Q&A   //   July 29, 2019

TechStyle CEO Adam Goldenberg: ‘We want to build, not buy brands’

TechStyle is building a modern house of fashion brands on top of a proprietary tech platform, which serves as the engine powering the digitally native retail company.

TechStyle, which owns JustFab, FabKids, Shoedazzle and Fabletics, and partly owns Rihanna’s Savage x Fenty lingerie label through a joint venture, launched nine years ago with a VIP membership e-commerce model, which charges customers a monthly fee that can be used against a site purchase, or waived if they’re not planning to purchase anything that month. After receiving initial backlash thanks to fine-print term disclosure, TechStyle claims to have surpassed 5 million active members across its brands. The model offers members discounts on products, early access to sales and a collection of member-only exclusives.

Every brand under the TechStyle umbrella is powered by FashionOS, TechStyle’s proprietary technology platform that powers the e-commerce sites, in-store tech and point-of-sale, customer service, fulfillment centers, media buying, customer acquisition and data science and analytics. The platform was built in-house, which founder Adam Goldenberg said he felt would be the company’s competitive advantage as customers began to discover brands online.

“We created TechStyle because we felt it was better for the customer, for the company, to build brands online first. When we looked at the tools and technologies out there to do that, it was lacking,” said Goldenberg. “We knew data was critical to being successful. We also knew it was important to completely control anything that interacts with the customer, so vertical integration would be critical. Those things are expensive to build so it makes sense to have a company like TechStyle that’s invested in that platform and can leverage it across multiple brands.”

Goldenberg discussed the company’s approach to control, and why he sees it as being integral to the brand’s strategy, retail stores and why he wants to build, and not buy, brands.

Customer data is at the center of TechStyle’s strategy. How has it influenced the brands’ growth?
We have a team of data scientists constantly looking at all the insight, who then help the heads of each brand and department determine what data is meaningful. It can really drive decisions, especially when responding to customer noise. That’s a key piece.

Overall, we look at data a few ways. There is a tremendous amount of data you can collect from interactions with customers, but it’s also fashion that we’re selling. There’s a human element behind every number, a real person and real interaction. So we have our teams travel across the country, and do “Meet the VIPs” events, to get human interactions to add to our data and prove hypotheses.

One example that came from that strategy is that we’ve seen a correlation between user reviews and user generated content — we see a higher conversion rate on products with more reviews and UGC. Based on that trend, we created something called “member models” for Fabletics. If you pick an outfit, in addition to the model, you’ll be able to see the same outfit on four or five real customers of varying body types and sizes. It not only drives conversion, but there’s a direct correlation to reducing return rates. Other online brands can see return rates up to 20-30%, while our brands’ return rates are between 6.5-8%.

How has TechStyle’s membership model driven the brands’ strategies?
Membership is about creating loyalty and engagement with the brand. I call it the Amazon Prime effect. If you’re a Prime member, you’re checking Amazon before you check Target or Walmart. All three stores may have the item but you’re going to buy from Amazon because you’re paying for that membership. With our program, the perks are different, but the customer interaction is the same. If you’re a Fabletics member, when you think about buying activewear you check Fabletics first, so we get a lot of wallet share and brand loyalty that we then can pass back to customers in the form of value.

You’re seeing more companies realizing that membership is important and you have more versions of it. For us, we wanted to be an anti-box. There are a lot of box-of-the-month programs and that’s great, but they typically have pretty high churn.

You’ve previously said that Fabletics wants to hit 100 retail stores. How does retail fit into the membership model?
The retail strategy has been fascinating to me. What’s unique is the retail experience in the store mirrors your experience online, because of our own technology. If you’re a VIP member online, when you go into the store, you can walk in, choose to skip a month or utilize your membership perks like savings and loyalty points. And you can also become a member. About 45% of non-members become members in stores at their first purchase.

What we’ve found is it’s not just that online customers become online and retail customers when we open a store — she’s spending about 2.5 times more per year with us overall. She’s buying more online than she did beforehand and adding additional purchases in store. So we’re using data to triangulate where to put our stores. If we have 20,000 vips within a 15 minute drive of a store, we can forecast the productivity of that store.

Has opening up retail stores helped take the pressure off of acquiring new customers online?
A lot of digitally native brands struggling to acquire customers online think, OK, we’re going to open retail stores, because our customers need to see and feel the product to buy. I think unfortunately that’s a bit backwards. It will always cost you more to acquire customers in a retail store than online. So if your value proposition isn’t resonating online and you’re struggling to acquire customers, I don’t think opening a retail store is the answer. What’s interesting for us and our brands, acquiring customer acquisition costs have gone down as we’ve scaled. It’s not harder to acquire customers online now, but the bar has been raised around what you need to deliver. That’s more of the challenge than something that’s fundamentally changed about the cost of media or customer acquisition — there is more competition and choice and a lot of cool brands, so what’s unique about you vs other cool brands online.

That’s also where our formula has resonated well. Having brands large at scale allows us to be efficient in our costs and pass those savings on. Customer acquisition is expensive, so the membership brings them back on a regular basis to check out new product.

Brands are realizing they could benefit from a shared resource model. Do you plan to start acquiring brands?
I don’t see us becoming a platform that traditional retailers or other brands can come on to. We’re launching our own brands, so we want to build, not buy brands. We want to make sure we’re entering a category that’s large in scale and there’s a need from the market. We’ll launch a brand every three to five years, not one year. Building a brand from scratch is a labor of love that takes a long time. If we can do a few things really well, it’s better than doing a lot of things at once.