ModCloth, Now With Over $100 Million In Annual Revenue, Is Going Mobile First

ModCloth, the indie fashion site best known for its vintage-inspired dresses, is today offering the first look into its revenue situation since 2009. The e-commerce startup, which is backed by roughly $48 million in outside funding, says it did over $100 million in revenue last year, and is now growing faster than 40 percent year-over-year. That's up from the $15 million it had previously reported in 2009.

To compare that figure with other well-known e-commerce industry players: Fab.com did $120 million in revenue last year, and is now valued at $1 billion; Beyond the Rack estimated around $200 million for 2013; Rue La La had previously estimated $400 million in sales for 2012; and Gilt was at $600 million+ in 2012. Meanwhile aggregator Fancy speaks of sales differently, claiming around $100,000 in transactions per day.

The majority of ModCloth's sales are those for its well-known dresses, though other merchandise on the site, such as swimwear and shoes, will see seasonal bumps, explains company CEO Eric Koger, who founded ModCloth with wife Susan back in 2002.

Half Of ModCloth's Shoppers Coming From Mobile By Year-End

News of the company's progress comes at a time when the e-commerce industry as a whole is learning to adapt to the new mobile landscape, which affects not only where and when people shop, but also how. Earlier this year, ModCloth began tapping into this trend, launching first on iPad in February followed by the iPhone app release later that spring.

Koger, who recently described ModCloth's business as one where all future development will proceed with a "mobile-first" mindset, says that the company's progress on mobile has gone well, speaking of softer metrics like "increased engagement," as well as ones that more directly affect ModCloth's bottom line.

"We have more transactions and more purchases on the app – pretty significantly versus the mobile web app," he says. "We're predicting that more than 50 percent of our shoppers are going to be coming from mobile devices by the end of the year."

To put that in perspective, it was only last Christmas when the company noticed the surge in mobile visits had begun accounting for nearly 30 percent of ModCloth traffic. A year later, and they expect the number to grow to half.

It's a shift that is not without its challenges — and not just for ModCloth, but for any e-commerce company that wants to maintain and grow its customer base on the devices whose popularity is contributing to quarter-after-quarter of shrinking PC sales. On mobile, e-commerce businesses need to think about things like what merchandise in their lineup works best on mobile, what time of day their visitors shop, when to reach them via push notifications, how they need to revamp their creative assets for smaller screens, and how they can transition various elements of their user experience to work using taps and swipes instead of mouseovers, among many other things.

Koger admits that his company doesn't have all these answers just yet, and what it knows today will likely change in time. Plus, even if they figure out what works, these are the kinds of trade secrets they'll likely keep close to their chest as the mobile gold rush continues.

Mobile Conversions Are Different: Fewer Per Visit, But More Over Time?

What ModCloth does know from its early efforts on iOS devices is that a lot of things have already changed in terms of user behavior. Customers seem to be treating the site as something that's more like a social app like Instagram, than an e-commerce storefront. Since the debut of the mobile apps, reviews have increased by 30 percent, and uploads to ModCloth's "selfie" gallery featuring shoppers wearing the company's clothes have increased by 60 percent. In addition, there are also four times as many users socially sharing from the app, and "loves" (a favoriting function) has increased 200 percent since the app's debut.

But if users are treating ModCloth like a social app, or an aggregator like Wanelo or Fancy, does that engagement mean they're actually buying? This is where things get tricky. Koger's opinion is that the shift to mobile also means that e-commerce businesses will need to think about conversions in a new way.

"It depends on how you define conversion," he says. "Conversion per visit is much lower – and that's the metric most marketers look at. But if you look at it on a conversion per unique shopper, it's much higher." He notes that this kind of slower, relationship-building experience has been ModCloth's modus operandi from day one.

"Conversion per visit is really the wrong way to look at it," Koger adds. "The goal is to grow the customer base and get a large share of [a ModCloth shopper's] closet."

Getting customers to increasingly visit the mobile app impacts the conversion-per-visit numbers, but serves the longer-term goal of making shopping an ongoing activity where pieces of the shopping experience itself have to be sliced up to fit the way shopping on mobile is done. In the few minutes of downtime where users often launch their favorite apps, they'll spend some of those sojourns browsing and favoriting, others narrowing down selections and adding things to the cart, and later coming back to complete the checkout process, which is made easier by keeping user payment and address data on file.

Competing With, Or Benefitting From, Aggregators?

But keeping users engaged in this ongoing flow may prove difficult for ModCloth and other e-commerce retailers who want their customers interacting with them and their apps the majority of the time. Fashion communities that extend across brands – like Wanelo (No. 20 on iOS in Lifestyle) and Polyvore (No. 36) today rank much higher than any single brand, including ModCloth (No. 110). These aggregators keep users busy in those same, precious few minutes of downtime while also presenting a variety of competitors' styles and products to choose from, as well.

For ModCloth, that's a challenge that may have to be addressed with strategic use of push notifications for app users, making sure to alert a shopper before a limited-quantity item sells out, for instance. But ultimately, the company hopes the social media sources and aggregators will be a way to pick up new shoppers who then download the ModCloth app and visit the website on their own.

"Our vision and where we believe the industry is heading is retailers who align behind distinct communities of customers, and those retailers understand those customers better than any other retailer," says Koger. "For the customers who discover us on Pinterest and Wanelo, our mission is to make sure we have such an exciting flow of new merchandise…that [the shopper] comes directly to us."

The company declined to provide specifics on transactions or customer base, pointing only to an infographic it released at the end of 2012, which spoke of 1.2 million orders shipped in the year. Its social media customer base (901K on Facebook, 2.3 million on Pinterest) also speaks to the rough size of its user base.

As for what's next for the company, the plan is to add 100 people to its sizable team (now around 435 employees) during the course of 2013, including some expansion of its L.A.-based design team focused on ModCloth's private label.