How tech startups are taking the fashion runway by storm

The UpTake: Jess Lee left a great job at Google to lead fashion startup Polyvore. She’s just one of the upstarts looking to remake fashion in the high-tech image.

Around 2008, Jess Lee had a job most in the Silicon Valley would kill for. As a product manager at Google Inc., Lee was working in its strategically important maps division on some of the company’s most interesting products.

So when a friend at Google turned her on to a new fashion startup, Polyvore, she wasn’t looking for a new job.

“I just fell in love with it,” Lee said of Polyvore. “I sent a note to the founders, just outlining what I liked and didn’t about it. And they ended up hiring me as the first product manager.”

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The growth of Polyvore Inc., which enables users to create and share their own custom fashion spreads on the Web, illustrates a critical point. When you create a fashion product with a personal connection, it draws people in. And Polyvore is not alone in that realization.

In the past few years, fashion tech has gone ultrapersonal, using technologies like mobile, Big Data and social media to wrestle a piece of the $1.2 trillion global fashion industry away from brick-and-mortar stores and big online storefront incumbents like Zappos and Amazon.com Inc.

Lee, who became Polyvore’s CEO in 2012, said that focus on users is still part of the company. Polyvore keeps a wall of customer letters and feedback in a prominent place in its office to remind employees who they’re designing for.

“Fashion isn’t a normal tech problem,” she said. “It’s not a search problem. It’s about taste, very personal taste.”

Polyvore solves the taste problem by harnessing users’ creativity: They design and share fashion spreads while Polyvore gathers data on how they use the site.

This gives the company insight into what users like — the brands they’re into, the styles they put together — that Lee says forms a “taste graph” analogous to the “social graph” that Facebook has successfully monetized by selling custom ads.

Polyvore currently makes most of its money through affiliate advertising — every item of clothing on the site links back to a page where the user can buy it, and Polyvore earns an affiliate fee if its link leads to a sale. It also gets money from native advertising.

Polyvore’s approach is working, at least in terms of audience growth. With about 20 million monthly unique visitors, it’s the largest online community dedicated to fashion.

The company declined to share revenue or profit numbers, but it is outperforming its competition, Pinterest, on a key metric. The average purchase arising from a Polyvore visit is worth about $220, while Pinterest’s average purchase totals about $160, the companies have reported. Polyvore has also been profitable since 2011, whereas Pinterest has yet to generate revenue despite its $3.8 billion valuation.

Startups are proliferating in fashion because it’s too big for e-retailers to ignore. U.S. consumers alone spend about $250 billion on clothing each year, according to Hoovers.

And while e-commerce has taken over many industries — think books and music — fashion has lagged. According to the research firm eMarketer, only about 20 percent of all U.S. clothing purchases will be made online by 2016. That’s compared to the roughly 63 percent of U.S. retail sales Forrester says are already made all or in part online.

But launching a fashion startup in Silicon Valley is risky. Fashion is not your typical tech startup, and founders ignore that at their peril, said Patricia Nakache, a partner at the Menlo Park, California-based venture firm Trinity Ventures.

Nakache, an active investor in e-commerce, has backed some of the hottest startups in the fashion-tech business, including Zulily, a Seattle-based baby apparel and accessory site that raised $253 million when it went public in 2013, one of the highest-profile exits for the industry.

The biggest difference, Nakache said, is the logistical hurdle of dealing with inventory from a complex supply chain, as well as the inevitable issue of how to handle returns — something that’s deceptively difficult for entrepreneurs with software backgrounds who expect to solve problems with all-night hackathons.

“If a startup pitches me and they haven’t thought about managing inventory, that’s a red flag,” Nakache said. “It means they don’t really understand the business they’re getting into.”

Another issue — if you want to elbow into the fashion industry with technology, then make sure your technology is actually useful to paying customers, Nakache said.

A startup is competing with the in-store experience, and the in-store experience offers at least one advantage that’s hard to replicate online — the ability to try on clothes before you buy them. So you need to offer an experience customers can’t get otherwise, she said.

Take Weddington Way Inc., a San Francisco startup Nakache invested in that has raised about $2.5 million. The site sells bridesmaids’ dresses and bridal party accessories, and has sold about 15,000 dresses, registered a half-million brides and sold merchandise to 10,000 wedding parties.

Rather than treating each dress as a single transaction, Weddington is based around the idea that choosing clothing for a wedding party is akin to a collaborative project. It incorporates features more commonly seen in project management software than an e-commerce platform — a private showroom and chat program to let the wedding party collaborate and discuss options.

The ability to tailor the experience is one of the great advantages provided by e-commerce — everyone walks into the same store, but an e-commerce site can change to meet the user, said Weddington founder and CEO Ilana Stern.

Another example is the lingerie market, dominated by a few big players. Victoria’s Secret, the largest by far, controls upwards of 30 percent, according to NPD Group.

To compete as a newcomer, San Francisco lingerie company True Co. uses the natural advantage of an e-commerce platform – in this case, being able to gather more data about a customer’s needs and preferences — to deliver a better experience, said founder Michelle Lam.

“We have data on over 6,000 different body types, which means we’re able to deliver 6,000 different shopping experiences tailored to each user,” she said. “Every woman wants to be treated like an individual, especially when it comes to this product category. It’s more emotional, and the more emotional a product is, the more opportunity there is to create a dialogue.”

True Co. has raised about $6 million so far.

Another gamechanger for startups: Mobile. Manish Chandra is founder and CEO of Poshmark, a Menlo Park mobile app company that matches buyers with sellers of used clothing. Chandra attributes the success of his company, which sells more than a million items a year and has raised about $15.5 million in funding, to a focus on mobile.

Mobile removes friction from the buying process, Chandra said. Customers no longer have to be in the store or in front of their computers. In the future, Chandra said retail will mean discovering new products anywhere, buying them anywhere, and having them delivered anywhere. That means the brands of the future will be the ones that are most able to integrate themselves into a consumer’s life — something retailers in other industries could learn from fashion, he said.

“The winners in the future are going to be the ones that can create transcendental relationships with consumers,” Chandra said.

Ultimately, the winners are consumers, Polyvore’s Lee said. Fashion-tech is creating an industry that’s more beholden to their needs than the elitist fashion world of the past.

“Fashion is ripe for disruption,” she said. “Because a lot of the ways things are done now — fashion-of-the-week shows, buyers, very powerful editors in major fashion capitals — these were the ways that trends were distributed, and they weren’t very democratic. But the Internet democratizes everything.”