A new commerce model has emerged called curated commerce. This model helps shoppers discover great items that they were not explicitly searching for, and provides superior service by cutting through the clutter of the thousands of items for sale on the web. A customer typically starts by creating a style profile from a series of images and then items are curated and offered to her based on her style.
This model helps surface to shoppers a handful of items likely to delight her, and delivers the feel of high-end personal shopping service that only the wealthiest shoppers can access offline. This model is exciting to ScaleVP because it brings that service level to the mass market on the web by using automation, and often, community, resulting in a large market and attractive margins.
Curated commerce companies also frequently operate a "continuity" , or subscription, service. Each month, members are shown targeted merchandise and given the option of buying that piece, selecting another item, or choosing not to purchase. The continuity model was popularized by the big "…of the Month" clubs, and many execs from those prior companies are now in industry - leading curated commerce companies like BeachMint.
Several Trends Propelling This Model
- Overall increase in ecommerce vs. offline sales: Fashion is now the largest commerce category on the web.
- Curation: With the rise of ecommerce comes a tidal wave of product that is difficult to sort and find what you like. This search on Amazon for "earrings" yields over 375,000 hits. Consumers today look for edited, filtered selections. People can now get the feel and personal care of a boutique with the price and convenience of the web. These new commerce models have proprietary product, a relatively narrow selection, and push specific styles to individual consumers. It makes the choice easier and feels personalized. Several new ecommerce models have emerged that leverage curation, but most have focused on smaller niche markets.
- Continuity models: Subscription or recurring revenue models allow for higher CPAs as the likelihood of a stream of transactions is highly predictable. This model was mastered by Columbia House and Guthy-Renker on television and is now being brought to the web where managing a subscription is easier for consumers than intercepting the monthly postcard on time.
- Celebrity brands: Celebrities are making more money from product deals than their main career in some cases. Jessica Simpson's merchandise sells $750M/year, and the Olsen Twins move over $1B of clothing at price points that range from JCPenney to Barney's. They each make millions of dollars in royalties on those lines. Consumers have developed an intense fascination with celebrities, who have generally taken over the face of fashion magazines from models. Newer magazines like Lucky showcase merchandise and celebrities, not style advice from a fashion editor.
- Private labels. By manufacturing their own products, companies like BeachMint have products that are unique and not available in other retail or online outlets. This reduces price competition and introduces managed scarcity, increasing margins. The same strategy has been used by department stores for the past few years.
Applicability and Attractiveness of the Subscription Model
Companies operating in this space have taken a model that's proven to work in "consumable" categories and put it to use in discretionary fashion and related categories. Furthermore, with web customer acquisition costs being lower, smaller category/product segments (under $100M in revenue) could be profitable. In traditional models, most customer acquisition is via TV infomercials, which have multi-million dollar production costs, so the total subscriber base has to be large to amortize the upfront content cost.
Finally, a big insight has been vetted through this model. Discretionary/vanity consumer products can be viewed as monthly regular purchases by women and women are eager to receive new products relevant to them on a monthly basis. New shoes, shirts, lingerie, bags, earrings and the like are small "feel good" purchases a woman might consistently make for herself, much as she buys skin care, or many of us buy books or music. This continued demand and ability to make monthly purchases will serve to propel this generation of push-commerce business forward in what we believe will be a very big market.
Originally published September 15, 2011.