The Gist: A lot went wrong, apparently.
The Lesson: When a retailer like NastyGal starts telling vendors they want to “hold off” on orders, the iceberg has already been hit.
The Whole Story: Unlike most of the businesses I cover here, the company’s demise was not fueled by a product/market fit issue that developed as the audience evolved. Instead it was a series of business missteps that seemed to have tipped the company over the edge after a golden year in 2014. So, what were their primary sins? As outsiders we can’t have all the answers, but here are some of BoF’s and my own best guesses:
- They decided to operate their own fulfillment centers. The company opened a gigantic, expensive, company-operated fulfillment center even though 3rd party vendors can easily handle those processes without extra cost to the retailer.
- Their main marketing channel was paid advertising. Although paid media is a great component of an overall marketing strategy, it’s usually only effective as the piece de résistance for niche brands with few, unchanging products. Once NastyGal’s inventory outgrew that scope, they also outgrew paid advertising as their main lead-generation source.
- They got the wrong backers. Every startup wants Silicon Valley-level funding, but receiving heavy investment from venture capitalists who are used to the quick, massive scalability of software businesses forced NastyGal to make short-term decisions for quick growth hikes, not long-term success.
- They waited too long to manufacture their own clothing lines. Although there are plenty of businesses that start out with a wholesaler-only model (Stitchfix, for example), many are compelled to begin their own lines to boost margins. Since profitability is not always a concern for software-focused venture capitalists, their backers may have encouraged them too wait too long on this move.
Understand the whole mess and read the article on Business of Fashion.
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