The first online marketplace for Italian fashion
on Dec 12 2016
We are building the first online marketplace for Italian luxury boutiques. We provide them with everything they need to sell clothes, shoes and accessories through our site, from Italy to the 85 countries we have already sold. This allows us to give our customers an extremely broad offering without carrying any inventory ourselves. Also, by partnering with luxury boutiques we can offer products that can’t be found anywhere else online. In addition to all the French, Italian, American, Japanese (and so on) established brands, we have already started working with emerging brands, and plan to become the online channel for most of the luxury brands that launch in Italy each year. If you are looking for one of the $21 Billion of personal luxury items sold in Italy each year, we are the place to find it online.
We were observing the queues of tourists outside some of the main luxury boutiques in Italy during “normal” days. Usually, you would see that amount of people outside only during the first days of “discounts” - sale season in Italy is regulated and each city decrees the beginning within an approved calendar.
The reason was the combination of products hard to find and lower prices even at full retail (no discount).
Once the technology and the online buying matured we still noticed the gap on luxury sales. In fact, only 4-5% were transacted online (now 7%) despite the global appeal and knowledge of the brands. Moreover, most of the transaction online where from retailers who owned their inventory, thus limiting their ability to scale offering, and the overall space was relatively empty.
It was a go.
If you go to Italy you can have a great shopping experience; however, the vast majority of luxury boutiques don’t have a website, so when you come back to the US, it is almost impossible to buy the products you liked.
So we really provide our customers three advantages. Broad selection, better prices, and access to unique items that can’t be found online anywhere else.
The first advantage is selection. We will be broader than Neiman Marcus by the end of this year. We can do this because we list the inventory of each one of our 115 luxury stores, and carry no inventory risk ourselves. Thus, our customers can find the products they desire at italist.com before everywhere else; for example, we had Cambiaghi way before you could buy it at Barney’s.
The second big advantage is lower pricing. Generally, the same product is 30% more expensive in US vs. Italy and this difference even increases in Far East where the price positioning of some brands is 40%, 50% higher than in Italy.
Lastly, we carry limited edition items and very specific SKUs that are impossible to find anywhere else. For example, we have a luxury partner that carries a specific line of Alden shoes that is only sold in one shop in Italy. The same is true of the dedicated Italian lines of Santoni, or Golden Goose that are impossible to find in Japan and Korea even though these brands are very popular there. We also have at least 10 brands that list with us directly that you can’t find anywhere else.
Not only we have a good portion of sales that derives from unique items, we are also the most convenient way to buy in countries where there are little or no alternatives to online sales.
I’ll give you an example. Yesterday we sold items in Kazakhstan and Azerbaijan. Over there it is almost impossible to find a Valentino, Gucci, or Dior bag. These countries all have a wealthy portion of the population that want access to those brands, but they can’t find them. Basically there options are to fly to Italy, or buy from Italist.
Few luxury brands seriously use their websites to sell. They are focused on providing highly branded in-store purchase experience. For example, Prada sells less than 1% online and the product line that they sell online doesn’t generally overlap with the products they sell through physical distribution.
Right now, our customers are 80% female, between 25 and 55 years old. We already sell in 85 countries. The U.S. is 40% of our sales, followed by Hong Kong, U.K., Korea, Japan and so on.
Our average transaction is $600, and in some months up to $700. Usually the process of buying involves repeat visits to our site. But, once they buy, they tell their friends, so we are seeing a lot of organic traffic and word-of-mouth growth.
We also have great retention. Over 12-months, 35% of our customers buy again, which is very high given our average transaction size. Basically, you do not buy a Valentino bag every week. It’s a couple of times per year if you’re a real fashion addict. The numbers we are seeing are already close to the market average, so, Net-a-Porter and the other big players have more or less the same customer behavior, and as our selection increases, we should be able to drive this up.
Boutique onboarding is a critical process. One of the risks of our business is showing an item online that doesn’t exist anymore in the inventory of our boutiques so we’ve done some hard work to make sure that doesn’t happen.
1/ We have developed a specific app to use to keep listings up to date. Every Italian has a smartphone. We give them an easy way to print out a QR code that they put on each product that they scan with our app each time an item is sold, updating the listings we show on Italist.
2/ If they have a small presence online, we also integrate their product feed on our site.
3/ We can also integrate with their inventory management software through an API.
The boutique on-boarding process requires a training program that we have established, providing also an online manual and live coaching. We explain and detail all the processes from the printing to the QR codes, to the online confirmation of the order and on how to prepare the packages with our boxes and material.
We’ve already been able to get the number below 5%. To note that the customer isn’t actually charged until we confirm that the item is available. The customer is immediately notified with our apologies and a personalized token. We are working hard to bring this number down to zero so we can grant them the best customer experience possible.
They increase vastly the potential customer base, since we sell in 84 countries and we start to have brand presence among the luxury consumers in US. This translates in significant improvement in their sales.
They can’t decrease the number of products they stock because they need to have an in-store offering that is attractive enough to keep customers coming back to the store. By listing with us they decrease the risk of having unsold products at the end of the season, that reduce drastically their margins.
We take ~20% of each transaction on Italist. With an average transaction size of $600 that is $120 per purchase.
Italy has the largest market for luxury multibrand stores, at $9B and is one of the country more visited by tourists as well. This translates in two main factor for us, the biggest supply base in the world and the buying ability to sell to a worldwide customer base. All our partners always did a significant part of their sales in store with non-Italian customers, thus they are used to buy for a more global customer base and to introduce new trends. As an additional bonus factor, the “made in Italy” is still the most important connotation in the luxury world for clothing and accessories, our market.
Our customers can exchange any product that they are not happy with. We have a return rate that is below the average of this luxury market, at ~6%.
We have 115 luxury boutiques on board, we are continuing to sign 1 to 2 partners per week, with an overall target of 250-300 luxury boutiques on board by the end of 2017.
Here is the relevance of being in the largest market in the world for multi-brands luxury stores; when we will reach $300M in Gross Sales that would translates in an average of 12 sales per day for our 115 partners, or, maintaining the 12 sales per day average, to $780M in Gross Sales with 300 partners.
At the moment, only few of our partner luxury stores uploaded a big portion of their offering, since the full onboarding process requires a longer time frame. If the current partners would upload all their inventory we would have 200,000+ items, the largest luxury presence online (for reference, Neiman Marcus has 30/40,000 items online).
We need to keep both sides of our customer marketplace happy. We have focused primarily on building relationships with the boutiques since that is our largest challenge, and we need to have the listings in order to attract customers. Now that our revenues are growing, the boutiques are very happy and we’re going to focus on growing our customers.
We think so. We are in the process of redesigning the website. Each one of these brand’s pages will have a deep storytelling component: Interviews with the designer, a video explaining how the product is produced etc. Consider that most of the international brands are produced in Italy — Louis Vuitton or Givenchy, most of the big French brands have the production in Italy. That is because of a tradition from hundreds of years in producing luxury.
We have also implemented a customer concierge feature that helps customers through the steps from when they see the products all the way through purchase; also improving conversion.
The luxury fashion business has a distribution system that has been built over a period of time when internet did not existed and companies had local management. Moreover, the luxury brands are reluctant to sell online because they consider that experience not consistent with the brand experience they want to offer in their stores. We believe that this will progressively change but they would always have a channel conflict issue with their brick and mortar retailers on offering overlapping.
The market size for personal luxury goods is $340B per year. The retail Italian market is $21 billion per year, and ~40% of that goes through multi-brand stores. or $9B. Let’s imagine that we get 12% of that and we are above $1B.
Moreover, the luxury market for apparel grew 3 times in the past 10 years, while growing 10 times online. Expectations are for online sales to grow 4 times in the next few years. We are going to be part of that big growth.
Right now we are using online vertical channels where we have an acquisition cost of $60 per sale. We are profitable on the first sale and 35% of these buyers repeat during the next 12 months.
We are also focusing on SEO and we do significant work there, hence our organic traffic is very significant.
We met working together in Bain in 1998 and shared few cases, but we were already talking about luxury and tech. We met again during, working together on the very successful exit to a private equity fund of Raffaele mobile content company. Prior to Italist, Diego was the CEO of a tech company, here in Southern California, participated by TPG Capital and had executive positions at Activision Blizzard and Bain; he was also Board Director of one of the most famous luxury producers of knitwear in the world. Raffaele was a pioneer on mobile content in Europe, he bootstrapped his company and grew it to a $80M in seven years with operations in 3 continents and 12 countries. After that, he became involved with few startups that grew to be successful. Raffaele, also, was raised in a family that for generations had a business in luxury.
We believe that to succeed we need the unique skill-set combination of luxury and tech, that we have, plus the ability to manage multinational teams in key areas, that we also have developed, working in complex organization while living in various continents.
We have our tech team in San Francisco with some senior developers that worked already with Diego (and Google...) and are capable to understand the coding part as well as the business; we are based in Beverly Hills as well as the marketing team, while we have our partnership, onboarding and support Teams in Italy, to better source the products and leverage our relationship with key experts and players.
Our customers usually would choose between us and the Brand’s own website or a retailer like Neiman Marcus. We have a much wider selection of items than any of these sites, unique items that can’t be found anywhere else, and we often offer better prices.
In terms of marketplace for luxury boutiques there is Farfetch, that is partnering luxury stores around the world and has already a valuation of $1B; however, because of the difference in sourcing we have often a price advantage.
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