‘Fixing’ Fashion Retail
SAN FRANCISCO, United States — Michael Preysman was a 25-year-old with dual degrees in computer engineering and economics, and some experience in private equity, when he realised fashion retail was broken. The high overhead costs of operating physical stores, plus the markups applied by traditional distributors like department stores and boutiques, meant that, by the time goods got to consumers, basic items like t-shirts were being priced up to eight times more than what they cost to make.
But the Internet offered a solution and Preysman, who describes himself as “a big fixer,” set about building a fashion label for today’s digital world where, armed with e-commerce and social media, he could bypass traditional middlemen and sell straight to consumers online, keeping margins high and prices low. The result was Everlane, an online-only brand that began in San Francisco, in 2011, by selling high-quality t-shirts with a minimalist aesthetic at a fraction of the cost of other retailers.
To dramatise its approach and engage consumers, Everlane embraced the notion of “radical transparency,” disclosing on its website exactly how much each of its products cost the company to make — breaking out figures for materials, hardware, labour, duties and transport — alongside Everlane’s price and what these products would likely cost at “traditional” retailers. The company was also transparent about the specific factories where each of its items were manufactured.
Everlane has no stores, no advertising and no discounts. (Just before the holidays, Everlane held its first sale, but characterised this as a one-off.) With no seasonal collections, the company has also taken an unconventional approach to product category expansion, iterating its line — which now includes pared-back shirts, sweaters, pants, dresses, outerwear, small leather goods, bags and footwear — one product at a time.
Every strategic decision starts with a test.
Last year, Everlane appointed former Gap creative director Rebekka Bay as the company’s head of product and design. (Before Gap, Bay was the creative director of the minimalist label Cos, which she conceived and developed for parent company H&M.) Everlane declined to disclose current revenue figures, but according to market sources, the company — which, to date, has raised a total of $18 million from investors including Lerer Hippeau Ventures, Maveron and 14W — generated about $50 million in 2015 and expects to hit $100 million this year.
Amidst reports that Everlane is seeking new investment at a valuation “north of $250 million,” BoF’s Vikram Alexei Kansara spoke to founder and chief executive Michael Preysman about building a direct-to-consumer fashion label for the digital age, his iterative strategy, plans for growth and working with Rebekka Bay to turn the company’s brand values into a discernable design signature.
BoF: You were 25 years old, with a background in computer science and economics and some experience in private equity, when you founded Everlane. What drove you to take the plunge and launch a fashion company?
MP: I’ve always loved the idea of building things. Since I was a kid building toys, constructing things has always been in my nature. I did that all through college, starting different clubs and small businesses. Then, after a few years of working, I was like, if I don’t ever take that plunge, I’ll be 40 years old and regret it forever. I grew up on the West Coast, where there is a spirit of entrepreneurialism. If you’re not doing something or taking a risk, it’s sort of like, ‘Why wouldn’t you?’
I did study engineering and economics, but I’d always had a passion for photography and design and branding and storytelling — and I also liked fixing things. I’m a big fixer. I was looking at the retail industry and realising that a basic high-end t-shirt costs about $7.50 to make, but sells for about $50. It was like, ‘Holy shit, there’s a real discrepancy there.’ I understand why that’s the case, because of all the retail markups and the way the whole system works. But I saw this opportunity to say, ‘Hey, the world is totally different today than when many fashion brands were born. We can go direct to the customer online.’ Why don’t we build a brand and build a proposition around that, where we can take that $50 t-shirt and sell it for $15.
BoF: Many young fashion brands struggle to bypass department stores and boutiques, which come with built-in audiences. How did Everlane make it work?
MP: So I think it was a bit of right timing, right product and all of that. But Instagram is like a big department store, in some ways. You see people mention a brand you’ve never heard of and, as a brand, you may start off with five followers, but those people have friends in their network, so maybe 10 people discover you, then 20 people, 40 people, 80 people. But then, you have to take those customers, say 100 of them, and engage them with your own content for them to share with other folks. I think it’s pretty organic. But there’s a lot more required of a brand than social media. You need to have good website and really market through all of the different channels and find a way to re-engage your customer on a regular basis. That’s what Everlane has done really, really well. You have to give them new things weekly, monthly, whatever it is. You have to re-engage the customer all the time.
BoF: How important was having a story around “radical transparency”?
MP: I think it’s super important to have a differentiating point of view. But we didn’t have this notion of “radical transparency” straight out of the gate. It emerged from helping customers understand who we were and why we were doing things in a certain way. We said, ‘Hey, we’re making a t-shirt that normally sells for $50 and we’re going to sell it for $15.’ But how do you actually explain that to customers in a way they get? How do you get them to understand that it’s a really high quality t-shirt and not a t-shirt that cost us $3 to make. So, we thought we’ve got nothing to hide. Why don’t we just tell people exactly what it costs us to make, which was sort of a radical idea. If you buy from Apple or a grocery store, they never tell you what things cost to make, they just tell you what to pay. But from our perspective, it was like, ‘Hey, people are mature enough. People understand that you have to make a profit, so why don’t we just tell them?’ So we started with transparency on pricing.
Initially, we were made in the US and we still make our t-shirts in the US, but it’s hard to scale production in the US, so we started looking at China and there was still some stigma around that from the ‘90s and all these sweatshop stories. But when we went there, we were like, ‘Wow, this is actually much better than we expected.’ In many cases, it was much better than in the US. I mean, China now has a lot of very strict labour standards. But, most importantly, it’s pretty much an employees’ market. So we said, ‘We understand it, but how do we get our customer to understand it?’ That’s how the idea of transparency around factories was born.
BoF: There are several other unusual elements to your business model. No seasonal collections, for example. You’re introducing products one by one. Why?
MP: Everlane really started with this idea that if you had a blank slate, how would you do it? Our blank slate was ‘Why don’t we create that t-shirt at an affordable price point?’ Well, if we want to do that, we can’t have an entire selection, we really need to focus on a t-shirt and do that well. Plus, we need volume, because we’re a small brand, so we need to just do one thing and have volume against that, instead of being spread across 20 things. So we started with a t-shirt and then we were like, ‘Okay, the t-shirt is working, why don’t we add another product?’ And, so, out of that was born this idea of not doing collections, not being fashion focused, but really trying to create the best products possible, one at a time.
BoF: How do you create desire and urgency around simple basics like t-shirts?
MP: I think the notion of a product where you know you’re going to get great quality, you know the price is going to be good and you know the company is incredibly honest and transparent about everything that happens is something that’s very refreshing. And so, for sure, basics are hard to create an idea around, but I think there’s much more to Everlane than just product — it’s a mission. I think there’s a spiritual lifestyle alignment that people have with what we’re doing, which makes the product in someway much more relevant to their lives than just a basic t-shirt.
BoF: How are you turning this mission into a discernable design signature? How are you embedding these values into the aesthetic of the product?
MP: It’s kind of like, ‘Hey, if you were to live in a design-driven, but very simple, minimalist way that doesn’t impact the world and moves things forward, what would that look like?’ So our aesthetic is pared down and minimal. And I think that idea is quite aspirational. We really focus on materials and not adding frills.
BoF: You recently made a big hire, appointing Rebekka Bay head of product and design. Tell me a bit about that decision and how she is evolving the product.
MP: You know, I’m a bit of a fashion industry outsider. I love product, but I’m not a designer. And in a lot of ways, the brand was a couple of steps ahead of the product. We had our core tenets, but we weren’t really able to manifest them from a design perspective, so bringing in Rebekka was about bringing the product up to speed with the brand and aligning the ethos and the aesthetic together as one.
She’s very much aligned with the way we think about things from a quality and fit perspective. It’s this idea of definitive pieces that you’re going to keep for a long time and, then, once in a while, you throw in fashion elements — we call it the fun moments in your wardrobe. Things that add spark to your life. I think that’s really important. So, of course, we have basics, but we also have just nice beautiful things. Just nice beautiful things are really an important part of life. So we’re sort of complimenting our basics with a bit of that. Rebekka has brought that to Everlane.
BoF: Last fall, you launched a higher-end line. What was the impetus for that and what were the results?
MP: It did well. The impetus was trying to experiment and move into higher quality materials where we could, though we found a lot of fabrics that we loved and then incorporated them into our mainline. Part of it was an experiment in new fabrics and part of it was an experiment in shape. We wanted to test whether we could accelerate shape and body in a way that was more forward and see the reaction. It was definitely a moment of learning. I wouldn’t call it a permanent strategy.
BoF: You also take a “test-and-learn” approach to new product categories.
MP: Our real focus is how do we have as few styles as possible and have the most productive ones, so we can really be true to our mission of minimalism and quality and product and improve on what we have. So, when I think about new categories, sometimes they start as little tests and sometimes they’re strategic decisions, but, to be honest, every strategic decision starts with a test.
Something like footwear started with one shoe. I mean, our belief has always been that we work with our customers to make products better. It’s hard to just make a big jump and assume it will work. So, we’ve really taken the approach that, let’s say we’re going into shoes, we launch with a sandal, something super easy. We’ll see how that sandal does, we’ll get feedback from our customers and then, from there, we’ll say, ‘Okay there’s some popularity, people seem to be interested in shoes from Everlane.’ So, then, maybe we’ll move the production of the sandal to Italy and then from that sandal comes a loafer and, if that does well, we continue to iterate and improve the loafer, but also launch new products. So it’s a very iterative strategy. It’s this idea of starting small and seeing how it works versus taking major risks.
BoF: What other product categories are you looking at?
MP: We’re continuing down the footwear path. But I think if you look at Everlane, we’re really strong in tops. We have a long way to go in bottoms and outerwear.
BoF: I want to talk a little bit about stores. We’ve seen similar Internet-born brands like Bonobos and Warby Parker launch physical showrooms tied to online inventory that have been highly productive, as well as powerful brand and a service experiences. Will Everlane remain online-only forever?
MP: I think I was quoted once as saying that I would shut the company down before I ever opened up a store.
BoF: Is that still the case?
MP: I don’t know if I would shut the company down for anything. But I definitely think we’re not quite ready to go there yet. We do a lot of offline events — like our little open studios — and we’re sort of sticking to that. Is there a store in the future? Not at this time. We spend a lot more time thinking about new product categories than distribution, because, to date, that has been the way Everlane has built itself.
BoF: Why no advertising?
MP: We’ve done a bit of it before, but we don’t typically do it because it’s expensive. But I think that great advertising can go a long way in helping people understand what the product is, creating an emotion and a conscience for the brand.
BoF: You have a no discounting policy. But I understand that just before the last holiday season, you had an unusual pay-what-you-want sale. What prompted this?
MP: You can call it a sale, or you can say here is this surplus inventory and here’s our cost and you choose what to pay us. This was very different than a typical sale, which is a way of marketing to customers. A lot of people basically mark up products to then mark them down, because they don’t know what styles are going to work and they want to get customers who are sale customers and they want to get full-priced customers. Our approach is not changing here. We have no interest in doing that.
BoF: Has Everlane has crossed over into profitability?
MP: This year or next year. It all depends on how much we want to reinvest in growth, but it will be no later than the next couple of years.
BoF: Do you see yourself raising another round of funding?
MP: Whatever is public is public, but we’re not speaking about it.
BoF: How are you planning to scale the business from here?
MP: There’s a lot of product that we still haven’t done. It’s launching new products and reaching new people. I think the best thing we do is talk to our customers and say, ‘Hey, it benefits us the more you talk about us, the less we have to spend on marketing, so tell your friends, tell everyone, so we can all benefit together.’
BoF: Where do you see Everlane in two to three years time?
MP: I don’t think too much about the two or three year horizon, I think about the long run. I think we want to create a mission-driven designer brand that’s relevant to the entrepreneurial-spirited person who wants to make the world a better place and is looking for a place to specifically go and buy good quality and well-fitted designer basics. I think we’ve achieved this for a few hundred thousand people, but this is a 20- to 40-year journey and we’re only five years in. Where we could we be in 30 years? I hope we can be somewhere meaningful. That’s definitely our plan.
This interview has been edited and condensed.