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March 7, 2019 • Volume 32


It is hard to think of an online category that hasn’t been significantly disrupted by digital native direct-to-consumer (D2C) retailers, and the online fashion space is certainly more impacted than most.  Direct-to-consumer isn’t new in the fashion industry – it was catalogers such as Land’s End, J. Crew and LL Bean that started that ball rolling decades ago. 


Digital native D2Cs tore a page from the catalogers’ play book and added a digital twist. Instead of spending on postage, printing, and design of catalogs, they invested in websites and social media advertising.  In their day, catalog marketers represented the cutting edge of targeting tactics, developing sophisticated audience segmentation schemes that narrowed prospective buyers down to the ‘zip plus 4’ level.  But digital native D2Cs made those tactics seem quaint as they took advantage of the massive volumes of data that had been collected by the search and social media giants.  

Case Study: Everlane and Bonobos

Everlane was founded in 2010 by Michael Preysman and Jesse Farmer in the San Francisco Bay Area with the idea that they could sell stylish apparel (to men only, at first) affordably, with a high degree of transparency into the materials and production [They call it ‘radical’ transparency. I think that plain old transparency is descriptive enough.  But I’m not a Millennial]. Thus far, Everlane has remained independent, having raised only $1.2 million, but is still growing nicely, with sales in the half billion-dollar neighborhood, and 2018 growth of over 50 percent.


Bonobos was founded in 2007 by Andy Dunn and Brian Spaly, who began selling men’s pants while students at Stanford Business School [is it just me, or does anyone else wonder when these founders find time to go to class and study?]. 


By 2011, flush with capital from a recent $18.5 million fund raising round, Dunn decided that if the company wanted to realize its full potential, it needed to add stores [Spaly had already headed off to run Trunk Club in 2009].  Except that they weren’t stores as we know them--where one pays money and walks out with a product.  Instead, the point of these stores was to allow consumers to find their size and evaluate the quality and style of the product—while giving the salesperson a chance to upsell. Any purchases made in the store had to be shipped home.


By 2017, Bonobos had attracted the interest of Walmart, which had developed an appetite for these digital native brands, so bought it for $310 million. In 2018, Bonobos was similarly in the half a billion-dollar range, but with a growth rate about half that of Everlane.


But let’s dig a bit deeper.


For the two analyses that we’ll present, we are looking at a competitive set that include Banana Republic, Gap, J. Crew, LL Bean, Land’s End, Bonobos, and Everlane – two disruptors and five disrupted.

From a market share perspective, the disruptors have made headway.  Bonobos and Everlane didn’t exist before 2007 and in a few short years, the two had accumulated 14 percent market share within this competitive set, up from 9 percent just two years ago. 

Measuring the sustainability and threat of D2C brands

To really understand impact that these digital native brands are having on their traditional competitors, a wallet share analysis is a helpful tool.  In a wallet share analysis, we define a competitive set – in this case it includes all sales from the seven retailers mentioned earlier.  And we define a time period – here, we’re looking at the 25 months from December 2016 through December 2018. 


For each retailer, we look at the percent of spend across the competitive set that goes to each retailer, but only amongst those that bought from that retailer at least once.  So, if you’ve got a buyer, how much of their spend are you able to win?  The higher the number, of course, the better you’re doing. And we look at overlap between retailers from the perspective of each retailer. A high degree of overlap tells us that the brand is a threat. Lower overlap levels point to opportunities to bring in incremental buyers.

Bonobos closes the gap between digital and traditional retail . . .

As we can see from the data below, each retailer owns between 32 and 60 percent of the wallets of their own shoppers from this market.  LL Bean, the storied outdoor goods cataloger, has the lowest wallet share, with just 32 percent of spend amongst its buyers. This low rate is driven by LL Bean’s highly varied assortment that stretches from skis to carpets to apparel, potentially attracting a wide variety of buyers that don’t buy much apparel.  

More interesting, though, is the fact that Bonobos, one of the upstarts, is the wallet share leader, by a long stretch, with 60 percent wallet share amongst its buyers. This may be strong validation of Bonobos’ omni-channel model. Maybe, comfortable with fit and confident of styling and quality, Bonobos’ model is uniquely locking consumers in. Or maybe people just love Bonobos’ clothes.

…But will it close Gap?

Next, we’ll take a deeper dive into Gap, and how it is affected by the emergence of Bonobos and Everlane.  Of those that bought from Gap in 2018, Gap had 51 percent share of wallet, which is better than par for this group.  The chart on the right shows the full wallet share analysis for Gap, which shows that Gap competes the most fiercely with J. Crew and enjoys some synergies with sister brand Banana Republic. The overlap between Gap and digital upstarts Bonobos and Everlane is relatively narrow.


Stepping back, it seems that the digital native upstarts are making a mark on their traditional competitors. There doesn’t seem to be short term risk that either of the upstarts will squeeze their traditional competitors out, but they are creating a challenging headwind and seem to have built sustainable models. Perhaps more importantly, the traditional brands ought to take a close look at how exactly Bonobos has driven such strong wallet share and figure out how they might use their own stores to leapfrog anything Bonobos can do with a relatively small count of stores.  And, judging by the relatively low rate of buyer overlap with Gap, Everlane could make an interesting acquisition target by Gap, which has struggled with growth outside of the Old Navy brand.

About Ken

Ken Cassar is vice president, principal analyst at Rakuten Intelligence, where he looks at trends in the e-commerce industry armed with Rakuten Intelligence's robust set of online sales data.

Ken brings a rich online retail background to Rakuten Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.

Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Rakuten Intelligence's profile. He also has the appropriate jacket for every occasion.