Curious George ponders Threadless

Curious George is at it again. This time, looking at one of the best examples of crowdsourcing: Threadless. Having worked for Tommy Hilfiger, Polo Jeans and Liz Claiborne, I know a few things about the challenges of the apparel industry. For example:

  • Design. You’ve got to hire a great design staff capable of coming up with hit products on a continuous basis. Great designers don’t come cheap.
  • Merchandising. Once the designers work their magic, you’ve got to do your best to predict demand down to the style / color / size level. If a product is a dud, you wind up with piles of inventory you must mark-down. When you come up with a winner, you rarely have enough, so you miss the chance to capitalize on your success.
  • Sales. Most apparel companies sell through department stores – typically a painful process. Department stores pay dearly for their space and their foot traffic, and never let their suppliers forget it. They’ll force you to pay markdown money, and hit you with fees for things you never knew existed, before they knock off your line with cheaper private label goods.

The team behind Threadless managed to circumvent all of these issues, and pioneer a highly profitable approach to the apparel business. Their secret sauce is a concept called crowd-sourcing. Here’s how they do it:

Threadless holds a t-shirt design contest each week. The prize for winner is over $2,000 – and respect from fellow designers – so they get thousands of entries. Good-bye, expensive design staff. People who enter the contests, along with shoppers, vote on their favorite designs, so Threadless knows exactly which styles to produce. That lets them predict demand precisely. Good-bye, merchandising woes. And the same  “crowd” that submits and votes on designs doubles as a customer base (mostly through the Threadless website), and promotion engine. Good-bye, department stores.

How’s it working? The company started as a hobby in 2000, and launched their business in earnest around 2002. Five years later, they cranked out $30 million in sales, which is not exactly staggering. But they generated $10 million in profit – a margin that makes traditional apparel companies drool. They also had about 800,000 unique visitors / month, and plenty of opportunities to extend into other product categories.

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