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How 2 Guys With No Fashion Experience Built a Billion-Dollar Clothing Company for Millennial Women

The founders’ analytical approach to fashion has put them on track to pull in more than $1 billion in sales in 2018.

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BY Michelle Cheng - 26 Jun 2018

PHOTO CREDIT: Getty Images

The fashion industry is not for the undisciplined--or the slow-moving. Customers change their preferences seemingly as fast as they can scroll through their Instagram feeds. Case in point: Once-hot brands such as Nasty Gal and American Apparel are worth a fraction of what they once were.

All of which makes the story of Los Angeles-based e-commerce clothing brand Revolve especially noteworthy. Founded in 2003 by Michael Mente and Mike Karanikolas, the company is reportedly on track to pull in more than $1 billion in sales this year. The Wall Street Journal recently reported that Revolve--known for its daring, trendy clothing--may be preparing for an initial public offering late this year. (The company declined to comment on its plans.)

How is Revolve not only still standing but sprinting in circles around competitors? It's a case study in how fashion has become a business not just based on style but also on data.

Unlike most fashion company founders, Mente and Karanikolas had no experience in fashion. What they did have was an analytical approach, thanks to their data science and business backgrounds. Mente dropped out of an entrepreneurship program at University of Southern California to join a software startup in L.A.--that would later go bankrupt--where he met his co-founder Karanikolas. Karanikolas, who studied computer engineering at Virgina Tech, works on the data side of the company.

The initial big idea behind Revolve was to build an e-commerce site that stocked as many fashionable brands as possible, according to Chief Marketing Officer Raissa Gerona who joined the company in 2010. That worked for a while, but when the recession hit in 2008 and they saw their competitors selling merchandise for half-off, Revolve decided to buckle down and focus on creating a special product for a very specific audience: millennial women.

The company scouts for niche designers that can't be found at Barneys or Macy's and analyzes how the brands perform on the site. Revolve can tell the designers exactly what customers are looking for, such as more mid-length dresses or a preferred shirt color. The company says that designers who are receptive to this data often will see their sales improve.

"Everything the company does stems from data," says Gerona.

The company's inventory process is another example. Revolve's reordering platform automatically pushes out a notification to buyers on a daily basis when an item is selling quickly. A tagging system--that tracks every detail on a piece of clothing from the length of a dress to its buttons--allows the team to easily distinguish or collect data on the designer, look, and cut. While the automation helps, humans ultimately step in to make the decisions. "If we take a risk on a trend and can see it doing extremely well, we can qualitatively distinguish how future styles will sell," she says.

A guest poses with one of Revolve Fest's Instagram-able installations.

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Revolve will then contact a third-party brand to inquire about re-ordering to meet customer demand, says Gerona. Sometimes the brands can't deliver because they're no longer making a trendy item that's in-season. When that happens, Revolve will step in and manufacture the item itself.

Revolve manufactures and designs 18 of its own brands, a move that helps it stay nimble and ahead of trends. The clothes are manufactured in China and India as well as locally in L.A. Gerona says the company can ask its 40 or so designers to create something around what's trending and can expect the garments to arrive on its site in weeks. Revolve says it can target exactly what customers want.

"This marrying of data and buyers and the designers has been incredibly successful for the business and it continues to grow exponentially year over year," she says.

With a data-driven backend, Revolve also sets itself apart on the front end with a savvy social media identity. Since 2009, the company has used hundreds of fashion experts and influencers instead of professional models to showcase its brands.

Scroll through Revolve's Instagram--with its 2.4 million followers--and you'll see photos of these influencers, clad in the company's clothing, taking tropical weekend getaways, brunching with friends on Sundays, or attending Coachella. The attraction is not just the clothing but also the aspirational lifestyle that caters to the millennial audience. "Our customer wants a piece of that lifestyle," Gerona says.

The most effective influencers aren't necessarily the ones with the most recognizable names; the company also looks for savvy consumers who might have a smaller social media reach but more engagement with their followers. Revolve gives them a fair amount of freedom and flexibility, which Gerona says is key to content that feels organic. According to Forbes, Revolve sponsors influencers' trips and pays them to wear the company's clothing. (Revolve declined to disclose how much it pays them.) "I think it's really hard to [create content that feels authentic] when you're trying to spread brand awareness. It's really essential for brands to trust the influencers to know what they're doing," she says.

The company credits its influencer marketing strategy for bringing in as much as $650 to $700 million in Revolve's revenue a year, Forbes reported.

CB Insights senior retail analyst Zoe Leavitt says that companies investing in influencer marketing only began to appear a couple of years ago and few have received the same traction as Revolve.

"It's kind of the next generation," she says of Revolve's strategy. She says that while influencers can help companies reach a target demographic they can't reach elsewhere, the strategy is time-intensive. "First [companies] have to wrap their heads around social media marketing, which took off, maybe, starting in 2008. Now people are tuning out Facebook ads and Instagram ads. [Companies now] need to embed content in the actual posts themselves and that's where influencer marketing comes in."

When it comes to potential challenges in the future--besides Amazon looming as a potential major threat to any retailer these days--Leavitt says that Revolve will face challenges in keeping up with changing fashion trends. Then there is also the challenges of maintaining the speed and flexibility of its supply chain as the company scales.

In addition, since Revolve acts as a marketplace for other brands, the company may have more trouble differentiating its in-house brands in the future, says Leavitt. The third-party brands--which number 600 or so on the site--are also selling through their own websites, at department stores, and some of them, on Amazon.

If Revolve does pursue an IPO, the company would follow in the footsteps of clothing subscription service Stitch Fix, which went public last November, and has positioned itself as a tech-savvy fashion platform. Other fashion companies that could go public this year, according to news reports, include clothing rental service Rent the Runway and U.K.-based online fashion retail platform Farfetch. Mente and Karanikolas helped develop Farfetch North America in 2008, but Revolve says they're no longer involved.

 

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