Question

what is going on in the world from an economic standpoint that may impact Shoedazzle business?

Answer 1

Loyalty programs make it easier to gather data on customers, and personalization can deepen customer relationships by making them feel as though they are special. For example, with ShoeDazzle, customers can generate a “Style Profile” by taking a short quiz and visiting a customized online “showroom” for recommendations. The athletic clothing line Fabletics asks a few questions about preferred activities and clothing and recommends products. Stitch Fix subscribers get five items of clothing each month and return what they don’t like, allowing their stylists to build an ever more detailed dossier of their preferences and send increasingly valuable subscription boxes each month.

Shoedazzle, an inexpensive footwear subscription service that launched in 2009 and famously counted Kim Kardashian and Robert Shapiro (yes that Robert Shapiro, of O.J. Simpson’s Dream Team) among its founders. By 2012, when I was promoting my book, “the Netflix of shoes” had secured a $40 million investment from Silicon Valley venture capital firm.

Bill Strauss took over for Brian Lee (the man behind Legalzoom and The Honest Company) as Shoedazzle’s CEO. The company abandoned its original subscription model, where members paid $39.95 a month to select a pair of shoes from a personalized showroom. Although at the time, Business Insider reported that the move had paid off, with Shoedazzle’s membership spiking by 25%, there was trouble ahead. As the site transitioned to a more traditional e-commerce store, it started carrying third-party brands. According to Adam Goldenberg, CEO of TechStyle and Shoedazzle’s parent company as of 2014, these changes alienated core customers and almost immediately, their shopping habits changed. Brian Lee came back on as CEO to stabilize the situation, but when he introduced a modified, less flexible subscription model, it didn’t compel shoppers to start buying things from Shoedazzle again.

“The brand is often thought of as a failed startup,” Shoedazzle’s publicist told.

However analysts describes Shoedazzle in entirely different terms. “We felt it could be a $100 million or $200 million dollar brand, but it had lost its way,” he says of his decision to buy it. In 2013, when JustFab (which became a part of the TechStyle Fashion Group this past August) acquired the company for an undisclosed sum, Goldenberg and his founding partner Don Ressler had been competing with Shoedazzle for years. The pair launched JustFab in 2010, with its own celebrity backer and Creative Director, Kimora Lee Simmons. JustFab sold shoes and other accessories by subscription, too and also had the benefit of venture capital money.

“We were both [at JustFab and Shoedazzle] willing to take market share from the offline guys, but we should have been less focused on competing with each other,” Goldenberg says. He doesn’t remember whether he approached Brian Lee about buying Shoedazzle or vice versa, but after making the acquisition, Goldenberg and Ressler decided to keep the two brands separate. “For Shoedazzle customers when we talked to them, their second choice place to shop was JustFab,” Goldenberg recalls. “They liked that they were different from a fashion and aesthetic standpoint.”

Goldenberg says that he believed in Shoedazzle because of the passion it inspired in customers and employees alike. The team that was left after the merger went through was so “passionate and loyal,” he says, and he credits them for using the TechStyle platform to turn the business around. That platform took seven years and $85 million to develop, he says, and by migrating Shoedazzle they were able to improve their margins by 20 points, from 30% above gross to over 50%. According to Goldenberg, the problems they inherited with Shoedazzle went well beyond the disruptions to their subscription model. “They had a real challenge with managing their inventory – they bought too much or the wrong styles, which led to inventory obsolescence and styles that were consistently discounted.”

Of course, TechStyle reinstated the $39.95 monthly plan, where customers can choose a pair of shoes from their personal showroom or skip the month (customers are billed if they don’t do either within the first five days of the month, and can use that $39.95 fee “like a gift card,” Goldenberg explains). Once this happened, Goldenberg says that 100,000 former members immediately re-joined. TechStyle keeps costs down by doing everything in house, from designing the products, to shooting them, to filming commercials in their Los Angeles studios.

“When we bought Shoedazzle, the run rate was $30 million and now it’s $100 million, and profitable,” Goldenberg says. Once an internet wunderkind, who started his first company when he was 16, Goldenberg believes that someday soon, 50% of fashion will be sold online, as opposed to only 18% today. For him, Shoedazzle is still in its nascent stages, and holds enormous potential. “We’re approaching 60% national awareness, which is exciting, but it also means there’s 40% of the country that’s never heard of it,” he says.

Shoedazzle currently has over 750,000 members, a fraction of the 13 million that was reported in August 2012. JustFab remains the larger of the two companies.