Strategy: A preppy apparel startup is defying J. Crew's curse and dominating the millennial market

Everlane, a direct-to-consumer fashion label, is taking on middle-of-the-mall legacy brands.

At a time when shoppers are fleeing mall chains like J. Crew, Gap, and Abercrombie & Fitch, the direct-to-consumer fashion label Everlane is thriving.

Founded in 2010, Everlane follows in the footsteps of e-commerce sites like Warby Parker and Bonobos by selling wardrobe staples like T-shirts, cardigans, pants, and loafers online only. (Its first brick-and-mortar store is coming to San Francisco later this year.)

A company representative declined to share revenue for 2016, but Privco, a firm that researches private companies, estimated Everlane's sales at $35 million for 2015. That would be up nearly 200% from 2013.

We stepped into the Everlane headquarters to find out what one of the most innovative companies in fashion is doing differently during the retail apocalypse.

Everlane would like you to believe this is no ordinary crewneck.

These are no ordinary pants, either. They are "versions" of pants. Much like app developers who post frequent software updates, Everlane is constantly iterating on its products.

This model is in stark contrast to how traditional fashion brands operate. Most retailers launch collections based on seasons, so when August rolls around, the stores fill with new sweaters and corduroys in the hope that shoppers scoop them up before Pumpkin Spice Lattés arrive.

But as Quartz pointed out, this approach doesn't reflect how customers actually shop. Most people don't buy new wardrobes all at once. They search out items as they need them.

"Traditional brands launch a ton of stuff and then they look at what sold and what didn't," Michael Preysman, CEO and founder of Everlane, told Business Insider. "We look at it much more on a product-level basis."

Everlane releases small batches of new apparel on a continuous basis throughout the year.

It gathers feedback from customer surveys, return shipments, and in-person "fit clinics," to make products better. In the past, Everlane has swapped the material in a pair of slim wool trousers to make them less itchy and adjusted a shoe sole so feet wouldn't slip out as easily.

The company's New York City fashion designers create new looks. But in a whitewashed loft in San Francisco, designers, analysts, and marketers work together to refine the clothing.

Everlane did not end up in the tech capital of the world by chance. Preysman was born and raised in Sunnyvale, California, where Google recently went on a property-buying spree.

Growing up as the son of two software engineers during the Silicon Valley dot-com boom, Preysman had more exposure to technology than most kids his age.

"We had wireless internet in 1999 at our public high school," Preysman said.

He went on to study computer engineering and economics at Carnegie Melon and landed a job at a New York private equity firm. Preysman studied the retail industry as part of the gig, which fed into his love of design and branding. But he was most excited about building things.

"Apparel was something I didn't really know a ton about," Preysman said.

It didn't take a degree in fashion merchandising to understand that what people paid for clothes did not match what they cost to make. He figured the internet had the solution.

"I realized the mark-ups were all over the map and quite extravagant — sometimes [prices] as high as seven times as what [an item] costs to make. Knowing the internet and knowing how businesses have been able to go more direct [to consumer] and give customers better value that way, it felt like there was this opportunity to do the same here," Preysman said.

After taking a gap year to learn the market, Preysman left New York for his hometown to start a business that sold clothes direct-to-consumer at a fraction of the cost of trendy retailers. It would offer styles you might find at J.Crew, Banana Republic, or Gap — at Old Navy prices.

In 2011, Everlane launched with an affordable t-shirt. The startup worked directly with factories and sold online only, cutting out the middlemen and costs to run stores.

The company does not advertise, but instead, an in-house production team posts beautifully-produced photos and videos on social media and the Everlane website.

Millennial shoppers quickly have quickly come onboard. The basic cotton tee, which retailed for $15 in 2011 and costs a dollar more today, sold tens of thousands per month by 2015. It remains a best-seller.

Over the years, the company built out an entire wardrobe for professional women (and some men's apparel) with simple basics. Sales grew a reported 200% between 2013 and 2014.

Everlane now stocks 485 different items. The brand's style is industrial, with minimalist designs meeting natural textures. "Every stitch has a reason for being," Preysman said.

Part of what makes Everlane unique is the way it uses storytelling to promote clothing.

When Everlane launches a new product, it tells shoppers through website copy and design how the item will add value to their lives. This is not unlike the approach at tech companies like Apple, where executives at the Worldwide Developers Conference talk about how customers can use a new smartwatch or iPhone instead of explaining the technology behind it.

Doing so is necessary, according to Everlane's head of creative, Alexandra Spunt, because retailers can no longer count on shoppers to experience the product in stores first.

"I think a lot about how we now discover product and how we used to discover product. You maybe saw a TV ad or a billboard or heard something on the radio, and then you went into a store. You'd have this physical, tactile experience with the product," Spunt said.

"Now, even if you're going to a store, so many people are doing their discovery first online. So your whole way of taking in product is no longer tactile — it's copy, photography, design."

When the wide leg crop pant — priced at $68 — came out earlier this year, it got its own landing page on the Everlane website and an email marketing campaign.

Four smartly-dressed women of different body types (all admittedly small) were photographed wearing the waist-nipping, leg-lengthening pants, while smiling and leaning on one another.

"Whether you wear them with heels or sneakers — these pants make everyone walk a little taller," the copy read. They promised confidence, comfort, and a universally flattering fit.

Everlane sold readers on the story behind the pants. They sold out within 48 hours, and a waitlist to buy the trousers had added 13,000 people to date, according to the company.

Part of the story of each product includes where the item was made. Shoppers can click through on a product description to see photos and videos of the factories that manufacture clothes for Everlane, and read on about the working conditions there.

Everlane also includes a breakdown of the costs associated with manufacturing a product and what the markup is. It's part of the company's "radical transparency" promise.

An infographic beneath every product description illustrates the cost to produce the item, accounting for materials, labor, the tax levied on imported goods, and transportation. It shows the true manufacturing cost, the retail price, and the estimated cost elsewhere side-by-side.

Customers have used this information to call out Everlane for pricing they found unfair in the past. For example, the company lowered the price of a women's sweater that was very similar to a men's one, when female shoppers pointed out that their version sold for more.

A new era is emerging at Everlane as it expands into brick-and-mortar. Preysman said he once told reporters he would "shut the company down before we entered retail."

But he had a change of heart, in part because customers asked for it.

"As we started to grow, [we saw that] there's a set of customers that wants to touch the product before they buy it. Once you come into the store, you can touch anything. [Then you say], 'Oh, I trust this brand.' We thought it would be possible to get around that. It's not possible," he said.

In 2016, Everlane launched a pair of showrooms in San Francisco and New York City where shoppers could try on the newest products and learn about the brand from store associates.

The San Francisco showroom, known as The Lab, doesn't carry everything available on the website. But shoppers can buy more styles online using an in-store computer.

Preysman envisions the flagship store coming to San Francisco later this year as a part-retail, part-lounge space where Everlane can take its online community offline.

Everlane might hold community events there, though Preysman wouldn't be more specific.

Expanding into stores is risky business. In March, Business Insider predicted more than 3,500 mall-based stores, from Sears to American Apparel, would close in early 2017.

Source: Business Insider

J.Crew, a fashion stalwart that competes with Everlane for preppy dressers' dollars, has seen same-store sales fall for the past three years. The company has more than $2 billion in debt.

Maintaining Everlane's quality and ethical mandates at scale could be a challenge. But Preysman said it will only become easier doing so.

As Everlane grows, it becomes more attractive to factories and suppliers around the world.

The company can start demanding that materials be "traceable," meaning the manufacturer must be transparent about the origins of the materials and the hands they pass through.

"We can go to a mill and say, 'Your yarn needs to be traceable by this date and if not we're out.' We're buying enough yarn at that point that we're relevant customers," Preysman said.

Everlane hopes to have all animal-based yarns traceable, "down to the farm," by 2019.

At Everlane, without risk comes no reward.

Preysman considers the addition of a physical footprint a key part of the strategy for bringing in new Everlane customers.

"There's still pretty low brand-awareness, which we love, by the way," Preysman said. "That means there's a lot of opportunity."

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