, women’s and children’s

clothing and accessories, including Hunter, Superdry, Vans, The North Face. The website won

the 2011 Shopzilla’s Circle of Excellence award for top customer satisfaction. In 2013, Surfdome

was the fastest growing Facebook community retailer in the UK with 513% growth in likes

(Tamar Brand Love Report, 2013).

Warby Parker (US)

Founded in 2010, Warby Parker sells prescription eyewear online and through its showrooms.

The company has crafted 27 limited run styles, plus one monocle aiming to provide more

affordable eyewear. Warby Parker has partnered with non-profit organisations to ensure that for

every pair of glasses sold, a pair is distributed to someone unable to afford prescription

eyewear. The company has raised over $56m from American Express, General Catalyst, Lerer

Ventures, Menlo Ventures, Spark Capital, Thrive Capital, Tiger Global, First Round Capital and

SV Angel.


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GP Bullhound LLP


Cuyana (US)

Founded in 2011, Cuyana works with local craftsmen in Ecuador, Peru, India, Argentina, Japan

and Mexico to bring apparel items made from premium textiles and metal materials. Each piece

is intended to encompass the country’s culture, heritage and its people. Cuyana also supports

the local community by donating and percentage of its profits to charity Water. Cuyana has

received undisclosed funding from Canaan Partners.

Everlane (US)

Founded in 2010, Everlane sells online its own selection of apparel items. The pieces are

created in-house by a small team of designers, who source the fabrics from around the world

and seek out the best factories to product the items. Through bypassing any middlemen, offline

stores and retail partners, Everlane aims to offer a highly competitive price for its products. The

company has received over $1m funding from Betaworks, KPCB, Lerer Ventures and SV Angel.

Spreadshirt (Germany)

Founded in 2001, Spreadshirt is an online personalised apparel platform. Users can print their

own design on over 100 different articles of clothing. Users can also create their own

Spreadshirt shops to sell their designs. There are more than 400,000 Spreadshirt shops open.

The company has raised over $12m funding from Accel Management, Kennet Partners and

Kreos Capital.

Wool and the Gang (UK)

Founded in 2008, Wool and the Gang is an online DIY fashion brand, offering knitting kits as

well as ready to wear knitted products. The company sources its yarn from Peru, where it also

recruits local women to knit the ready to wear items. Wool and the Gang organises knitting

events and has an expanding online community of knitters.


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GP Bullhound LLP

Personalisation, Curation & Social Discovery

Chicisimo (Spain)

Founded in 2010, Chicisimo is an online fashion community, where users share their pictures of

various outfits and get inspiration about what items work well with others. The site aims to

collect data on the fashion industry from its user base, similar to that of Last.fm. Chicisimo is

also working with brands directly to create branded profiles on the site. The company has raised

over $1.4m from investors including VitaminaK.

Dressipi (UK)

Founded in 2009, Dressipi is an online personal recommendation engine. The site has several

in-house stylists that suggest various items of clothing for the users. Users input their statistics

and answer quiz questions so that the suggestions are closer to their tastes and preferences.

The company has integrated various known fashion brands including Boden and BrandAlley,

which use its recommendation service for its own shoppers.

Lyst (UK)

Founded in 2010, Lyst is an online personalised fashion brand aggregator. Lyst sends

recommendations and updates on brand collections via email, personalised for brand selection

of the user and behavioural data on the site. Lyst aggregates inventory of online and offline

retailers, such as department stores, boutiques and brand stores, taking commission for each

purchase. The company has raised over $5m from Accel Management, DFJ Esprit, Venrex

Investment Management.

Outfittery (Germany)

Founded in 2012, Outfittery is an online men’s stylist platform. Users discuss their preferences

with a stylist on the phone to be recommended a selection of fashion items. The push

subscription model means that the items are delivered after user confirmation and can be paid

for at delivery or returned. The company has raised undisclosed funding from High-Tech

Gründerfonds Management, Holtzbrinck Ventures, IBB Beteiligungsgesellschaft, Mangrove

Capital, RI Digital Ventures.


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Other

EDITD (UK)

Founded in 2009, EDITD collects trend-forecasting market intelligence for the fashion sector,

from sources including online apparel retailers, consumer intelligence from social media, runway

data, and newsletters. The data is aimed to help retailers on assortment, price points,

competitive positioning in real time, as well as helping financial investors and consultants in

analysis of fashion businesses. The company has raised c.$1.8m funding from Atlas Ventures,

High Line Venture Partners, Index Ventures and Seedcamp.

Fits.me (UK)

Founded in 2010, Fits.me is an online fitting room SaaS solution for retailers, including Otto,

Boden, Adidas. The service enables users to try the clothes on virtually through the site before

purchasing, to ensure that the fit is optimised and returns are lowered. The company uses highly

sensitive robot technology to measure the dimensions of clothing items, which are then

compared to the size metrics entered by the user to create an image of how the item would fit in

real life. The company has raised over $10m funding from AS SmartCap, Conor Venture

Partners, Entrepreneurs Fund Management, Estonian Development Fund and Webmedia

Group.

Holition (UK)

Founded in 2008, Holition provides augmented reality solutions to the retail sector. The

company has worked with leading retailers such as De Beers, Tissot, TAG Heuer, Dunhill and

Georg Jensen, to develop virtual 3D imaging applications for users to try on apparel items online

at home or within a store.

Snap Fashion (UK)

Founded in 2012, Snap Fashion is a fashion search engine that uses images, taken on the

mobile app, to search for matching items of clothing. The company’s data base includes items

from over 100 major retailers, such as Topshop, Gap, Jigsaw, and online retailers, such as Net-

a-Porter, ASOS, MyWardrobe. The app also allows users to share choices and purchases with

friends and create tailor-made personal wishlists and giftlists. The company has raised

undisclosed funding from Venrex Investment Management.

Virtusize (Sweden)

Founded in 2011, Virtusize is an online virtual fitting room solution that helps users assess their

correct apparel size, by comparing the item measurements with the metrics of another item

specified as a good fit by the user. Virtusize has consumers in more than 100 countries and is

available for 25,000 garments or 150,000 SKUs. The company has raised undisclosed funding

from Investment AB Öresund.


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GP Bullhound Research / Online Fashion / May 2013

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