Social Shopping Fuels ModCloth Growth
Unusually high community engagement, user-driven initiatives, mobile growth and a love of all things vintage — that’s the formula behind the growth of ModCloth.com, which hit $100 million in sales just a decade after it launched out of co-founder Susan Gregg Koger’s dorm room back in 2002.
The online retailer, which markets vintage-inspired clothing, accessories and decor from more than 700 independent designers, has been on a crusade to “democratize fashion and home decor around the world” by letting shoppers help decide what goods it should sell via crowdsourcing.
Sarah Rose, senior VP product and growth, spoke with Chain Store Age contributing writer Barbara Thau about how ModCloth’s social-shopping model has tapped into changing consumer buying trends and outlined the company’s major growth opportunities, from mobile commerce to international expansion.
How has ModCloth’s crowdsourcing/social shopping model contributed to its 40% annual growth rate?
ModCloth is more than just a fashion retailer — we are a community. Our mission is to inspire personal style and help our customers feel like the best version of themselves. Community participation is fundamental to everything we do, and we enable our customers to participate in all aspects of our brand, including our Be the Buyer program, Make the Cut designer program and our shoppable image platform Style Gallery.
The engagement programs and features we have created to better understand what our community wants and what inspires them has contributed to our growth.
How do those programs work?
Through Be the Buyer, we work with designers to provide samples of products we are considering, and then allow our community to vote and comment on these designs to ultimately help us determine what the final product will look like. Historically, Be the Buyer items sell up to twice as much as others, and designs have received more than 20 million votes.
Style Gallery, our user-generated image gallery, allows our community to express their style and be inspired by each other. Users can upload pictures of themselves to show off their personal style, browse images, “love” other community members’ images and shop similar items.
Since Style Gallery’s launch in November 2012, more than 14,000 outfit photos have been shared, and those photos have been “loved” more than 800,000 times.
Whether through social media, our blog, customer care, or one of our on-site social platforms and programs, we always give our customers a voice.
Who is ModCloth’s target audience?
Our core audience had been standard-sized women aged 18 to 34 in the U.S. But our goal is to be inclusive of women of all ages, shapes, sizes and style types.
What sets ModCloth apart from its competitors?
As a leader in social shopping, ModCloth is changing the role that consumers typically play in the fashion industry. We employ a pull model where the customer is impacting the fashion choices that are available to her and her peers, rather than the traditional push model where retailers set the trends.
This creates a virtual cycle for our business: She engages with our brand and community, both on-site and on off-site social networks. She influences the merchandise we carry and shares the merchandise she loves. We use this data to enable a more relevant and personalized experience, and every time she returns, she feels a sense of ownership and belonging, thereby starting the cycle over again.
What’s the correlation between the pull model and conversion rates?
Social proof drives conversion, and we see this across the experiences ModCloth offers. From the “loves” on an item, to the rating of a product, to an outfit photo on Style Gallery, we’ve found that social engagement increases conversion rates.
One specific example of how this works is through customer reviews. Reviews with measurements and photos are both great resources for our girl to browse through and see how an item might fit her based on what others with similar measurements have said. This is why we launched Fit for Me, a feature that allows a customer to input her measurements and then sort through real customer reviews to find products most likely to fit her. Reading reviews and seeing photos of our items on community members similar to her helps our girl with her purchase decision, which leads to higher conversion rates.
How is ModCloth’s ‘mobile first’ edict driving business?
As of November 2013, mobile visits represented more than 50% of our total visits [because we’ve built] out an experience that both optimizes for each device, such as phones and tablets, as well as enables our customer to move seamlessly across platforms.
As a result, we are seeing strong results on mobile. For example, our average revenue per user (ARPU) on our iPhone app is twice that of desktop. And the ARPU of our iPad app is three times that of desktop.
What tops your agenda this year?
We plan to continue creating a rich mobile experience.
Keeping our eye on the future is also always top of mind for us. For example, wearable technology platforms like Google Glass are exciting to watch, as they offer so many opportunities in the retail space. Voice recognition and location services also represent interesting opportunities for expansion in the social-shopping space, and exploring how these and other mobile trends might fit into our mobile strategy will be on our agenda for 2014.
What are the biggest growth opportunities in 2014?
We believe that plus-sized clothing will continue to be a huge growth opportunity for us. Our plus business has more than tripled since 2011, and average order values with plus items are 25% higher than average. In 2014, we’re really excited to expand our assortment into full-range sizing, and our growth into private label will help us do this.
International expansion also represents significant growth opportunities for ModCloth. We currently ship to more than 130 countries around the world, and are seeing an increasing percentage of our sales coming from Australia, Canada and the United Kingdom in particular.
What new content initiatives are planned?
We’ve been working on more content with our community, including highlighting our top Style Gallery contributors, and we look forward to collaborating directly with our girl on content through contests, videos and more. And of course, we will continue to do collaborations with our amazing network of bloggers.
What’s the biggest challenge ModCloth faces in the areas of the business you oversee?
ModCloth is in the fortunate position of being a beloved brand with several significant growth opportunities. We are continuing to quickly scale the team, our systems and our processes to deliver on these opportunities, but scaling this quickly represents challenges for an organization. That said, it’s a great problem to have!
From online social sharing to location-based targeting to new payment technologies, the retail experience is being upended and disrupted in ways big and small. Ten companies are leading the charge.
How it Made the Cut: There is little mystery as to the online giant’s top ranking: It is the original retail disruptor. Since launching in 1995, Amazon has redefined, reinvented and fundamentally disrupted how the world shops and how retailers large and small do business and serve customers. The company’s volume is staggering, but its real genius is how it sells and delivers the goods. From “one-click” ordering and personalized product recommendations based on tracking of online behavior to same-day shipping to becoming a hosted cloud platform provider, Amazon has upended so many retail fundamentals with game-changing technologies that it’s hard to keep track. And it’s not just technology: Amazon even got the U.S. Postal Service to deliver its packages on Sundays in Los Angeles and New York!
Next Big Thing: Even faster deliveries. Amazon’s proposed drone-based delivery system, Prime Air, would use automated drones, “octocopters,” to deliver some customer packages within 30 minutes of purchase. It’s unclear whether the program will ever become a reality. But the fact that the company is even working on it cements Amazon’s place at the forefront of retail disruption. And even if the drones never fly, Amazon has other tricks up its sleeves to upend the delivery model. The company has expanded same-day shipping to 11 markets, with more cities to come.
An expanding network of gigantic fulfillment centers — some 90 globally with more on the way — is key to Amazon’s core strategy of getting whatever customers want to their doorsteps faster than nearly anyone. The company is using robots from Kiva Systems, which it bought to automate part of the fulfillment process at three of its centers. Full deployments of robots in Amazon DCs could save the company an estimated $900 million-plus in fulfillment costs.
Throw in other disruptive activities such as the expanding rollout of AmazonFresh, its grocery delivery service, and CEO Jeff Bezos’ purchase of the Washington Post last year, and you have a company that is clearly dedicated to shaking things up — and to proving that there is no industry that cannot be disrupted. Rumor has it that Amazon may be building its own cellphone — with a glasses-free 3-D display — and a TV set-top box.
How it Made the Cut: The social network’s commitment to new and improved advertising products has transformed it into a powerhouse marketing tool for retailers and other brands. Indeed, Facebook is evolving into the most effective online advertising platform to date. The company’s overall ad revenue surged 66% to $1.8 billion in its most recent quarter (ended Sept. 30), with 49% of the revenue coming from mobile (and naysayers predicted the site would never become mobile-savvy). Total ad spending is expected to come in at $6 billion in 2013. Facebook is now working directly with retailers to measure the effectiveness of advertising on the social network — and how much it affects their bottom line — by tracking when users who viewed an ad actually made a purchase.
Next Big Thing: Artificial intelligence and video ads. Facebook recently hired New York University professor Yann LeCun, who has spent the last 30 years exploring artificial intelligence, to head its new artificial intelligence lab, which will have operations in London, New York and California. Reportedly, he will oversee the development of tools that can help Facebook analyze data and behavior on its social networking site.
Meanwhile, at year end, the company started placing auto-play video ads into some users’ news feeds. Look for Facebook to eventually introduce the ads to a larger audience. Research firm Sterne Agee projects the site could command as much as $3 million a day in video ads.
How it Made the Cut: The 15-year-old company has evolved from a search engine into one of the most successful, influential and innovative companies in the world. Google’s expansion beyond Web services and software into mobile hardware has only increased its already considerable retail clout. It ranks as the most important source of online shoppers for most retailers, with an expanding e-commerce playbook that includes Google Wallet for payments, Offers for daily deals and the Google Shopper mobile app for finding items nearby. Its Shopping Express program is expanding its same-day delivery experiment using the Wallet payment platform. Beta partners included American Eagle Outfitters, Office Depot, Staples, Target, Toys “R” Us, REI and Whole Foods.
Next Big Thing: Robots. While competitor Amazon is making a splash with drones, Google is investing in robots. The company has acquired eight robotics and artificial intelligence start-up companies in the United States and Japan in an effort to create a new generation of robots. The effort isn’t targeted at consumers — at least not yet — but is aimed at manufacturing and logistics markets. And then there is Google Glass. The approximately 10,000 Glass owners who began testing the Internet-connected device last year are being allowed to invite up to three people to buy it. The company reportedly plans to release a less-expensive, mass-market model this year. Meanwhile, Google chairman Eric Schmidt is lead investor in a new retail software company, Index, that is looking to bring the personalization and data measurement of online retail to physical retailing.
How it Made the Cut: The 3-year-old scrap-booking site now ranks as one of the most popular social networks, with an estimated 70 million monthly users around the world. More than any traditional search engine, the fast-growing platform has tapped into the consumer’s love of discovery. It’s no wonder that Pinterest is being embraced by retailers: The “pinning” activity is driving purchases and traffic for brands both big and small — both online and in stores. Pinterest recently opened up its scrapbooking service to outside developers, allowing such partners as Walmart.com to use real-time Pinterest data to generate lists of the most-pinned products.
Target’s beta site, Target Awesome Shop, spotlights the top-trending items on Pinterest that also have top reviews on Target.com. And Nordstrom is using Pinterest to decide which items to feature in stores, with a special red tag affixed to products that are popular on the social network. From helping consumers find and share products to helping retailers identify trends and market to the right shoppers, Pinterest is shaking up the online commerce model.
Next Big Thing: World domination. And “promoted pins.” Having launched local-language versions of its site in Japan, Sweden, Finland, Denmark and Norway, Pinterest is now available in 12 languages, with a goal of reaching 26 by year end. But the company’s really big move will be the launch of an ad strategy, “promoted pins,” reportedly allowing retailers and brands to push products they want customers to be sure to see via paid placements.
How it Made the Cut: Since initially launching as a way for consumers to “microblog” in 140-character bursts in 2006, Twitter has slowly but steadily developed into one of the most important social retailing platforms. Its reach is best reflected in the recent BDO Retail Compass Survey of CMOs: Fifty-two percent of retail chief marketing officers use the short-form messaging service, second only to Facebook. Retailers use tweets with strategic hashtags to alert consumers of real-time promotions, from Taco Bell alerting customers of the location of food trucks to Duane Reade using the service for customer engagement, running contests inviting consumers to tweet photos of themselves using certain products. And paid programs like “promoted tweets” allow retailers to send targeted marketing messages to current and potential followers, with guaranteed placement at the top of their Twitter feeds.
Next Big Thing: In late 2013, Twitter hired J.J. Hirschle, who directed media and entertainment advertising at Google, as its head of retail. This followed the hiring of former Ticketmaster president Nathan Hubbard to take the new role of head of commerce. Twitter reportedly plans to launch an effort to enable direct shopping through postings within tweets. Direct Twitter shopping would be performed on a collaborative, shared revenue basis, rather than place Twitter in direct competition with retailers. And the company has deep pockets: It launched a successful IPO in October, creating a substantial source of potential funds for new retail initiatives.
How it Made the Cut: A longtime innovator in both digital and in-store retailing, the company’s online Apple Store has played a critical role in making digital download of entertainment content such as music and movies mainstream, while iOS-enabled devices have helped usher in the era of shopping via smartphones and tablets. The Apple App Store launched as the first consumer app distribution service in 2008, paving the way for the plethora of mobile shopping apps now in widespread use across multiple platforms.
And don’t forget the brick-and-mortar front. Apple’s streamlined store design with its Genius Bar and hands-on product demos not only changed the way consumer electronics are merchandised, but also proved transforming for other products as well. Copycats of the Apple store can be found around the globe, and in nearly every retail sector. But none are as profitable: Apple is the most profitable U.S. retailer in sales per square foot.
Next Big Thing: Location-sensing technology. Apple rolled out its iBeacons location-sensing application to its U.S. stores in December, sending targeted, real-time promotional messages to shoppers who enabled their iPhones to receive the communications. Apple does not yet use iBeacons to offer targeted discounts or other offers, but presumably this is on the drawing board. Other retailers, including Macy’s, are also piloting iBeacons technology.
Retailers should also keep a close eye on what the company is doing on the digital front. It is reportedly opening a new R&D center dedicated to iPhone development in Taiwan, and is widely reported to be developing wearable connectivity devices and advanced interactive TV technology.
How it Made the Cut: The photo-sharing app, which operates as an autonomous division within Facebook, now counts more than 150 million users who upload a staggering 45 million-plus photos a day. This year, it added a video-sharing feature that lets users shoot and share 15-second mini-films, putting it in competition with Twitter’s Vine service. It also launched Instagram Direct, which lets users share photos and videos with up to 15 people rather than everyone who follows them (similar to Twitter’s direct message functionality). The first brand to hop on board was Gap, inviting the first 15 people who commented to take part in a “What I Wore Today” competition. The respondents were asked to upload their outfit with the chance to win a denim tablet case.
Next Big Thing: Instagram has emerged as a powerful marketing platform for the fashion industry — expect other sectors to take notice. In November, designer Michael Kors became the first brand to advertise on Instagram. The paid post was liked by 217,700 users within 18 hours. Ultimately, the ad potentially reached 6.15 million people worldwide — and garnered the brand 33,985 new followers. Expect more sponsored content on the network this year.
How it Made the Cut: This Seattle-based retail start-up — founded and headed up by former Amazon exec Nadia Shouraboura —revolutionizes the in-store experience with the most innovative and modern combination of offline and online retail to date. Customers download the Hointer app and scan QR codes on the merchandise tags with their devices or — in the newest Hointer innovation — simply place their phone next to the NFC-enabled tag (dynamic pricing is another new addition). The scanning or tapping brings up a page that works like the product page of an e-commerce site, offering item descriptions, Instagram photos and even competing prices. Items selected for try-on are dropped into the app’s virtual shopping cart in the desired size and color.
Once the shopper clicks “try on,” they are assigned to a fitting room — an automated robotic process on the back-end system picks items and delivers them via chute to the dressing room. Customers place unwanted items in a return chute for automatic return to the “microwarehouse.” They can request different sizes or colors via the app, which also allows automatic self-checkout. It allows Hointer to track everything in real time and also lets customers rate the merchandise.
Next Big Thing: With Shouraboura — who spent eight years as head of supply chain and fulfillment technologies at Amazon — at the helm, look for Hointer to keep pushing the envelope on ways to use technology inside stores. Future plans include a current pilot of personalized suggestions offered through its mobile app, with features such as Instagram videos of models displaying the product on a runway. But the company’s ambitions run much deeper: More than a retailer, Hointer considers itself a technology incubator. The company wants to share its vision — and technology solutions — to help other physical retailers innovate their in-store experiences.
How it Made the Cut: By coming up with a tiny credit card reader that turns a mobile device into a state-of-the-art cash register, the payment start-up Square (founded by Jack Dorsey, who also co-founded Twitter) upended the mobile payment landscape. The company hosts more than 3 million retailers — including Starbucks’ vast network — and has expanded into online payments. It also has entered its first country outside North America: Japan.
Next Big Thing: A possible IPO. Square has expanded beyond its original smartphone readers and payments software into other areas of commerce, including a retail point-of-sale system called Stand. And with the launch of an online marketplace, Square Market, it is looking to become an online commerce player, taking on the likes of Etsy, Amazon and eBay.
How it Made the Cut: Yes, that’s right. HSN. The former “home shopping network” has undergone a massive transformation in recent years and has evolved from a direct seller and TV network into a retail, media, entertainment and technology hybrid that is constantly looking for new ways to sell to — and interact with — consumers on whatever device they choose. Think of it as a “four-screen” retailer, one that uses TV shopping, TV entertainment, digital, and mobile and TV entertainment to spread its content.
HSN blurs the lines between traditional channels through such activities as selling CDs while the musical artists perform live both on TV and through live streaming media, with special bonus content only available on its Facebook page.
On the digital side, the company has tapped into the female gamer population with HSN Arcade, a retail gaming platform allowing consumers to play casual games while they watch live TV and engage with other omnichannel content. And it’s no slouch with social media: HSN also uses Pinterest to curate products that tie into films, and runs interactive “mega events” that sell promotional and themed goods in conjunction with the release of a new movie that include live appearances by Hollywood stars.
Next Big Thing: In a word, analytics. HSN is trying to build an enterprise view of the customer where it can use analytics to anticipate exactly what a customer will want. The company has been undergoing a systems transformation with IBM for the past three years and launched the first phase of its enterprise view program in summer 2013. The ultimate goal: To maximize personalization to help create passionate consumer evangelists.
And Keep An Eye On …
Boxed: A mobile delivery service for big bulk items, Boxed offers many of the same products as warehouse clubs, with the items delivered in two days or less. Most orders qualify for free shipping. And unlike the warehouse club behemoths, Boxed does not charge a membership fee.
MakerBot: This Brooklyn-based company is on a mission to bring desktop 3-D printing and scanning to the masses, and has entered the retail arena, opening three locations. The stores feature MakerBot’s signature 3-D printers and scanner, as well as 3-D printed gifts and a 3-D Photo Booth, where customers get a 3-D photo of themselves. The stores also host workshops for aspiring 3-D-printing fans.
Bitcoin: The jury is still out on whether digital currencies will ever go mainstream, but that hasn’t stopped Bitcoin from generating interest around the world. Some see it as a low-cost payment system that could disrupt established players like MasterCard and Visa. Most recently, Bank of America issued a report saying Bitcoin has clear potential for growth and “may emerge as a serious competitor to traditional money transfer providers.” And in what could be a sign of things to come, online discount retailer Overstock.com plans to let shoppers pay for goods with Bitcoin by June.
Shazam Entertainment: The popular song identification app for mobile devices has expanded into tags for advertisements and television shows. In a deal with Mindshare Worldwide, Shazam has launched a program to help brands audit, map and capitalize on sound-based elements of their global advertising campaigns. It uses proprietary audio content recognition to identify a brand’s audio assets from TV, radio and in-store advertisements, and connects the consumer to a tailored mobile experience.
Shopify: An e-commerce platform that makes it easy for any business — or individual — to launch an online store, Shopify has launched an offline POS system with hardware that allows merchants to accept credit card payments using an iPad and Shopify’s backend inventory management system. The strategy is to merge online and offline retail management into one system for merchants to deal with, according to Shopify. The company is looking for its platform to disrupt the retail industry by shifting sales away from larger big-box stores to small merchants and entrepreneurs.
Storefront: An online start-up that directly connects retailers, brands and landlords with retail spaces they want to rent out for the short term, Storefront is looking to shake up the retail real estate market. The Storefront website is modeled after the popular Airbnb site, which connects people who want to rent their homes/apartments directly to guests. Storefront didn’t invent the concept of the pop-up stores, but it is reinventing the way they go to market.
Trend Spotting for the New Year
Increased immersion in technology — and increased questions about its effect on people’s lives and privacy. A rise in consumer expectations for speed. A shift to a visual vocabulary and the rise of telepathic technology. These, according to one trend forecast, will be among the main drivers of consumer behavior in 2014.
The forecast, “Ten Trends for 2014 and Beyond,” comes from marketing communications giant JWT. For the past nine years, the company has released its predictions of the key trends that will drive or impact consumer behavior in the new year and going beyond. It’s always an interesting read, and this year is no exception. One of the things that strikes me about the 2014 forecast is how it so clearly reflects the growing mixed feelings consumers have about technology. The dichotomy is one that retailers will have to learn how to balance going forward. “Consumers are both welcoming and resisting technology’s growing omnipresence in our lives … those who are most immersed are starting to question its effect on their lives and their privacy,” said Ann Mack, director of trendspotting at JWT, New York.
Here’s a quick overview of JWT’s trends:
1. Immersive experiences: Brand and entertainment will become more immersive and more enveloping in a bid to capture consumers’ imagination and attention.
2. Speaking visually: The rise of photos, video snippets, emojis and other imagery is moving us to a visual vocabulary — and largely supplanting the need for text.
3. The age of impatience: Consumer expectations for speed and ease are increasing exponentially. As retailers respond in kind, impatience will only increase.
4. Mobile as a gateway to opportunity: In emerging markets, the mobile device is coming to represent a gateway to opportunity, helping people to change their lives.
5. Telepathic technology: With the rise of brain-computer interfaces and emotion-recognition technology, brands will become more adept at understanding consumers’ minds and moods — and reacting accordingly in a very personalized way.
6. The end of anonymity: New technologies and a growing drive to collect personal data are making it nearly impossible to remain unobserved and untracked. But as anonymity becomes more elusive, expect pushback from consumers and a growing paranoia around technologies and services that affect privacy.
7. Raging against the machine: As the digital age progresses, consumers are starting to fear/resent technology, fretting about what’s been lost in our embrace of technology and the pace of change. A higher value will be put on all things that feel essentially human as people seriously question (while not entirely resisting) technology’s siren call.
8. Remixing tradition: With social norms quickly changing and a new anything-goes attitude, people are mashing up cherished traditions with decidedly new ideas, creating their own recipes for what feels right.
9. Proudly imperfect: Imperfection is taking on new appeal in today’s neatly polished and curated world, reflecting the diversity seen in everyday life.
10. Mindful living: Once the domain of the spiritual set, mindful living is going mainstream, with more people drawn to the idea of shutting out distractions and focusing on the moment.
Happy New Year!