How ModCloth Went From a College Dorm to $100 Million a Year
By Lauren Indvik
Aug 13, 2013
ModCloth founder Susan Gregg Koger has had a long love affair with thrifting and vintage clothing. In 2002, with the help of her then-boyfriend (and now husband) Eric Koger, she launched ModCloth, a simple online shop where she sold the finds she could no longer fit in her closet. She made a sale on her first day.
Today, ModCloth is one of the fastest-growing fashion and home ecommerce ventures to emerge in the past decade. The company did more than $100 million in sales last year, and is growing at a rate of 40% annually, according to a ModCloth spokesperson. (The same spokesperson declined to say whether the company is profitable.)
The business has expanded from the Kogers’ college house basement at Carnegie Mellon, where they employed a student part-time to help with packaging and shipping, to 450 full-time employees across offices in San Francisco, Los Angeles and Pittsburgh.
Growing ModCloth in such a short span has been no easy feat. Earlier this month, we caught up with Eric and Susan to talk about the company’s early days and the challenges of scaling the business — not just in terms of new offices and employee additions, but also scaling ModCloth’s technical infrastructure and improving its supply chain. An edited version of our conversation can be found below.
Q&A With Eric Koger, CEO, ModCloth
Eric Koger, CEO and Co-Founder, ModCloth.
Let’s start from the beginning. How did ModCloth start?
The story of ModCloth begins when I started a web development business in 2000. Susan and I started dating, we went to Carnegie Mellon in Pittsburgh, and Susan stumbled over all these amazing pre-worn items at vintage sales. I had all of the technical skills to help her launch an ecommerce site. We thought, let’s get all of these gems online as a collection and start selling them, and we’ll use that to help pay for books and part of our living expenses in college. We tried experimenting with a few items online on eBay, but realized very quickly that if [an item] wasn’t from a well-known designer, it wouldn’t be discovered. Plus, it was difficult to get across the overall aesthetic that Susan wanted, and we saw an opportunity to build a brand around Susan’s point of view.
With ModCloth, and my job, [we were able to] support ourselves to a large degree throughout college. From 2002 to 2005, [ModCloth] started getting a lot of interest. She got to the point where the site was doing 70,000 unique shoppers a day, and we realized that this was something she could do as her full-time job when she graduated a year later in 2006. It was certainly a a lot more interesting than what we were seeing in the career center. This could work, we thought, we just need a more scalable business model — the problem was that [Susan] was only able to offer things in one size. So we took a week off school, and went to a major fashion trade show, Magic, in Las Vegas, and put together [ModCloth’s] first collection of vintage-inspired pieces from small indie designers. Then we had real inventory, so we could grow and do more significant volume.
The first round of vintage-inspired merchandise arrives at Susan and Eric’s home.
How were you able to manage your growing inventory and sales at this point? You didn’t raise your first round of funding until mid-2008.
I jumped in [to ModCloth] full-time in 2007. We focused on getting the business to $1 million in sales before we raised our first round of capital. Jeff Fluhr from StubHub and First Round Capital [among others] put $1 million in the business, and it took off. We bought more merchandise and started building out the team. The next round of capital [$2.1 million] came in 2008 from Floodgate. It became clear we needed to expand out to California to get closer to designers in Los Angeles, and [to improve our] technology more seriously. Plus all our investors were in the Bay Area. So we expanded from Pittsburgh to San Francisco, working at First Round Capital on every desk they had until we moved into our own space in May 2010. In June we raised another $20 million [from Accel Partners, Floodgate, First Round Capital, Jeff Fluhr and Harrison Metal Capital]. A couple months later, in September, we get our first real setup in Los Angeles, and we started doing this loop between San Francisco, L.A. and Pittsburgh. That was crazy and fun time for us. We hired a whole new team in Los Angeles, senior people with more experience than we had. And now that we were hiring in three separate places, we stopped [doing our own] interviewing at the lower level.
Tell me about the challenges of scaling from the technical side. What was ModCloth’s first website like? How did it evolve?
Our first website was built in PERL on an open-sourced shopping cart called Interchange. Second was osCommerce built on PHP. I learned enough PERL and PHP to do those. I was always a hacker. We relaunched on Ruby on Rails in 2009. When we landed in San Francisco, we were hiring developers and it was a language that was attracting some of the best.
How have you been able to anticipate growing demand for ModCloth products?
We know our customers exceptionally well. Because we’re digital, we’re able to keep track of things better than any brick-and-mortar retailer is. When Zara or H&M or Urban Outfitters [want to test demand for a product], they do a pilot run in pilot stores. If they sell out of all the smalls immediately, they know it’s popular, but don’t really know how much demand they have for a small. With our Be the Buyer program, we get a more precise read on demand because people are on the wait list for specific sizes. On top of that, we have all this historical sales data on products, and we’re also interacting with customers on Pinterest and Polyvore and other external sites to see what [our customer] is saving and playing with, the styles that are inspiring her. Combined with Be the Buyer and Make the Cut, we’re able to anticipate what she’ll want down the line.
How were you able to scale on the manufacturing side?
Designers tend to do the development of the prototype, then contract with manufacturers to get things produced. As we scale, we pushed the scale problem onto the designer most of the time, telling them we’re going from 30 to 60 units to 300 to 600 units, and if your manufacturer can’t do that, find someone else. We’ve also done some of our own development and sought out manufacturers who can respond quickly. It’s tough; even though we’re significantly larger today, we’re small compared to some of the large brick-and-mortar retailers. Making sure our order gets priority is always a risk — [a manufacturer] might get a big order from Macy’s and our order won’t be significant any more. Building a relationship with the vendor is really important.
There are other elements too. We’re also escaping the number of designers we work with, and offering an increasing number of styles. Underneath that, there’s an increasing number of SKUs, a wider range of sizes — we want to be inclusive. On the back end, we’ve built our own technology that makes our buying more effective than average retail system. Our buyers can interact with our systems on mobile for instance and most other retail buyers can’t.
Beyond scaling on the supply and technical sides, you’ve also had to hire more than 450 employees since founding ModCloth. How do you recruit talent?
We look for people who are really passionate about what we’re doing and believe in the purpose of ModCloth. We also have a strict “no assholes” rule. You spend so much of your life at work — life is too short to work with assholes. So we try to filter out people we think will be condescending or contemptuous or aggressive in the workplace. ModCloth is two-thirds women, a very collaborative environment with a strong marriage of art and science. It’s a lot easier to hire young passionate people early on — you get a more unfiltered read on who they are as individuals, whereas experienced people have a lot of experience interviewing and can very polished, and it’s hard to decipher the truth in the interview process.
Beyond that, we’ve always done a good job of finding ways to simulate a real world working environment in the hiring process. Of course that’s a lot easier in customer care, when you have them respond to a mock angry customer email or call. It’s harder when you are trying a senior executive who needs to have technical confidence and be good at mentoring and developing people. One thing we look for across everyone is clear communication skills. Fuzzy language and writing tends to equal fuzzy thinking.
Susan Koger, ModCloth co-founder and chief creative officer.
You’ve always had a boutique-y, community feel. How have you maintained your connection to your community as you’ve gotten larger?
There are two parts. One, we’re building a community around inclusiveness, heaping customers feel great about themselves. Part of doing that is moderating the community. We’ve needed to scale moderation so that contributions — photos, comments — don’t take a long time to go live, so that the community isn’t stifled. The other part is that ModCloth is known for being quite quirky and, if a million other people are quirky, is it really that quirky? To continue to feel special, you need unique merchandise. We’ve also made a point to never feel corporate. We want the brand to come across as if Susan is still writing copy, not a big organization. We tell the team: You’re building a relationship with all these customers, all these women, interact with them like a real person. The community also interacts with each other, and we let them know we’re listening to them and we view this as a conversation.