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This post originally appeared on the blog of Bainbridge Growth. It is being republished by The Current with permission.
Vera Bradley, LLC began in 1982 founded by Barbara Bradley Baekgaard and Patricia R. Miller, naming their company after Barbara’s mother. The brand’s recognizable patterns are inspired by French Provencal fabrics, with VB originally starting out selling these designs on wallpaper. The two founders eventually pivoted to travel bags after noticing that women were carrying the same bland-colored travel luggage designed for more masculine tastes.
Their goal was to offer women something brighter and more interesting than common brown, black, and gray bags that were available in the early 1980s. The business originally began with $500 and over the years brand awareness grew among women via college sororities and more recently digital radio channels. VB expanded its product lines over the years, solidifying itself as a brand of choice for forward-thinking women that are drawn to the brilliant colors in VB’s design patterns.
Vera Bradley operates 70 full line and 75 factory outlet stores (as of January 2022) and operates eCommerce in the US and Canada. One-third of total revenue is generated from ecommerce, with a digital advertising-based marketing strategy centered around Facebook (2M followers), Instagram (600k followers), and Tiktok (33k followers). Third-party ecommerce also is a developing channel as Chewy.com is now carrying their line of pet products.
In recent years the company has added a craft jewelry brand in an effort to broaden its product offering. In 2019 the company purchased a controlling 75% stake in Pura Vida Bracelets for $75 million. At the time of purchase, Pura Vida was fully an ecommerce D2C business. A sole brick and mortar store in San Diego opened in August 2021 and three additional stores are now in the works. The combined business of these two brands performed well during the COVID pandemic, seeing their best year for sales in the fiscal year ended January 2022 (+15% YoY).
(Source: Vera Bradley)
In its most recent earnings report, the company saw sales of $98.5 million (-9.8% YoY). The mix of this revenue was $61.6 million (-7.6% YoY) from Vera Bradley Direct, $17 million (+11.2% YoY) from Vera Bradley indirect, and $19.8 million for Pura Vida (-26.8% YoY). Vera’s CEO Robert Wallstrom characterized this performance as “below our expectation and resulted in a net loss.” Management attributed this outcome to a “clear bifurcation of spending of our customer base,” specifically pointing out the decline in activity from households below an income of $55,000. Their product mix appears to be normalizing back toward pre-pandemic normals, as their core travel segments return to strong growth.
( Source: VRA Investor Relations)
The company’s current initiatives are geared toward responding to the recent softness in sales, this includes cost management, price increases, and continued expansion of the Pura Vida store count. The company also touted their Tupperware and Star Wars partnerships, where they hope to follow on the success of the Harry Potter partnership that features annual new product lines. The company does appear well poised to take advantage of an increase in sales of luggage and travel-related products that big box retailers have pointed out in their recent commentary.
A Vera Bradley bag. (Courtesy photo)
Looking into how these challenges are impacting performance, management shared commentary on their most recent earnings call. On pricing, they’ve increased the retail price for Pura Vida's full catalog and remarked that this “has been taken well.” Most items in the Pura Vida catalog are under $50, so they’re increasing price in many instances on a $10 bracelet. The Vera Bradley brand, with higher price points, has “limited ability to pull the pricing lever,” especially in relation to lower-income consumers. Promotional pricing is not currently needed to maintain purchasing behavior of their higher-income customers.
On supply chain disruption, neither of their brands are back to pre-pandemic on delivery times and they’re also experiencing extended inbound freight lead times. They are working to reduce the lead times and achieve an “optimal” balance that takes their recent softness into account. The team framed this optimistically, saying “we are in a better inventory position than last year” yet adding that they will reduce future inventory purchases.
Their marketing strategy is also pivoting. The previous strategy was based on social media-centered acquisitions, but this has been negatively affected by iOS targeting challenges and rising costs. Going forward they are moving toward first-party marketing via their physical stores and pivoting the social strategy toward influencers. The CEO remarked that he believes lower AOV DTC companies should move toward using influencers rather than paid performance marketing spend (presumably due to high CAC and iOS privacy).
(Source: VRA Investor Relations)
(Source: VRA Investor Relations)
Vera Bradley’s company-wide performance is mixed, they have seen some slight gross margin improvement QoQ, but continued declines in total operating margin as pricing increases are offset by higher marketing costs and investments in Pura Vida physical stores. The macro-environment has clearly been a headwind, as modest and mid-income earners have primarily pulled back on fashion apparel and other discretionary purchases in recent months.
VB’s initiatives seem to be similar to several others in the Bainbridge Index: vigilance on inventory growth, pull back on performance marketing, and lean into omnichannel strategy. As we get through the second half we will watch closely to see how this plays out, as ramping up the omnichannel approach appears to drive operating and gross margin rates in opposite directions.
Trending in Operations
"Fashion ecommerce is one of the most cumbersome customer experiences that exists," said Rent the Runway CEO Jennifer Hyman.
The rise of generative AI is bringing with it a groundswell of interest and concern about how the capability to automatically synthesize information and create something new will change how we work.
Given that AI will sit within the architecture of our digital lives, it’s also worth considering how the technology will introduce new tools for other aspects of life, as well.
For two ecommerce innovators in the apparel space, it’s a time to explore how it will transform shopping. Rent the Runway is set to roll out new AI-powered search capabilities, while Stitch Fix is drawing on a long history with data science and machine learning to personalize the inventory buying process.
Here’s a look at the initiatives underway at each company, and their visions for the future:
Rent the Runway: From search to concierge
Rent the Runway is putting a focus on the customer experience this year as it seeks to retain more subscribers and continue a yearslong push toward profitability.
This is resulting in the introduction of a variety of new initiatives, from the addition of an extra item to all orders to speeding up page load times. Yet as CEO Jennifer Hyman zooms out, she sees change being necessary on an industry-wide level in fashion. Beyond adding new features, AI can play a transformational role.
“I think that fashion ecommerce is one of the most cumbersome customer experiences that exists. You are searching through pages and pages and pages of content to find the items that you like and no one likes doing this,” Hyman told analysts on the company’s earnings call this week. “As an industry that still is selling physical products, AI is going to be -- fashion is going to be a major beneficiary as an industry.”
As a rental service, Rent the Runway has a distinct niche in fashion that lends itself to AI’s advantages, Hyman said. As opposed to a retailer that a consumer may visit a couple of times a year, RTR is used frequently by customers. So Hyman said there are opportunities to turn Rent the Runway into a “utility” by creating a more seamless experience.
This frequent use also provides a “highly unique” dataset, Hyman said. They know what a customer is planning to do based on what they rented. They know whether she liked or disliked an item, and many customers are reviewing 10 items per month. They know her size and how an item fits. This can be put to work in tools that allow customers to ask questions, and find answers.
The first application that combines AI and these advantages will appear in the coming weeks, when Rent the Runway plans to launch a beta of AI-driven search. The tool will allow customers to search for common terms or use cases for an item. So a person will be able to write “Miami vibe,” “‘clambake in Nantucket,” or “tropical motifs,” and receive results about what to wear for such an occasion.
The goal is to help customers sift through the endless aisle, and instantly finds what's right for them.
“I think that across all fashion sites, all over the world, the way that people are searching for product is fairly vanilla, it's fairly functional, right?" Hyman said. "You can go to a site and search for a T-shirt, you can go to a site and search for a black-tie gown. The fact that we're going to be able to enable our customers to search how they actually want to use this closet in the cloud, to search for items to wear to my beach bonfire this weekend, that is a completely different way to search, and I think that it really brings out the value proposition of what a closet in the cloud is all about."
Hyman sees this as a first step in the company using AI models to improve the product experience, and expects more tools to appear in the coming months. RTR is also introducing an SMS concierge experience for onboarding that allows customers to text with a member of the customer service team. The company is already exploring ways that AI can be incorporated into that tool, as well.
In the longer term, Hyman said the company has a vision that will leverage AI to allow customers to communicate with Rent the Runway asynchronously across different modalities, and have a stylist that is constantly available to recommend items, pick out new inventory and answer questions.
“If we are utilizing AI appropriately over the next few years, I see no reason why someone even has to come to our website,” Hyman said.
Stitch Fix: Inventory buying and beyond
Stitch Fix has long married AI with human curation to provide outfits on a subscription basis.
“For years, we have utilized capabilities in generative AI, injecting scores and language into our personalization engines and, more recently, automatically generated product descriptions,” CEO Katrina Lake told analysts. “We have also developed and implemented more advanced proprietary tools such as outfit generation and personalized style recommendations that create a unique and exciting experience we believe is unmatched in the market.”
A new area where the company is applying AI is inventory buying.
“We have historically utilized a number of tools to make data-informed decisions with our inventory purchases,” Lake said. “Now, directly leveraging our personalization algorithms, we have developed a new tool that creates an exciting paradigm shift, which will utilize math scores at the client level to drive company-level buying actions. We expect the clarity of demand signals at the individual client level to drive more proactive and efficient inventory decisions as a company. And because of this, we expect to see higher success rates on fixes and drive increases in keep rates and [average order value] over time.”
Early results are promising. When compared with existing buying tools, testing showed a 10% lift in keep rate and AOV. By the end of this quarter, Stitch Fix expects 20% of all purchase orders to be algorithmically informed.
With experience using AI and a team in place to build, Stitch Fix is investing in the technology. Like Rent the Runway, it also has a unique dataset that offers an immediate advantage.
Here are Lake’s thoughts about how Stitch Fix’s AI strategy:
One of the things that I love about our experience is that we have generative AI that's really in more of a visual format. And so, the outfits that we have in our app, those are actually taking into account your preferences, what we know about you, and then in combination with what we know that you own in your closet. And to be able to kind of continue to push that technology and to be able to continue to give people more value in their experience with Stitch Fix, that's a really good example of, I think, a capability that is, firstly, really aligned with our capabilities around data and personalization and really unique to us.
And then I think it's also really compelling because I really think that pushes us as we think about what that addressable market is. I think if we can push outfits to be something that can be an asset to everybody, I think that is a universal thing that people would love to be able to have, is to have access to advice on a daily basis around what to wear and how to wear it.
While these are distinct companies, their plans lead us to a common conclusion: While the talk around generative AI might be new, many technology-forward companies already have assets sitting inside them that can be leveraged to build new tools. Uncover what’s already there, learn about the AI’s capabilities and develop a solution that's right for your organization. Then, talk to customers to determine how to improve it. It might mean commerce looks different, but that’s okay. The point is to create a better experience.