Dragon’s tailor make a deal, but hope they’ve kept the receipt in case of return

The business model that Enclothed use is that a man signs up to their service and after answering a batch of questions about size, fashion style, colours etc the data is fed into a fashion led algorithm and that data then goes to a batch of personal shoppers to humanise the selection process and they select clothes fit the criteria for the shopper.

I like the basic premise of the business model and, whilst I actually love clothes shopping, have been signed up with Enclothed’s rival Thread for over six months.

Kasia, my Thread personal shoppers advice has seen me buy a number of items, some of which I would not have sought out if I were unaided in my purchase choices.

However, here is where Thread and Enclothed’s business models differ, and why I think that Hoppen & Linney could be come unstuck when Enclothed’s warehouse staff start to drown in returned selections, and why whilst we make investments in fashion and technology companies and completely understand and embrace the concept, throwing out traditional retail stock management could be Enclothed’s downfall.

The Thread business model sees users receive an email with a virtual display rail of about 8 capsule options. So a few work day choices, a date one, a weekend and a smart outfit. Here is one that was selected for me.

richard-alvin-thread-option

 

As you see there are five separate items which go towards making up the look identified. I like this look, and might be tempted by some of them, but I have white shirts a plenty and also fitted suits so wouldn’t be looking to buy any more thank you but might choose most of the other items to take a look at. But I am the final decision maker in the in what is actually sent to me as I have to accept and proactively select. However Enclothed would send me the entire section for me to keep or return the items I don’t want.

Enclothed’s founders Levi Young and Dana Zingher quote a return rate of 70 per cent and that the company operate on a standard 60 per cent margin. By comparison a normal online retailer with a traditional shopping cart business model would see returns of around 27 per cent and an established company could be looking at margins approaching 300 per cent.

With a free delivery and return model when 7o per cent of your items come back this means that as you scale your stock management will be hideous to try and manage and post costs could very, very quickly spiral out of control and with only 60 per cent margin added to the traditional, albeit far lower, costs of running a retail outlet Enclothed could very quickly run out of money.

There is also the environment impact to sending goods to men who haven’t actually specifically ordered them and seeing 70 per cent coming straight back and there is also the potential problems that the time poor users of Enclothed don’t return the items within the allotted time and find themselves having keep and pay for a shirt or suit that they will never wear as they already have identical ones potentially creating a lack of goodwill amongst their target market base.

With a refined business model and an enhanced profile from Kelly Hoppen’s and Piers Linnley’s involvement Enclothed could well be onto something if they can secure the right stock and their algorithm secures high sales volumes and good strong margins, but when you are going to be potentially handing a huge slice of your operating profits to Postman Pat as you scale up your catwalk will not be paved with success or longevity and like Peter Jones I would have declared myself out.

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About Richard Alvin

Richard Alvin is founder of private equity company Audere Capital which has a number of investments across the media and fashion sectors. Entrepreneur of the year in 2014 Richard is also Group MD of Capital Business Media and director of award winning PR company Brighter Comms, he is regarded as one of the UK's leading experts in the SME sector and an active angel investor and advisor to new start companies in addition to being an advisor to Save Our Business the U.S. based business advice television show.