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Amazon’s next conquest will be apparel

Late last year, after Amazon announced it had acquired the rights to J.R.R. Tolkien’s epic “Lord of the Rings” saga for $250 million, I wrote how the move underscored Amazon’s relentless pursuit to build one platform to “rule them all.” Now that Amazon is investing half a billion dollars into developing a Middle Earth show – making it the most expensive TV series ever made – it won’t be a surprise to see Jeff Bezos front and center at the Emmys soon.

But Hollywood isn’t the only industry Amazon wants to upend. Based on the company’s great ambitions in apparel, it may not be long before we also see Bezos at New York Fashion Week next to Anna Wintour.

The 800-Pound Gorilla in the Fashion World

As traditional retail continues to recede, direct to commerce fashion brands continue to emerge. I’ve previously shared how Stitch Fix, Warby Parker, Everlane and Allbirds are just a few innovative companies proving the success of this model. As the master of D2C commerce, Amazon has been fine-tuning its fashion operation for over 15 years.

Amazon originally got into apparel all the way back in 2002 and acquired online shoe retailer Zappos for $1.2 billion in 2009, marking the largest purchase in its history at the time. But the company’s quest to dominate fashion has faced several historical obstacles, chief among them that people have not trusted buying apparel online out of a desire to try on the items first and that Amazon was not perceived as a “cool” brand.

Headwinds are now tailwinds. Online shopping for apparel took off and is now the highest online-penetration CPG sector; the majority of women have shopped for clothing online. E-commerce accounts for nearly twice as big a proportion of total clothing sales as it does for retail more broadly (17 percent vs. 10 percent). Amazon, meanwhile, has honed its apparel strategy, providing free returns, better photography and greater selection. Today, the company is the largest apparel retailer by gross merchandise volume. Mission accomplished? Not quite.

Building A Private-Label ‘Fashion House’

An actual Amazon fashion shoot

Bonobos CEO Andy Dunn once said, “Selling a bunch of other people’s stuff is a low margin game that requires a lot of capital and, ultimately, it’s hard to beat Jeff Bezos at that.” This is true, but when it comes to apparel, Bezos has greater ambitions than selling other people’s stuff. Currently, though, that’s mostly what Amazon does.

According to analysis from Coresight Research, nearly 14 percent of listings on the U.S. Amazon Fashion site are from Amazon itself, while third-party sellers account for the remaining 86 percent. Amazon is highly incentivized to increase its share of that pie. Apparel is a highly profitable category for the company, with 40 percent peak gross margins in the last 10 years. Additionally, Prime members heavily overindex for buying apparel on Amazon – nearly two-thirds have done so in the past year.

As it ramps up its private-label offerings, Amazon is clearly keen to move beyond selling the apparel equivalent of batteries and diapers through its Amazon Essentials brand. It started selling thigh-high velvet boots in September, and Coresight’s analysis indicates that the company is focusing on higher-value categories.

If its recent Lord of the Rings rights acquisition was an attempt to further capture young affluent consumers’ eyeballs, and Whole Foods an attempt to lock down their stomachs, it follows that Amazon would want to ensnare their wardrobes as well. Acquiring a hot digitally native vertical brand – or brands – would be a speedy way to accomplish that. Walmart has already pursued this strategy by buying Bonobos, Modcloth and others; Amazon could take a similar path and seek to bring buzzy brands like Everlane into the everything store. This could also go a long way in helping Amazon shed its “uncool” label.

Becoming A Fashion (Power)House

The Echo Look is just one sign Amazon is serious about dominating fashion

Last year, Amazon introduced a number of innovations designed to turbocharge its apparel business and make the online shopping experience as frictionless as possible. It launched Prime Wardrobe, a Stitch Fix-style service that allows you to try three or more items on at home before sending back the items you don’t want for free in a resealable box with a prepaid label.

 It also debuted Echo Look, a new Alexa-powered device that the company dubs a “hands-free camera and style assistant.” The addition of a camera enables the device to record and comment on its owner’s clothing choices, using a combination of machine learning and human stylist feedback. This advice also takes the form of recommendations, which can drive revenue to Amazon Fashion, and specifically its private-label brands.

Amazon is iterating on and rolling out more features for the Echo Look, including curated content and even crowdsourced (human!) style feedback. It also created an AI algorithm for designing clothes and patented an AR mirror that lets you virtually try on clothes. The value of such a mirror was validated recently by L’Oreal’s acquisition of ModiFace, a company that produces technology that powers similar applications in beauty AR.

Analyzing all these moves together, Amazon’s apparel strategy begins to crystallize. First it sells tons of clothes to learn how clothes are sold. Then it starts selling its own clothes to generate higher gross margin. And now has it has Prime Wardrobe to increase lock-in and reduce points at which customers can choose not to buy Amazon’s own clothing (all while gathering more data about individual preferences); and Echo Look to be its data collection and voice-commerce portal (and as an added bonus, it can route ambiguous purchase requests to its growing inventory of private-label items). If this strategy is successful, it will give Amazon an enormous data moat to drive high-margin sales – a competitive advantage that will be extremely difficult for fashion retailers and brands to replicate.

Bezos doesn’t need to even ask.

Amazon has become increasingly dominant in several increasingly important arenas: cloud services, voice assistants, self-serving brick-and-mortar stores with Amazon Go, and of course its now-traditional role as the online everything store. The company is poised to add apparel to this growing list as it changes the way people shop for clothing (again) and entices more of its customers to buy Amazon’s own threads. And it bears mentioning that Amazon Fashion will get a helpful hand from Amazon Studios as well. Bezos once shared that, “When we win a Golden Globe, it helps us sell more shoes.” If he has his way, Amazon will be doing a lot more of both in the coming years.

Marketing platform Punchh raises $20M Series B to give brick-and-mortar retailers better data analytics

Founded in 2010 as an online loyalty card service, Punchh has since grown into a marketing platform serving more than 115 restaurant chains, including Pizza Hut and Quiznos. Now it’s raised a $20 million Series B to expand into more retail verticals and increase the use of artificial intelligence and machine learning in its cloud software. The funding was led by Sapphire Ventures, with participation from returning investor Cervin Ventures.

Along with its angel and Series A financing, this brings Punchh’s total funding so far to about $31 million. The startup says its goal is to give brick-and-mortar stores the same level of data analytics as e-commerce giants like Amazon.

Punchh’s platform enables restaurants to digitize their customer loyalty programs and complements that with tools like Punchh Acquire, which is designed to help businesses turn casual customers into regulars by promoting offers through multiple channels, including email, SMS, social media, Apple Pay and eClub.

The company currently has 145 employees and is based in San Mateo, California, with offices in Austin, Texas and Delhi. This is Punchh’s first funding announcement in three years and the startup’s largest round of financing by far (it raised $9.5 million Series A in 2015).

Co-founder and chief executive officer Shyam Rao says the time was right for Punchh to raise again because it already serves many of the biggest restaurant chains, with 34,000 locations between them, and wanted to tap into demand from retailers in other verticals.

Punchh is now focusing on convenience stores, gas stations and health and beauty brands (clients already include Fantastic Sams hair salons and TruFusion, a chain of fitness studios). The company competes with other digital loyalty and marketing platforms like Stamp Me, LoyalZoo and Stocard. Rao says Punchh’s ability to create campaigns that target a very specific audience sets it apart from rivals. Punchh’s algorithms pulls together data from several sources, including event calendars, weather, local demographics and the purchasing history of individual customers, for what it describes as “micro-moment marketing.”

For example, if cold weather is expected over a holiday weekend, it might send offers for a discounted hot soup and tea set to mothers between the ages of 30 to 55. Punchh claims it increases spending at its customers’ restaurants by 10% to 20%.

“Imagine trying to manage that process of using mountains of data to build customer relationships and tailor every experience, at scale across hundreds of locations. That’s what Punchh does,” says Rao.

In a statement, Jai Das, Sapphire Ventures managing director said “Punchh is already a global leader in digital marketing solutions for restaurants, which alone would be a fantastic reason to invest in the company, but the scope of their technology goes far beyond just restaurants and encompasses all brick-and-mortar stores with a POS.”

b8ta unveils Shopify-like solution for retail stores

b8ta, the store founded by Nest alums to sell trendy gadgets, is entering new territory. Today, the startup is launching “Built by b8ta,” which functions as a retail-as-a-service platform for brands that want a physical presence.

Building off the success of its own retail stores, b8ta is confident it can provide an easy, cost-effective solution to brands wanting to launch physical stores of varying sizes. Since launching its first store in December 2015 in Palo Alto, b8ta has built and deployed an additional 78 stores across the country.

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“As our business grew, there started being a class of larger companies in apparel and beauty that wanted to bring products to stores but the product experience was misaligned with what they wanted to do,” b8ta CEO Vibhu Norby told TechCrunch. “With apparel, you don’t need a separate display for every shirt. So we started imagining creating a number of different brands for other categories.”

Instead of creating those brands itself, b8ta figured it would be more scalable to open up its store building and infrastructure processes to other entrepreneurs looking to open their own stores. That’s how b8ta landed on selling its software and retail services for a flat, monthly fee. The monthly fee, of course, depends on the square footage required, as well as the cost of real estate in whichever market the customer decides to open the retail store.

“For most brands we’re working with, the costs are quite reasonable,” Norby said. “I’ll say that it’s at least 50 percent cheaper than doing it yourself.”

b8ta’s flagship store

b8ta’s software solution includes checkout, inventory, point of sale, inventory management, staff scheduling services and more. Netgear will be the first customer to launch a Built by b8ta store this June in Silicon Valley’s Santana Row, and b8ta has plans to deploy additional stores for other brands in that area. In fact, Norby said there are a handful of other brands that b8ta will announce soon. This year, b8ta expects anywhere from 10 to 15 companies to launch stores built by b8ta across cosmetics, apparel and furniture.

“This is designed for direct-to-consumer brands who have no store space but believe it’s important or they’ve done one or two stores and are having a hard time scaling that up to 10, 20 or 30,” Norby said.

Some of these built by b8ta stores will exist within some of b8ta’s existing flagship stores. For brands that need more space, b8ta can build out separate medium to large-sized stores.

b8ta’s concept of small store inside a shopping center

b8ta likens its offering to Shopify, in that it provides physical stores for brands while Shopify provides virtual stores for brands. Instead of requiring brands to deal with store build-outs, infrastructure, real estate people and so forth, b8ta can provide all of that for them. On the real estate side, b8ta already has relationships with national real estate owners, architects, contractors and designers.

“We already have tremendous scale,” Norby said, noting how b8ta has a whole supply chain for fixture manufacturing and modular designs. On the staffing side, Norby said, the “big innovation” b8ta has is opening up many stores in the same shopping center, which is what b8ta plans to do with Santana Row. That enables b8ta to cover operations and management for multiple brands.

“In our system, no individual store needs to hire their own management team,” Norby said. “It’s just one team looking over the whole center.”

Indigo Fair raises $12M to connect wholesalers with smaller retail outlets with a smarter service


Max Rhodes was walking around that weird little parklet in Hayes Valley in San Francisco after taking a break from a five-year stint at Square to figure out what he wanted to do next — and he kept seeing Square registers everywhere.

It was spotting them over and over again in smaller retail shops dotted throughout the city that made him think about the connections between the average product maker — that kind of small group making a bespoke funny candle — and those retailers. That’s what prompted him to start Indigo Fair, a platform that connects those two entities in order to streamline the process of getting those products into smaller retail stores that are looking for just those kinds of weird candles throughout major urban areas. The company said it has raised $12 million in new financing from Forerunner Ventures and Khosla Ventures, with Forerunner’s Kirsten Green joining the board of directors.

“I started to think about the fact that you have all these stores adopting cloud-based PoS systems and inventory systems and, generally all their data is becoming available through their media profiles and inventory systems,” Rhodes said. “If there were some way that you could get all that data and know what is selling where, you could actually predict how well a given product is gonna sell in a store. That was the starting point.”

As so-called “big box” shopping increasingly shifts online, the theory is that there will be more and more niche retail outlets looking for interesting products that try to capitalize on the core original shopping experience, which is more social and curated.

Indigo Fair receives hundreds of applications from makers every week — though, as more and more tools become available to create more complex products, that’s probably only going to increase — and the team accepts about 5% of those applications. Part of the reason is to keep a good handle on the company’s growth and still make sure it has that curated feel for retailers, who know they are getting their hands on a good product. They send in some information and then start getting orders, print out a shipping label, and then start sending the product out to those retailers.

On the retailer end, the shops sign up and immediately have access to those products available through those wholesale makers. Indigo Fair aims to cut out the process of spending tens of thousands of dollars on trips to trade shows with makers to find the right products and then get them in their stores with the hope that they’ll sell. If you go into one of the stores on Valencia Street in San Francisco, you’ll probably find quite a bit of weird stuff that those stores hope to sell. Indigo Fair looks to try to streamline that process and make it easier to get those products in-house without all the travel and hassle.

Of course, even using public data as a starting point, gathering the data to make the model defensible is the harder part. After all, there are a lot of online platforms looking to empower wholesale makers to get their goods into the hands of consumers, though the company today said it’s actually partnering with Shopify and Square. But as the company gets more and more information about what’s selling, what isn’t, and who’s returning what, it gets a better sense of consumer demand for a product — and where to put it — to keep the cost for both of those entities down.

“In so many ways it’s the age old challenge of marketplaces,” Green said. “I think it requires you to be very scrappy, it requires you to find good customers that believe in the proposition and the potential for the product that they’re willing to start working with you in that regard. There is a lot of info you can readily access online today. Just having the patience and the commitment to try to put a bunch of that together on your own platform so you can start building the dataset is just some of the heavy lifting involved.”

Rhodes’ hope, amid increasing competition and different models and approaches like Simon — which wants to help startups get pop-up shops in malls — is that with his experience dealing with the problems first-hand, and with enough data, Indigo Fair will become a go-to service for both retailers and product makers. Rhodes, a former consultant at Bain who helped build Square Cash, with his cofounders Marcelo Cortes and Daniele Perito, look to lean on everyone’s experience getting an expensive umbrella in stores and selling it across North America to enable every product maker to get the same thing done.

L.L. Bean ends legendary lifetime return policy, and of course social media is to blame

Way to stomp on our hearts.
Way to stomp on our hearts.

Image: John Greim/LightRocket via Getty Images

Congratulations, internet! We’ve ruined another glorious thing.

On Friday, beloved cozy and outdoors-y things retailer L.L. Bean announced that it would end its famed lifetime return policy. And social media is at least in part to blame.

“What we have seen, and it has come to the point where we had to act upon it, is a small but growing group of customers who are interpreting the guarantee as a lifetime product replacement program, and that was never its intent,” L.L. Bean President and CEO Stephen Smith told the Portland Press Herald Wednesday in an interview.

L.L. Bean’s legendary policy allowed its customers to return a product at any time, in any state of disrepair, for a new or comparable product, or a store gift card. Now, customers will only be able to return products purchased in the prior 12 months, or those that have a manufacturing defect. L.L. Bean informed the public of its new policy on Facebook, which was met with many cry face emojis.

Under the previous policy, L.L. Bean customer service representatives were required to ask for a reason for a product’s return. But as This American Life reported in a 2016 segment, employees were specifically instructed to not contest these explanations, or press customers at all; they’re told to just accept even clearly worn and loved products customers claim “didn’t live up to expectations of quality,” always with a smile.

Inevitably, this led to abuses, as has been widely reported. One particularly egregious example: L.L. Bean executives showcased a returned child’s ski jacket still bearing lift tickets from three years of skiing as evidence of how customers were misusing refunds; it was more likely that the child had just grown out of the jacket, they said.

But even in the face of getting ripped off by its own customers, there was something sort of… wonderful… about the policy. It represented a vestige of quality, goodness, and integrity that American manufacturing is supposed to be known for — and it lived on at this one company, in a world dominated by industrial chintziness. Plus, it was a policy that said “we trust our customers to act honestly, and forgive those who don’t,” which assumed the best and not the worst of us humans. Refreshing. 

But then Facebook and Twitter had to come along and ruin it.

L.L. Bean blames social media and its own marketing tactics for increased abuse of the program. Apparently, the offending returns recently cost the company more than the total annual revenue it receives from its flagship product, Bean boots. We’ve reached out to the company to ask specifically about how they saw social media at work, and will update this when they let us know. 

Customers who bought products at Goodwill or Salvation Army specifically in order to return them and get better products and gift cards also contributed to the increased losses, L.L. Bean said. Those dirty dogs.

“The satisfaction guarantee and the intent of the guarantee is very much still intact. We make great stuff and we stand behind great stuff,” Smith said. “But we have had a huge growth in abuse, and fraud, and a misinterpretation of that guarantee.”

An increase in fraud, abuse, and misrepresentation? Yep, sounds like the work of social media. Sayonara to another good thing. 

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