Why E-Commerce Works
I helped Jess research a piece for the Dobbin blog, about why they chose to launch their fashion line as e-commerce only, rather than selling through department stores and boutiques. I’m cross-posting it here as it’s a great illustration of the power of disintermediation; in almost any industry, leveraging the power of the web to cut out middle-men leads to happier customers getting better stuff at better prices while companies make more money in the process. It’s something I’ve long appreciated in theory, but was struck by anew after diving through chain retailers’ annual 10-k’s, and calculating how little of the price of a piece of clothing actually goes into making that clothing in a traditional business model.
Behind the Scenes Dobbin: Why We Sell Online Only
When we launched Dobbin, we decided to sell our line exclusively via e-commerce. In many ways, it would have been easier for us to sell through boutiques and department stores. We wouldn’t have had to worry as much about finding customers, or take on the financial risk of producing clothing without a known buyer. But had we sold through a retailer, they would have needed to mark up our Dobbin pieces 2.3-2.5 times from what they are listed as on our site today, so that they could make a profit.
We decided to go the harder route of selling via e-commerce because we wanted to produce the best, highest quality goods we could, without charging customers $300-$500. We wanted to keep prices at or below a fair $200 for luxury clothing, and we wanted to be in direct touch with our customers so that we could learn about what worked and what didn’t for women all over the country.
These lower prices mean that that we’re spending a higher percentage of the price on fabric and the fit process, while taking a lower profit margin than many of our peers. We feel it’s worth it long term, as we think we can grow more by give our customers real value than by simply maximizing short-term profits.
Recently, we pored through the public financial filings of a major womenswear brand, to figure out what percentage of their dresses’ prices were actually paying for the dresses, and what percentage was covering overhead like store rents, sales staffs, and large corporate infrastructures. Here’s what we discovered.
Consider our Belle Ponte Dress (on the left), and a similar-looking ponte dress the chain store sells (on the right):
The dresses are priced equivalently, yet Dobbin puts more than five times as much of that purchase price into the dress itself.
Not surprisingly, the Dobbin dress is much higher quality than the chain store dress – we use the best fabric available on the market (ours is typically $18-$30/yd where theirs is typically $3-$8/yd), has a better fit (we spend more time and money fitting our pieces locally as opposed to outsourcing the design and fit process to overseas factories), and has better construction (we produce locally in the same NYC factories as Thakoon, Rachel Roy and Theory, while theirs is produced overseas). Still, despite the smaller investment in the product itself, the chain store needs to mark up the price of their dress by more than $100 to cover their pricy overhead.
By the same token, consider dresses that are priced much lower than ours at discount chains and mass retailers. Those retailers typically use incredibly inexpensive fabric (under $5/yd), outsource the fit process and sewing overseas (often getting sub-par fit and construction as a result), yet still mark their goods up quite a bit (even on a dress that’s $50 or less) meaning that you’re getting even less for your money.
Of course, some other high-end womenswear brands use the same luxury fabrics that Dobbin does, shopping at the same Italian mills. They even manufacture side-by-side with Dobbin in the same New York factories.
Consider again our Belle Ponte Dress (left), and a similar designer ponte dress (right):
In this case, the other high-end designer’s dress is equally well made – the same fabrics, the same factories. But the difference in price is large — our dress is $168 versus their dress at $425. Like the chain store dress, we just don’t think you get what you pay for here.
The difference in retail price occurs in the wholesale process. When high-end designers sell their designs to department stores and to boutiques, they sell them at a wholesale price. This wholesale price provides the designer with a small profit margin above the cost of the goods. Again, we’re similar to these designers here; we make a small profit above the cost of the goods. But things change when stores buy wholesale goods. Department stores and boutiques take the wholesale price and mark it up the aforementioned 2.3 to 2.5 times BEYOND the wholesale price. So now, the consumer is paying for both the designer’s overhead and markup AND the retailer’s overhead and markup. We don’t think that’s fair and that’s why we chose to avoid the wholesale path.
Launching a new fashion brand is tough; launching it online only is even tougher. We don’t have the same exposure as a brand sold as stores all over the country or as a mass/chain retailer with hundreds or thousands of stores. But we believe that selling directly via e-commerce is a worthy approach to take. We are dedicated to providing our customers with higher quality designs, luxury fabrics, better fit, and made in the USA production at fair prices that don’t include huge markup. If you have any questions about this post, we’d love to chat. Email us anytime at firstname.lastname@example.org.
So there you have it. I think this is pretty awesome, and not just because my wife is CEO. While I don’t wear the line myself [in public], they’ve received amazingly positive feedback from a slew of women who do, and a large percentage of their customers in these first two seasons have even already come back to place additional orders. If you’re curious, it seems that the clothes really do speak for themselves, and they offer free shipping both ways so you can give them a try.