How Crowdfunding Is Changing the Fashion Business

Historically, an item of clothing was not produced until a customer ordered it.  In an industry that has moved beyond bespoke toward mass offshore production of fast fashion, online retailers Gustin, The Petite Shop, and Before the Label are bringing decision-making back to the customer and production back to the United States for faster turnaround and lower minimums.

All three companies use an “in-house” crowdfunding model for their business – think private Kickstarter for a single designer or retailer. Each apparel or accessory item is listed in its own campaign with its own production minimum. Only if the item gets enough backers is it produced.

Contrast this with the modern-day retail model: Brands design an entire season’s collection of 10-15 styles, do their best to estimate the demand based on wholesale orders or past seasons’ performance, and then produce thousands of pieces abroad. These mass-produced pieces are presented to consumers at inflated prices to account for probable markdowns as time and excess supply devalue them.  

Consumer decisions are motivated by a lot of different factors, and these decisions can potentially serve as powerful catalysts for social change. There is another choice – a choice that is emerging as a win-win-win for the customer, the designer, and where applicable, the retailer.

Related: Beanies, Tees and Steez: How Shaun Neff Built a $100 Million Business Out of His Backpack^[1]

Stephen Powell, co-founder of Gustin^[2], a premium menswear line designed and produced in San Francisco, explains: “We’ve been taught as consumers -- over the last five years in particular -- that things should just show up on our doorstep within days. Immediate gratification. But there’s a new business model for those who are willing to trade a bit more time to get quality, at the same price point you were paying before”.  

In Gustin’s case, that trade is approximately two weeks for the campaign to run and 6-8 weeks for production. In return, the customer gets high-quality, limited-edition American-made goods using exceptional Italian and Japanese fabric, with virtually no wasteful production as every piece is reserved before it is manufactured. All of this is at wholesale prices, as Gustin does not have to factor in the cost of holding inventory - items are shipped as each run is completed.

The Petite Shop^[3] (my company), an online retailer that exclusively sells petite clothing for women 5’ 4” and under, now offers a new crowdfunded feature called Sourcery^[4]. In Sourcery, The Petite Shop works with established and independent designers to offer pieces from their regular lines in petite sizing. This model gives customers an exclusive petite piece from a limited production run, from their favorite designers - many of whom do not normally offer petites.

In addition, it gives the designers a low-risk way of entering the huge petite market (over 47 percent of American women are 5’ 4” and shorter), and the retailer the ability to provide customers more variety in a cost-effective way as they’re not investing in inventory that may or may not sell. Particularly in niche markets like petite apparel where designers have largely neglected the market, this type of approach gives women options they’ve never had before and designers access to new revenue streams. It also serves as a data-driven fashion laboratory in which the designer and retailer can better understand what petite women are seeking in petite sizing in order to guide future offerings.

Related: Why the Gap Between Fashion and Tech Still Exists^[5]

The online showcase Before the Label^[6] gives independent designers a platform for both sales and beta testing – designers get approval to run their designs on the site, and then list them in campaigns ranging from a couple weeks to a couple months. For successful campaigns, production time varies by designer and item, but ranges from just days for a handmade necklace, to a couple of weeks for a small run of dresses. These designers could just as easily run a Kickstarter campaign, but Before the Label’s business model rewards backers with the actual product once a campaign successfully closes, as opposed to the customary thank you card or small gift from Kickstarter, for example. Backing an item on Before the Label is not an investment in a product that may not be produced; this is authorizing your purchase if the minimum is met. Using this model, designers can begin building their business and customer base from the time they launch their campaign.

Crowdfunding technology has allowed this leaner, lower-risk collaborative retail model to emerge. As domestic manufacturing responds, and retailers and designers are able to offer an increasingly wider range of clothing options, the quality and cost benefits will outweigh the slightly longer purchase timeline. Throughout this evolution, consumers will help guide the future of crowdfunding and domestic manufacturing with each purchase decision. 

Related: How Russell Simmons Plans to Style and Inspire Millennials Through Fashion^[7]

References

1. ^{^} Beanies, Tees and Steez: How Shaun Neff Built a $100 Million Business Out of His Backpack (www.entrepreneur.com)
2. ^{^} Gustin (www.weargustin.com)
3. ^{^} The Petite Shop (thepetiteshop.com)
4. ^{^} Sourcery (thepetiteshop.com)
5. ^{^} Why the Gap Between Fashion and Tech Still Exists (www.entrepreneur.com)
6. ^{^} Before the Label (www.beforethelabel.com)
7. ^{^} How Russell Simmons Plans to Style and Inspire Millennials Through Fashion (www.entrepreneur.com)