Monday, November 19, 2012
Creating the 21st-Century Fashion Brand, with Brett Markinson, Sole Society
Story by Benjamin F. Kuo
One of the fastest growing startups in Southern California in recent years was Hautelook, which went from just an ideas to a huge, $270M acquisition by Nordstrom only X years later. Hautelook was able to help define--and conquer--the online flash sales category, in record time. One of the founders of Hautelook, Brett Markinson, is now head of Sole Society (www.solesociety.com), which is looking to define the next generation of fashion-and-ecommerce brands. We caught up with Brett to understand how Sole Society spun out of Hautelook and Nordstrom, what the vision for the company is, and how he's applying what he learned making Hautelook one of the fastest growing companies here to the new company.
Tell us a little bit about your background?
Brett Markinson: The best place to start, is I'm a serial entrepreneur. I've never had a proper job, and have been on one gear, building businesses, for a very long time. I went to school at Babson, back East, and majored in finance and entrepreneurial studies. I moved out to California to build businesses. I started in media technology, and built a number of companies, which I was able to build out and get the ball rolling, in digital, nonlinear editing and special effects technology in Hollywood. Those efforts met with early success, as a result of being in the right place, and at the right time. As an entrepreneur, I'm drawn to disruptive dynamics and business opportunities, and to the sea change enabled by technology driven disruption. I've been doing that for 25 years. I've been engaged in about thirty startups, anywhere from in incubators, being an angel investor, to leading the charge. I've been over the finish line five times, and one is TBD right now, which is Sole Society.
Your last success was Hautelook, wasn't it?
Brett Markinson: Yes, the last one I got over the finish line was Hautelook, here in Southern California, and one of the leading pioneers in the flash/ecommerce fashion space. We sold that about a year and a half ago to Nordstrom, for approximately $270M dollars. It was a fantastic outcome, with great partners. We were in the right place, at the right time, and had a great tail wind. As a result, I had great visibility into what I would call the developing sea change in the traditional fashion supply chain. Hautelook disintermediated the off-price part of the segment. Subsequently, what I saw happening, and where I see a huge opportunity, is how the Internet is transforming the mindset and behavior of consumers. A consumer is now integrating online into almost everything in their daily life, and that's particularly connected to their spending. The way they interface with brands and retailers has just begun to change, and it will continue to change. As an entrepreneur, I see an opportunity and a significant amount of disruptive potential as a result of the way consumer's mindset and behavior and consumption is changing.
What do you see happening there?
Brett Markinson: You can take a step back, and look at some of the large scale, macro, dynamics happening. You see, first and foremost, a cultural change in the way people are thinking about the world. Value is now politically correct, and value is chic. What is value? It's the relationship between price and quality. The opportunity to pursue value has become exponentially easier with tools like the Internet, because of real time communications, validation capability, enabled by mobile and social infrastructure. Value is becoming the new thing, and the web gives the ability for people to share value and other sides to discovery value. This is a new medium through which consumers validate brands, and where brands are in a position to have a direct relationship with the customer. That means that they are not necessarily subject to a retailer telling a brand's story. A brand not only has an opportunity to tell a story and can tell it to the customer, it also has an interactive relationship and feedback loop with that customer. As a result, they can evolve and grow, as a brand has never evolved and grown before. Simultaneously to that, the brand now has the ability to directly communicate with, and sell to, the customer. A brand can now sell the product to the customer, at the same price, if not a little more than the brand was selling to the retailer.
In the old way of doing business, a brand had to come up with a message, linearly project it through repetition to establish the brand, and depend on the retailer to continue delivering that message to retail. They're disconnect from a customer, so that they are not in a position to see feedback and adjust their messaging, positioning, and brand. At the same time, a consumer is forced to pay two times the markup as a result of the requirements of retailers to markup the product. That's something that a disruptive guy like me salivated over.
What's the opportunity you see?
Brett Markinson: The environment now gives us a new medium, where you can create a new relationship between a brand, the customer, and retailer. That means new economics, and new ways to build, evolve, and grow a brand. This is absolutely front and center for the fashion and lifestyle space, which is all about the creation of aspirational brands. Fashion and lifestyle products are aspirational. People want to buy things because they want them, not because they need them. They're not utility-based products. There's nothing more important to a brand, than to build aspirations. That's something that's in the DNA of the Internet. It's the ultimate fertile ground to build an aspirational brand, and at the same time, a consumer can benefit not only in having a direct relationship with the brand, but you can also have a direct relationship in the form of consumption and ability to buy products, which have the level of quality and level of aspiration directly from the brand, sidestepping traditional retail markets.
How did Sole Society come out of all of this?
Brett Markinson: Sole Society was a skunkworks project point at this disruption, and was inside of Hautelook at the time I was building that company with my partner. When we sold to Nordstrom, everything was included. Nine months later, Nordstrom began integrating that into their business supply chain, and decided to shut down the skunkworks projects. At the time, I suggested that we sit down, because there was a huge trend developing, the direct to consumer trend. Companies like Warby Parker have been tapping into it, and the value proposition was self evident. The brand and high impact category of shoes, which was sitting inside of HauteLook, and which they were thinking of shutting down, plays incredibly nice into the evolution of the space. We sat down, and they were in adamant agreement that this is the future. They're a 12 billion juggernaut, with great visibility into disruptive dynamics. They were super excited about the opportunity, and wanted to figure out how to make it happen. I said to them, it gets even better. They said--what do you mean? My response was, look, the direct-to-consumer ethos I have described is the foundation of the next generation opportunity. That's what is really going to be the big opportunity of the future.
It's not just Warby Parker and going direct to consumer--that's powerful, and that's what's coming--but if you take a step back, and take off your myopic, Internet hat thinking, a consumer product brand is a consumer product brand because it resonated with consumers. However, consumers only buy fiteen percent of their lifestyle fashions on the Internet. 85 percent is still being purchased at stores. They still want to compare products, and to have that tactile experience available to them. Women are drivers of this consumerism. Location-based entertainment is shopping. That's not going away. Thinking it's just about the Internet is a myopic, single point of way to think about it. We're building a brand that we need to bring to the people, and where we need to leverage the ethos of the Internet, the DNA of the Internet, and the direct relationship with the customer. But, realizing only 15 percent of shopping happens online, and 85 percent offline, the reality is, if you want to build a 21st century brand, you have to leverage the ethos of direct-to-consumer relationships via the Internet, and at the same time, have a presence at retail. Because you have that direct-to-consumer relationship, it creates a different, economic relationship between a retailer and a customer, where the retailer can be more of a showroom, where the customer can learn about the brand, touch the brand, compare the brand, and see the value relative to others. But, we can competitively position the same product, the same fashion, in the same context, at a significantly lower price. That's because you don't need to make as much as through a traditional wholesaler when it's not your primary channel, and where it's your marketing showroom. It's about brand building, and validating the customer, and being a customer acquisition channel you don't have to pay for, and which is still accretive, and where you're making margin, but not just as much as traditional wholesale. You end up with abetter-than-traditional, wholesale blended margin, because you have a different relationship with the customer.
How did all the investors come together?
Brett Markinson: Nordstrom was super excited, and I was super excited about the opportunity, so I brought our old VC who backed Hautelook into the deal. We wanted to make sure our product was the best possible product we could deliver, in a highly scalable, high quality way. So, we brought in another investor, Vince Camuto, who invested in the business along with myself, Insight Ventures, and Nordstrom. Vince had built Nine West, which he sold successfully. As a result of the partnership, we now have the best shoe design manufacturer, the best retailer with the largest fashion footprint, and an entrepreneur who knows how to build and e-commerce company, and we're now embarking on a journey where we are working to develop the twenty-first century archetype of how brands are being built and produced. The whole thing is super, duper exciting, and it's all built in Southern California, and all an outgrowth of the experience with Hautelook and what we learned there. We have a blue chip partnership with fantastic, highly invested partners, that collectively, have the experience, credibility, resources, and access to figure out how to build this evolution in the relationship of brands, customers, and retailers.
What was the thinking to target shoes as a category first? Was there a reason?
Brett Markinson: Shoes are a high passion category for women, and shoes are probably one of the most frequent purchases for women. As a result of being both high frequency and high fashion, they have a fantastic capacity for the distribution of the message around value acquisition. When a girl finds a great deal on a pair of shoes, you tell your friends. Lastly, the thing we love about shoes, is there is a high level of ubiquity around fit, versus other high passion, high frequency fashion purchases. If you look at a woman's closet, they have the most variety in shoes. The next is probably something like a blouse or denim. But, those things are, in my individual opinion, not as Internet-friendly because of the unique dynamics around fit.
Finally, HauteLook went from startup to acquisition in record time -- not to mention, zero revenues to significant revenues. What enabled you to have such fast growth there?
Brett Markinson: I think it really comes down to being in the right place, at the right time. I've been doing this for a long time, and it comes down to timing. Like lots of things in life, it comes down to timing. I think the primary reason for the velocity is timing, and the second, most important ingredient was vision. We were able to have a very clear vision of the end point, and what the potential was. There's an old adage, which is you need to begin with the end in mind. That couldn't be more true in building a business, so that you have a good and healthy appreciation for where you are, what you are doing, and what you are trying to achieve. You have to have a vision that you can rally your troops around to get there. The third ingredient is focus, that that is very hard, and a challenging thing for young startups to be able to maintain. One of the reasons, is that as a young startup, you're working so quickly, opportunities are presenting themselves to you, and the idea of distraction is something very easy to fall victim to.
What I try to share with young entrepreneurs, when they ask for advice, is even though they might think that putting more irons into the fire will increase your probability for success, thinking that if you're doing ten things one might hit, nothing could be further from the truth. Winning in a game like business, especially in a fast, moving environment like the Internet, is it requires such focus that it's painful to maintain. It's very easy to lose sight of the prize, and to get nervous about your ability to acquire the prize. Often, startups will respond to that concern by distributing their bets over multiple initiatives, which just dilus their focus. My experience is you need to make a bet, and focus all of your energy on it. Don't make a bet, get nervous, and start hedging and diluting that focus. All that does is reduce your probability of success. I think that experience and history has taught me that you need to focus towards the end goal, and that's the key ingredient. We didn't get greedy, and we didn't try to be more than what we were, and didn't start hedging our bets in eighteen different directions.
Again, it's really about being in the right time and the right place, beginning with the end in mind, knowing what we're good at and not good at, and having the discipline and experience to stay incredibly focused, those are the three critical ingredients that enabled us to be able to ride the tide at the velocity the tide was going, and to be focused enough to get in and get out quickly, without any turbulence getting in our way.