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Betabrand

by Eric Peterson on October 23, 2018, 08:18 am MDT

www.betabrand.com

San Francisco

Founded: 2005

Privately owned

Employees: 60

Industry: Consumer & Lifestyle

Products: Apparel, bags, and footwear

VP of Operations Jim Wilson is steering the crowdfunded apparel pioneer to new manufacturing models.

Co-founder and CEO Chris Lindland came up with the idea for Cordarounds while devising a portfolio to break into the advertising industry. The fictional pants featured horizontal grooves in place of the vertical ones on corduroy.

Lindland's copy made the dubious claim that the tweak reduced friction and therefore reduced the wearer's "crotch heat index" by 22 percent. "It was pure hyperbole," says Wilson. "It was a comedic effort to develop a portfolio."

But there was an unintended effect that planted the seeds for Betabrand. "It created a frenzy of people who wanted to buy Cordarounds," explains Wilson. "He had to figure out how to make them."

Lindland did just that by finding the local suppliers and cut-and-sew shops to realize his admittedly goofy vision.

Cordarounds released other products, including Reversible Smoking Jackets and the Black Sheep Wrap Sweater. The common denominator? "There was always a novelty and a story to everything," says Wilson. "That was a huge part of the genesis of the company."

Lindland changed the name to Betabrand in 2009. "The company really realized it had outgrown this pants brand," explains Wilson. "We're always going to be a company in beta. We're always going to be trying new things and testing new things."

Betabrand implemented a crowdfunding model in 2013. Wilson says it's based on "co-creation" with designers who submit ideas to Betabrand for public evaluation. "Then the Betabrand community can engage with that product," says Wilson.

If the concept gets enough engagement from 500,000 active users, an algorithm acts as "an internal scoring mechanism," he says. "That signal alerts us, and that's when we begin prototyping."

Staffers in San Francisco make a prototype or 3D rendering of the product and it advances it to the crowdfunding stage. (Renderings are typically used for footwear and bags, both of which were launched in early 2017.) There's a pre-set sales threshold for the product to go into production, typically 100 to 500 orders within 30 days.

It makes good business sense. "The whole way our platform operates is to mitigate risk from an inventory standpoint," says Wilson. "It's allowing consumers behind the design room door to work with us."

Designers get 10 percent of net revenues from the product for a year, visibility on the website, and the ability to interact with the Betabrand community and ask questions. "We consider ourselves a launchpad for individual designers who want to make a name for themselves," says Wilson, noting that Betabrand has worked with about 500 designers over the years, as thousands have submitted ideas.

"Designers want to design," he adds. "They often don't have marketing knowledge. They often don't have sourcing and manufacturing knowledge. That's really what we bring to the table."

The operation is based at the headquarters and flagship store in San Francisco's Mission District. A staff of six handle prototyping, pattern-making, and sampling. "That's really to save time," says Wilson. "We can save two weeks per product by doing all of our prototyping in-house."

Manufacturing is a handled by contractors. Initially, Lindland relied on small cut-and-sew operations in the Bay Area. "He became very well-connected in the apparel world in San Francisco," says Wilson. "For a very long time, all of the manufacturing was done domestically." Production runs were typically 300 units or fewer.

In 2014, the company started moving manufacturing offshore to facilities in China, Cambodia, and Indonesia. "We started to outgrow our production facilities in San Francisco," says Wilson. "It was largely based on necessity."

The reason? "We were launching big hit products with crowdfunding," says Wilson. "The biggest one is Dress Pant Yoga Pants. It actually remains our top-selling product."

The breakout hit combines the stretch of yoga pants with the look of dress pants. "We've sold well over 500,000 of them," says Wilson.

It was a reaction to the company's male-oriented catalog at the time, and a counterpart to its Dress Pant Sweatpants for men. "Why would we not create a comparable product for women as this yoga pants trend took off?" says Wilson.

The success coincided with the company hitting the minimums at offshore factories. Runs increased from the hundreds to the thousands.

At the end of 2017, Betabrand migrated from working directly with factories to contracting a pair of trading companies in Hong Kong, Li & Fung and CFL, to manage the entire supply chain. "We were doing everything on our own," says Wilson. "We were sourcing fabrics on our own, we were sourcing cutters on our own, we were sourcing sew shops on our own. As a result, we weren't really important to anybody."

Consolidating all of that business through trading companies has changed that dynamic. "We became a more important client to them and we rely on them to leverage their manufacturing base to get into factories we wouldn't be able to get into otherwise."

"It's really a back-end manufacturing partner," says Wilson of the model, noting that quality control is improved, shipping is more efficient, and less labor is required to manage all of the moving parts from the Mission. "We're in a really good place from a manufacturing standpoint right now."

As large clothing brands vertically integrate their supply chain in-house, trading companies are losing some of their biggest customers. "They inhabit the middle-market area where companies are too small for them when they start up, then they outgrow them."

With annual growth rates averaging about 50 percent, Betabrand's annual revenue has eclipsed $40 million. "We are right on the cusp of profitability," says Wilson. "We will be profitable this year."

Challenges: "Specifically from a manufacturing standpoint, one of the big ones is around the tariff conversation and how it will affect us," says Wilson. One solution: Betabrand is increasingly shipping directly to consumers from Hong Kong. Individuals can buy $800 duty-free per day, so the strategy avoids the tariffs that could be applied to containers. "We've ramped it up substantially," says Wilson. "I'm moderately to highly confident, the minimum won't go away."

Opportunities: As sales are currently 97 percent domestic, "Internationalization is something Betabrand is looking at," says Wilson. "Now that the majority of our inventory is warehoused in Hong Kong, it opens up shipping lanes dramatically." The goal? "I could see us operating a business that's 70 percent domestic and 30 percent international in a relatively short period of time. . . . A lot of time it's just clicking a button that says target South Africa instead of the United States."

"We've done really well in the travel category," says Wilson, highlighting bags and apparel like the Sweatshirt Travel Dress.

"Footwear has done really well in the past year and a half," he adds. Tennis-Western Boots and Late-To-The-Gate Heels have sold well.

And there's room for growth in other categories, and some of them might be beyond apparel, like luggage and linens.

Needs: "Space is certainly a big one," says Wilson. "We are virtually at capacity in our office." A secondary space near the headquarters houses the customer service team; consolidating customer service and other functions in the East Bay might be in the cards.

"I can't imagine a scenario where we'd leave the Bay Area," he adds. "It's something we'll need to start thinking about."

Wilson says Betabrand will also continue to pursue "opportunistic fundraising." The venture-funded company has raised about $35 million to date. "Our venture story is currently ongoing," he notes.

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