Ole: Slow Fashion. Fast
One of the most revolutionary apparel firms during the last 20 years is Zara, mostly known for introducing the notion of ‘fast fashion’.
By vertically integrating all the activities in the value chain, from production in A Coruña (Spain) and air shipping, to managing its own stores, the firm has managed to have a 3-week design-to-shelf delivery time.
This allows the firm to introduce new items very quickly. Based on data and ideas that come from sales or items first shown on the runway in Milan, the firm is able to supply stores around the world at a very fast pace and a relatively low price.
But speed is not only about the ability to react quickly in recreating items from different runways. The main advantage of fast fashion, as analyzed by the many papers written on the topic, is that it allows the firm to carry little inventory.
In turn, this meant that if a product wasn’t selling well, the quantity that needed to be marked down at the end of the season was limited. It also meant that shoppers couldn’t know what would be on the shelf the next day, creating additional incentive to buy something the moment they saw it. If a product sold well, it might show up again. If not, the one on the shelf may be the last one.
In many ways, this was the winning model for fashion over the last 20 years.
The problem with fast fashion is that it’s very wasteful, and this is evident by the fact that it is the 3rd most polluting industry. Air shipping things all over the world in the name of speed, usually means compromising the sustainability of the fabrics and the quality of the products. This is not to criticize only Zara, but almost all fashion firms these days, from Asos to Shein.
But even other fast fashion brands, such as H&M which try to address some sustainability issues by recycling more products and reducing their carbon footprint, end up adding to the lack of environmental sustainability despite those efforts. This mainly occurs due to consumers’ return culture.
I have already analyzed how wasteful returns are, and it’s clear that fast fashion encourages this practice even more. I can buy, try, and return what I don’t like extremely fast. And I can do this as many times as I like. The high costs and the immense impact on the environment due to discarded returns and unsustainable shipping are more than clear.
While all firms deal with returns one way or the other, the larger firms are better equipped to address them. But this highlights a bigger issue, which I have been writing quite a bit about and is exacerbated by the big brands: the impact on small-scale local stores. In the name of cheap and readily-available products, these mega players kill local retailers.
Do you want to live in a neighborhood where everyone around you is a tech founder or a banker? I would like to have designers, shop owners, teachers, and plumbers. You may disagree, but “if you don't want to be a part of society, Jerry, why don't you just get in your car and move to the East Side?”
And this trend is only becoming faster and cheaper with firms such as Shein, which some describe as ultra-fast fashion.
Can The Gig Economy Rescue the (Local) Fashion Industry?
Another trend of the last 10 years is the emergence of the on-demand gig economy. Since the rise of Uber and Lyft (followed by DoorDash, Wolt, and Deliveroo), there is a “liquid” market of gig workers that can do anything: from picking out food from the grocery to installing furniture.
But while the gig economy transformed the restaurant and mobility sectors (and is slowly making significant inroads in the grocery industry), we have not yet seen a lot of progress in the apparel and fashion industries.
This may, of course, be driven by the fact that it’s much easier to integrate with a restaurant than with a retail store. And if there are any restaurants that are unwilling to join the platform, you can always follow DoorDash’s example and just add it without asking.
Unfortunately, this won’t work with small retail stores because customers need to have access to the store’s inventory, hence you need to integrate with their inventory system. You need to be able to display each product along with its various colors and sizes (attributes which are not present in food or grocery).
This is where Ole comes in. Ole tries to solve two main issues: it tries to reduce returns and solve the small-scale store problem for local brands and designers, all while using the on-demand economy. It’s about saving slow fashion by being even faster than fast fashion.
I rarely write about early-stage startups I work with, mainly because most of them like to remain somewhat under the radar while they still perfect their model. I am a true believer of every single early-stage firm I work with, and each of their founders knows that I am their biggest cheerleader (while not shying from offering my “constructive feedback” when needed).
But I decided to write about Ole (with their blessings) since I have already been discussing them with my students, and realize how interesting the topic is.
This is not a sales pitch, as most likely none of you is a customer at this stage since the product is only available in Metro, Tel Aviv.
What is Ole?
Ole is a fashion marketplace. By downloading their mobile app (which, as I mentioned, is currently only available in Israel), you can order different pieces of apparel all of which are fulfilled from local stores in Tel Aviv.
At this stage, it may sound sort of mundane, so I will try to convince you otherwise. But because, like I said, this is not a sales pitch, I would like to do it within the context of the framework I use to think about firms and the scalability of their model.
When I think about firms, I ask three questions:
How differentiated is the solution (product or service) and what makes the firm better suited than others to deliver on its value proposition?
Is there a predictable path to profitability (i.e., is there a way to make money on the unit economics level or the customer level)?
How scalable is the solution (to what extent can the firm build a scale-based moat)?
Afterward, I usually think about their main constraints (growth limiters) and the leadership’s readiness to scale, but in this article, I will focus on the three questions.
Let me start by getting deeper into the model to understand what makes it different than just one more delivery service.
At its basic level, it offers consumers significant variety (combining both big and local brands), at an amazingly fast speed.
But given the speed, it goes much deeper than that. With Ole, you can order from multiple stores and still have your order delivered within a very short window.
I know this is not the way we shop now, but imagine, for example, that you have a meeting and you realize that it’s more formal than you initially thought, or that the faculty is holding “running office hours” and you forgot to bring your high-end sneakers. With a service like Ole, you can order what you need for each specific event. In other words, given its speed, Ole mimics the way we currently live, rather than the way we currently shop. The experts tell me that the common term for shopping “by event” rather than “by shop” is “total look”. I will pretend that I knew it.
The second important feature of the firm is the “try and buy”. When you order from Ole, you can request (in advance) for the delivery person to wait while you try the products. The positive impact of this aspect is immense. You can order multiple items from multiple stores, try them, decide which ones you want or ask the delivery person (who is purposefully more style and fashion-conscious than the average Dasher) their opinion, and then return any items you don’t like. These items are then immediately returned to the stores, saving a tremendous amount of waste both in time and materials.
Think about it as turning your living room (or office) into an extension of the store’s fitting room, just at your own comfort, without skinny mirrors, or the pressure of the store associate.
These two features, together with the fact that the mobile shopping experience is tailored to fashion, are the main value proposition for customers.
What about the stores?
First, it allows stores to become truly “omnichannel,” managing both the brick-and-mortar stores and an online presence with the highest level of convenience, and no additional effort (or staff).
Second, it reduces overall returns. In fact, since the returns are so quick, essentially within a few hours of the sale, one can view the inventory in transit just as they would see the clothes on display near the fitting room. Basically, all of these returned products can be on the shelf within a few hours, which is one of the main issues that plague online sales: not only are products returned, many of them may take weeks until they are back on the shelf or may never make it back at all.
What allows the firm to compete with existing fast delivery or fashion platforms? The good old concept of “focus”.
By focusing on on-demand fashion, the firm had to develop the capability to quickly onboard new stores. This meant that they had to learn how to integrate with many different types of inventory systems. It’s not hard, but it’s harder than it seems.
The multi-store order and the “try and buy” service require the firm to have a different type of interaction with the stores and delivery people. It means that you will get a delivery person for a whole circuit of activities. This is not the usual cadre of delivery people that are currently hopping from DoorDash to Uber, etc. Both the length of activity and the level of engagement with the customer are quite distinct.
While the initial motivation seems geared primarily towards small designers (along the same lines as Shopify), the same concepts are appealing to any retail brand or shop. In fact, in Israel, many of the stores that are represented on the Ole marketplace are multi-brand shops, representing many of the major brands.
And in fact, some retailers are starting to work with DoorDash on same-day delivery. For example, Macy’s chairman and CEO, Jeff Gennette said this week:
“Our customers want more options, including speed of delivery, and our partnership with DoorDash in 500 stores nationwide means they can take advantage of every option we have available, including same-day delivery, even in the week leading up to Christmas.”
But same-day delivery for mega-chains is vastly different from a tailored marketplace for on-demand fashion, exactly due to the points I made above.
As we have seen before in this newsletter, the unit economics for on-demand is not great. This differs when it comes to fashion. The average order value for Ole is $200 (in terms of GMV). With a commission of 20%, the firm’s revenue per order is $40, even after the $13 per order delivery cost, so there is significant room for profitability.
The firm has been growing with very limited CAC (in fact, it has been zero until now) given the fact that most of these smaller brands have their own following already.
Is there a way of building a scale-based moat?
The firm enjoys both demand-side and supply-side economies of scale.
When I talk about the demand side, I mean significant network effects. In this case, the platform is connecting customers, stores, and drivers. Each stakeholder is better off when the others increase. The more customers you have, the better off the stores and the drivers. The more drivers and stores you have, the more your customer base will grow. And indeed the metrics show exactly that.
But it also has the potential for cost-based economies of scale.
As more orders are placed, Ole can start batching and pooling orders both for the “on-demand” and the “same day” orders. The “on-demand” orders as density increases, and the “same day” orders for customers who live in a wider radius. In fact, one can imagine a mobile fulfillment center that picks out items from stores and then collects them from customers by the end of the day.
The main reason the on-demand economy is not very economical at this point is that it thrives on point-to-point delivery. For example, last week, I placed two orders at the same time from two restaurants very close to each other in SF, with the hope that both would be delivered by the same person. But no. Why? Because DoorDash (even though they promote this feature) was never designed for consolidating orders.
While I like the idea of an on-demand economy, I am usually dubious of its financial viability given the fact that convenience is expensive and the ticket size is very small (given how convenient things are).
I believe Ole is different. The ticket size is higher, which allows you to double down on convenience, changing the way we buy and order fashion, while also saving local retailers on the way.
If you are a reader of this newsletter, you know how passionate I am about these issues: from the gig economy to scaling to supply chain and reverse-logistics. You also know that I truly believe that the only way to combat cheap and convenient, is by being even more convenient. The only way to beat Ultra-Fast Fashion is to be Uber Ultra-Fast (in the original use of the word Uber).
As usual, this is not a concrete opinion, but rather an invitation to an interesting iteration about the way we buy and engage with brands.
I would love to hear your feedback.
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