Nicolai Schumann was dashing around a trendy back street in London’s Brick Lane. The serial entrepreneur was busy booking viewings for his second shop.
The battleground is the city’s East End, famed for its fashionistas and creative hubs. Nicolai, who studied an MBA a stone’s throw away at Cass Business School, is hoping to create himself a slice of the mega-competitive fashion market.
The East End is gritty and sometimes not pretty, but has proven to be fertile ground for organic fashion design.
Nicolai founded Alice's Pig with his sister, who is something of a fashion expert. The start-up opened its doors for business in Brixton, South London, in January last year. Designs draw inspiration from Alice in Wonderland, the children’s fairy-tale.
His fabulous fashion label is small, with only four official employees, but the example of how it mixes social networking, trendy locations and the founders’ own passions and tastes will interest any businesses trying to target today’s teen and twenty-something consumers.
“We are based in London but we have had big buyers from japan, the US and from France,” says Nicoli. “Right now it looks like the brand is accepted in the market.”
It is thought that many retailers are struggling to understand this market. These customers have grown up on social media, at a time when the global economy has been pinching their wallets. Disposable income is harder to come by.
Yet as big corporations have struggled to thrive with a younger demographic, they have paved the way for innovative start-ups to make their mark in in e-commerce, including upstarts Nasty Gal, VFiles and Wanelo. Asos, the UK’s most successful online fashion retailer, launched with three employees in 2000 and has grown into a listed, mega-success with £769 million in revenues last year.
Many of these new start-ups blend sales, social networking and editorial. Many are also founded by women around the same age as the consumers they target.
“We want the community to connect, share and inspire the other members. The goal is to engage and build loyalty with the brand sources through gamification,” says Faviola Palomino, the founder of VIP SOUL, an online fashion and lifestyle market. The site allows users to interact with other customers that love the same brands or who have a similar search preference.
Its user base has shot up to 5,000 since the business won the 2012 Wayra competition, an initiative award in the Latin American and European innovation scene that helps start-ups compete on a global stage. VIP SOUL works with more than 100 suppliers including Ralph Lauren and Tommy Hilfiger. Faviola studied an MBA at MIP Politecnico di Milano.
B2C e-commerce sales will increase by 20% this year to reach $1.500 trillion, according to research by eMarketer. The analysis notes that the growth will come primarily from the rapidly expanding online and mobile user bases.
Younger demographics typically spend less than older shoppers but are still crucial to retailers because they offer scope as to how technology will continue to affect the industry.
“This group is overtaking the baby boom generation in terms of their size”, says Vicky Redwood of Capital Economics, in a report from the KPMG/Ipsos Retail Think Tank.
“It has different ways of shopping and different attitudes to brands. Obviously the changes already underway – such as multichannel retailing – will particularly appeal to this generation.”
Some older retailers have struggled to adapt to the changing cyber world. Customers are visiting physical shops in fewer numbers.
Instead, consumers are on social networks and smartphones, utilizing retailers’ apps. That has presented its own challenge of convincing them to download one in the first place. But tech-savvy start-ups have capitalized on those hurdles.
Elizabetta Camilleri launched SalesGossip in 2011. The business provides an online and mobile service that gives users access to fashion and beauty deals. It has since expanded into a 250,000 user base and works with over 600 fashion stores. Two years ago it banked £25,000 after winning the Royal Bank of Scotland’s EnterprisingU competition.
Their success can be attributed to crafting an easy-to-use app and by reaching the UK’s fashion faithful through a clever online community. They send users free email updates and regularly post deals on Facebook and Twitter.
“A lot of what we see today we’ve been talking about since 2001,” says Elizabetta, who previously spent three years working at Orange. “But, then, it was so obvious that the bigger the companies are, the less innovate [they are]. I realised if I wanted to create innovation then the only place that I found [that] was within a start-up.”
London-based The Fold takes community networking a step further by combining inspiring editorial articles with its luxury women’s fashion retailing business. The site brings together stories from inspirational women with the aim of empowering females in the business world. Fold Woman, the company’s editorial section, has profiled a bevy of top businesswomen.
The Fold was founded on the basis of a lack of clothing options for professional working women. Co-founder Polly McMaster, who earned her MBA at London Business School, has been able to scoop up her target demographic by offering more than just stylish clothing.
“As a woman it was very difficult to dress appropriately, as there isn’t the same kind of 'uniform' for women in those roles that men have,” says Polly, who launched the business in 2011.
She continues: “Looking as smart as a man in his bespoke suit gives a woman the same level of confidence and gravitas at work. The Fold is about understanding the professional woman’s needs in her daily life.”
However, not everyone is convinced that the new, young consumer market is the proverbial gold pot at the end of the rainbow. Younger demographics spend less than older ones, according to research by Forrester. The average is just $300 online in three months – miles behind the $550 spent by people in their late 20’s and early 30’s.
Although fashion start-ups are thriving, many retail brands need to adapt to older audiences, says Vicky from Capital Economics. She believes that the main challenge facing retailers will be to adapt to an ageing population.
She points out that by 2030, those aged 65 and over are projected to hit 15.5 million in the UK, growing faster than the population as a whole.
“I expect not just the face but the role of the high street to evolve to meet the needs of this ageing population,” agrees Richard Lowe, Head of Retail and Wholesale at Barclays.
Even the up-starters have had a rough ride targeting their consumers. SalesGossip has grown significantly, but Elizabetta has faced a grind. “It was ten times harder than I ever could have imagined,” she says.
“But it becomes an addiction. Everything is a challenge and you have to overcome them.”