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Everlane: Building a Business on Radical Transparency

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Will the e-commerce retailer of timeless basics succeed in disrupting the apparel industry with its no-frills luxury ethos and transparent pricing model?

Business Model

Click on one of Everlane’s most popular products, the Cotton Heather V, and you can view its production costs in a simple infographic — $4.28 for materials, $4.65 for labor, and $0.20 for transport. You can compare Everlane’s sales price ($18) to that of a traditional retailer’s comparable t-shirt ($50). You can also find information on the Los Angeles factory where the t-shirt was made, read about its owner, Mr. Kim, and click through pictures of the production process.

While most retailers obscure production costing, Everlane actively promotes it. Founded in 2010, Everlane sought “to exploit the market inefficiency of brick-and-mortar retail” and to provide quality menswear at a fraction of department store prices. [1] It has since expanded into womenswear, leather accessories, and childrenswear, launching 170 new products in 2015, in light of a total 2014 product line of 110 items. [2] Last year, Everlane’s revenues tripled from $12M in 2013 to $36M, with gross profits increasing from $8.1M to $18M.  [3] Transparent pricing coupled with high-quality, minimalist design enable Everlane to capture the socially conscious millennial who seeks a product with a story. The company succeeds in “forging a deeper, more emotional connection by including details such as real-time weather conditions and the local time of each [factory] locale. The resulting effect on a jaded e-customer is not unlike that when one stumbles into an honest relationship after dating a string of serial cheaters.” [4]

 

Operational Model

Everlane espouses a solely web-based distribution model, circumventing capex and labor expenditures associated with stores. Unlike more established retailers that employ an extensive intermediary network, Everlane designs in-house and works directly with factories, spanning from Vietnam, Spain, to California. Not only does the direct relationship with manufacturers allow Everlane to pass on increased savings to the consumer, it allows Everlane to more easily ensure that factories comply with its labor and ethical sourcing standards — a problem that has plagued retail giants like H&M and Nike.

Everlane adheres to a low inventory policy to minimize working capital costs, often leading to stockouts. Before a launch, Everlane deliberately orders less products than its demand forecasts imply. It initially releases small batches to gain feedback, iterate design, and produce stronger versions. Everlane’s direct relationship with factories facilitates a rapid feedback loop.  This prototype-build-pilot model also heightens consumer hype around product restockings. For instance, the launch of Everlane pants led to a 12,000-person waitlist.

 

 

Merchandising and Marketing

Everlane never discounts products as part of holiday weekend promotions, and goes as far as shutting down its site on Black Friday. Everlane’s prices are permeant, contrasting with retailers such as J Crew and Gap who run steep and frequent promotions. Founder, Preysman, articulates, “We don’t want to play games with anyone because in traditional retail, brands sell 80% of their stuff at discount and it’s really just them lying to their customer. Our view is that we want to keep things as simple as possible for people.” [5]

Everlane largely markets through social media platforms such as Instagram with no print campaigns or television advertising. In an effort to establish deeper connections with its following, Everlane recently hosted happy hours across the U.S. with talks and parties tailored around the theme of Transparent Cities. This guerilla-style marketing approach allows Everlane to spend less on marketing in comparison to other retailers, passing on the savings to its customers. In March, Facebook announced that Everlane would be one of two brands piloting Business on Messenger, a service that enables companies to engage with customers through Facebook’s Messenger. The increased functionality with Facebook in addition to the launch of its own app in May are part of an effort to make it “so dead easy to buy from Everlane that you’d never shop anywhere else.” [6]

Future Growth

Everlane’s operating model, focused on designing minimalist, quality products while curtailing overhead costs, allows it to deliver a luxury product without a luxury price tag. As e-commerce continues to steadily rise as a percentage of retail sales, Everlane will likely continue to acquire consumers at a rapid pace. [7] However, it must be careful that its growth does not undermine the brand equity it has so skillfully developed. Everlane would do well to consider the effect of deliberately low inventory on missed sales and earnings opportunity. While its current cult following may be willing to wait months for its Petra Bag, new customers may not be as “sticky” or forgiving.  Everlane’s rapid proliferation of products may also jeopardize its simple and easy shopping experience. While scaling, Everlane must ensure that it continues to aggressively manage factories to ensure compliance with its ethical standards and sustain its high brand equity – its greatest asset but also its greatest liability.

[1] http://www.sfchronicle.com/style/article/Everlane-expands-its-reach-6204937.php

[2] http://www.sfchronicle.com/style/article/Everlane-expands-its-reach-6204937.php

[3] http://www.racked.com/2015/10/8/9442455/everlane-expansion

[4] http://www.latimes.com/travel/fashion/la-ig-everlane-20140907-story.html

[5] http://www.racked.com/2015/10/8/9442455/everlane-expansion

[6] http://www.sfchronicle.com/style/article/Everlane-expands-its-reach-6204937.php

[7] https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

8 thoughts on “Everlane: Building a Business on Radical Transparency

  1. Towards the end of your article, you describe Everlane’s product offering as luxury, however the business model and value proposition of Everlane seems to be more aligned with an Every Day Low Prices (EDLP) strategy. To me, the very notion of a ‘luxury’ product implies not only good quality but also an air of exclusivity–one usually propagated by extravagant designs and high prices. I worry that despite Everlane’s branding, other companies like Target already offer similar products–simple designs, pretty good quality, and an affordable price far from luxury products–and they may be able to effectively outcompete Everlane.

    I do like your points about the relationship between the Op & Biz models and agree that the operational model favoring e-commerce over brick and mortar supports having fixed, affordable prices.

    1. Thanks for your reply wombat!

      I find your comparison with Target interesting. I would argue that Target’s apparel line caters to a completely different customer base than that of Everlane’s. While Everlane does offer affordable luxury with its $15 dollar t-shirts, a solid portion of its product portfolio is priced significantly higher than Target’s (e.g., the Petra backpack Jean references below is $330). Everlane acknowledges that its prices are certainly not the lowest in the market and it is not attempting to offer anything near Target’s “every day low prices” (you can see that Everlane is still capturing upwards of 50% margin on many of its products when one scrolls through its “transparency infographics.” I think Everlane caters more to a customer who wants a product with a compelling story and that is ethically and responsibly sourced. I believe that this consumer profile has little to no overlap with the Target consumer profile.

  2. Really well written, Janine!

    Re: your line that “Everlane would do well to consider the effect of deliberately low inventory on missed sales and earnings opportunity,” I was thinking the same thing as I read about their deliberate under-production strategy. I noticed that mm la fleur does it too, and I understand the publicity value, but it seems annoying for the pot’l new consumer.

    Do you wear/buy Everlane? I just looked at the Petra backpack you referenced, and it really is beautiful, but it doesn’t come close to “luxury essentials under $100” in terms of price. I have the Twill Snap Backpack, but I stopped wearing it.. the snap clip ring is separating from the fabric a bit. I’ll try support@everlane.com and let you know what happens.

    One last note – I noticed that they have Everlane Now (1hr delivery in Manhattan). I’d love to know how that fits into their business and operating models.

    1. Jean – thanks for your comment! Do keep me updated on how support@everlane.com handles the snap clip ring on your backpack.

      I believe Everlane Now is an attempt to compete with other luxury platforms and brands (e.g., net-a-porter) who are introducing similar on-demand delivery models. Everlane wants to make it as easy as possible to shop with them, and I suspect that the speedy-delivery offering is informed by this strategy. I am curious about its ability to pull off this service operationally as delivery is not a core-competency, and is perhaps why Everlane is piloting in New York as opposed to launching nationwide.

      I would argue that the Petra backpack is still “affordable luxury” when one compares it to the brands that Everlane perceives as its competition (e.g., Prada, Louis Vuitton, Botegga Veneta). These brands market backpacks that are 2-3X the price of the Petra backpack. I think that Everlane is also capitalizing on a movement of “inconspicuous consumption” (perhaps you will find the HBR article I am including on this movement interesting). Everlane caters to a growing consumer base of those who want luxury quality goods but without the obvious flashy branding of the aforementioned brands.

      https://hbr.org/2015/09/luxury-branding-below-the-radar

  3. Love the post, Janine!

    I am very curious about the initial small batch releases. I’ve noticed a ton of variability in the quality of their clothes. Great silk shirts, pilly and short-lived cashmere sweaters. Obviously those are two different SKUs, but I’d be curious to know if their small batch sizes could contribute to what I’ve (albeit anecdotally) observed is inconsistency in the quality of their products.

    1. Thanks for your comment Kate! It is a shame that you have noticed such disparity in the quality of your purchases. I think that your hypothesis around the small batch size is an apt one, yet I believe Everlane only releases [relatively] small batches at the launch of a product. After the Everlane team receives consumer feedback on the initial run, it iterates and tinkers with the design to hopefully come out with a stronger, better product. If you purchased your sweaters well after their introduction on the website, I am afraid Everlane has no excuses for the poor quality! Another way to look at it, is that if Everlane espouses artisan small-scale production and it markets its process as such than there really is no excuse for poor quality, regardless of the timing of your purchase.

    2. I am also curious about their batch sizes. I have purchased t shirts a few times from Everlane and found the pirce/quality to be what I was looking for (they are definitely soft and last for the price point), but I noticed variability in size and fit relative to the shirt I had originally tried on. I see this as a general issue for clothing manufacturers that are moving strictly online, as I am relying more on previous experiences of products when I’m purchasing something I can’t see or feel until its delivered.

  4. Nice post Janine. Like that you exposing us to smaller cool companies.

    So just a quick comment from me.

    It seems to me from the post that the distribution model is a key success factor. It would great to get some more insight into why you think that their specific distribution model is able to extract savings. One would assume that the mere fact that they source globally and have high quality standards would mean that they would require a larger sourcing/quality control team? The savings aspects that you speak of and the fact that they pass it to the end-consumers is a key value creation point in my view.

    Also, their stock out model is quite interesting – the feedback loop is a nifty operational adjunct. It would be great to better understand the turnaround time for the updated inventory and their volumes and prices (perhaps increased prices given that their is a baseline demand?). I would assume that quick turnaround would be especially important for (1) more fashionable (trend linked) clothing items and (2) the more demand (and attention) elastic millennial target market. Given it’s stage of development, I would think Evercore’s ability to sustain long-term interest (and demand) by their target customers is a critical aspect of their business model.

    Thanks!

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