Clothes Encounters: The Logistics of a Revolving Closet

Tags: Site Selection, Supply Chain Management, E-commerce, Logistics

With its subscription-based clothing rental model, Gwynnie Bee is tailoring the rules of e-commerce to make fashion fulfillment a perfect fit.

High-end women's fashion is a fickle thing. Fads fade, styles come and go, and tastes turn with every new season. It's an industry where clothing companies create demand—designing new fashions, generating hype, and selling to that. It's all about the push, not the pull. While demand responsiveness is still important, manufacturers and retailers place greater emphasis on mining sales data and divining consumer likes and dislikes.

The fashion industry is also unique because e-commerce doesn't come easy. While virtual storefronts present another channel to deliver Fifth Avenue window displays through a Windows browser, one critical challenge remains—making sight-unseen shopping less risky.

In this regard, brick-and-mortar retailers will always have an edge when it comes to customer service. Women's couture, in particular, depends as much on the experience of touching and feeling garments as it does swiping a credit card.

That's why New York City start-up Gwynnie Bee is creating a buzz in the e-commerce fashion world with its Netflix-like business model. The subscription-based clothing company, which set up shop less than three years ago, is bringing the showroom effect into the home. Gwynnie Bee caters to plus-size women's clothing—sizes 10 to 32—providing clientele with a virtual wardrobe that lets them mix and match outfits with an option to buy.

Inbound Logistics recently caught up with Robert Escobar, vice president of operations at Gwynnie Bee, for a behind-the-scenes look at an e-commerce company that is rewriting the rules of fashion fulfillment.

What's the story behind Gwynnie Bee?

Our CEO Christine Hunsicker felt women weren't excited to go shopping anymore. She was aware that e-commerce options weren't readily available to them, limiting their ability to experiment with different types of styles, fabrics, and colors.

When we started Gwynnie Bee, we wanted to identify the space that would give us the fastest traction. It was obvious: The plus-sized market, which is severely underserved in both retail and online.

Hunsicker believed women did not have enough flexibility and variety in their closet—so she came up with the idea of a subscription-based clothing rental service.

Even in today's new "share" economy, Gwynnie Bee is still unique. It is the only subscription-based company that allows women to sign up for different plans—they can receive between one and 10 items—with unlimited exchanges and free shipping.

How customers revolve garments is entirely up to them. Some are savvy—as soon as they receive the clothes, they wear them, then send them back. Those customers turn the virtual closet quickly, and derive a high degree of value from the service. If customers like an item, they have the option to buy it. We offer the added comfort of a try-and-buy service. It's flexible, allowing women to experiment with clothes.

Given the option to buy, is there a time constraint on how long a customer can hold on to an item?

No. one benefit of the service is its flexibility. Let's say a customer rents a dress and wears it a few times, but still isn't sure she wants to buy it. She can hold on to the dress for one month, then buy it. We already have the customer's credit card in our system, so it's an easy one-click transaction.

Few women wear a garment more than three times, because then they have to wash it. We don't encourage customers to wash our garments because we have our own cleaning process internally. But, if someone wants to wash and wear a garment again, that's fine. We want to give the consumer freedom and flexibility to enjoy that item.

From a logistics perspective, I love the fact that we don't have to pay for shipping when we sell an item. We can sell customers a product that they already have.

What would dissuade a customer from not returning an item?

algorithms in our system issue an automatic e-mail to customers who hold a garment for more than three months. We let them know that they can buy the garment if they want to. The same process works if someone cancels their subscription and still has our clothing. We give customers the benefit of the doubt. Many just forget to return the items, and 90 percent of late returners comply once we remind them.

We're not naive, and we will have to look at non-returners more closely as we grow our customer base. But currently, Gwynnie Bee is a close community—we call it social commerce. Our customers do a great job policing one another. They rate garments on our website, and provide a lot of feedback. That's big data that we take back to our manufacturers and brands.

Take a step back, and describe Gwynnie Bee's supply chain from a sourcing and transportation perspective.

Between designer brands and private labels, we source from hundreds of suppliers. Most of our product comes from domestic wholesalers, but we buy outside the United States as well. If we plan things right, our shipments go on a boat. If we're running tight, they go on a plane. We're conscious of our air spend because it generally indicates poor planning.

As product comes in periodically throughout the week, we process it and stage deliveries. There's a structure to how we launch new items. Product has to be aligned with the season and current trends, so we're constantly in touch with our buying department.

We use several less-than-truckload carriers, as well as UPS and FedEx. Outbound shipments move exclusively through the U.S. Postal Service. That will fundamentally change over time, because we want to start optimizing shipping zones. For example, we will explore finding a lower- service product that still delivers in two to three days.

As a startup, Gwynnie Bee is focused on getting product to customers as quickly as possible. We won't compromise on delivery. We're aiming for four to five days from the time customers book an order to the time they receive it at their door.

We're also thinking about opening another distribution center on the West Coast to take advantage of regional carriers who can expedite shipments to the home. As the company grows, we want to build out a network where we can guarantee one- to two-day deliveries to customers.

Talk about the logistics challenges you face with this subscription-based rental model.

I've been doing supply chain, distribution, and logistics my entire career, and Gwynnie Bee is, hands-down, the most complex model I've gotten myself involved in. But it's exciting.

We launch new fashion collections as many as four times each week. We display the new fashions on our website and Facebook page, and send e-mail blasts to get customers excited about these new items. That's a small percent of our total inventory.

Reverse logistics, which focuses on returns coming back into our distribution center, is central to our supply chain.We just opened a new DC in Columbus, Ohio. Our consultants were scratching their heads when we designed the facility because we wanted to locate returns in the middle of the building. But once they understood our business, they knew why.

Returns feed our machine; we receive up to 5,000 garments each day. Our average return shipment is about 1.7 garments.

It's important to recognize that we don't generally sell inventory. It's not a traditional e-commerce sales transaction; it's more like a transfer in a warehouse management system. We move inventory from one location to another, even if it's from the warehouse to a home. Our IT system is homegrown, so it gives us flexibility to work this way.

Returns transfer back into our DC inventory, then go through a number of different stages. We have to rigorously inspect all garments to make sure the buttons are in place, and that nothing is ripped or stained. Then the clothes are sorted by dry cleaning or laundry, and sent out to our cleaning partners.

We're in the process of insourcing cleaning—it's a multi-year project because of the investment. But we currently send all garments out for cleaning the same day we get them. Return shipments come in around 7 a.m. We process returns by 10 a.m., then deliver to our cleaners, who need to send garments back in less than 24 hours. The garments are re-inspected after they come back from the cleaners, then stocked and picked in the afternoon.

Our service level agreement is 24 hours, but the churn is usually faster than that. The name of the game is speed because we want to utilize that inventory as many times as we can within reason. Clothing can start to look a little worn after 10 or 11 turns. We take product out of inventory daily to ensure quality.

How do you keep track of inventory within your system?

Everything is bar-coded and items are scanned in and out as they move through the system. We are striving to use RFID, but it's not conducive to our current business operations.

We also have to be sensitive to the stigma around renting clothes. Even though customers know their garments are rentals, we don't want to continually remind them with a big old bar code inside a dress. It removes the romance. We want to make sure we preserve a positive experience.

We use a 2D bar code that measures one quarter of an inch by half an inch—the size of a fingernail. It's embedded inside a garment's care or designer label so that it's not obvious to the customer, but our people know where to look for it.

As garments flow in and out of various areas, that bar code is constantly scanned. For example, if we want to run a cycle count, or take a snapshot of where inventory is, we know there should be 6,000 garments staged for cleaning, or that cleaners have 5,000 items.

Admittedly, it is a tedious process. Fumbling through a garment to find a label is time-consuming. Gwynnie Bee's focus is to provide a positive customer experience. If we have to spend more money in labor and touchpoints, but we still get that result, so be it. We're building a brand, and a loyal customer base.

From an operational standpoint, we want to reduce time. That's why we want to look closely at implementing RFID technology.

Gwynnie Bee's inventory is constantly moving. What challenges or opportunities does that present?

We look at inventory in a holistic way. Ask me how much product Gwynnie Bee has, and I'll say more than 100,000 garments. If we stop the music and take a snapshot, about 35 to 40 percent of inventory is sitting in the warehouse in various stages. The rest is with our customers. Utilizing inventory heavily is our thing.

There's a perception that insourcing the cleaning process will save us a lot of money. But consider how much water and electricity we would use, and the capital cost of machines. The real payoff with insourcing is bringing a 24-hour cycle time down to less than four hours. That would enable us to turn inventory faster.

The majority of our product is on the move. That's what we want. We don't want inventory sitting in the warehouse. Our buying and merchandising teams in New York are constantly looking at data and inventory in one of two ways—finding product that isn't being used (maybe we bought a style that nobody likes) and taking it out of the system; or conversely, identifying when we didn't buy enough of a certain product.

Let's say we bought 75 units of a popular dress in size 10, but 450 customers want that dress. Even if each person holds on to that garment for one week, we're way under demand. On occasion, we take a SKU out of the system to smooth demand simply because we want people to have a good experience.

We're starting to test sending data-driven e-mails to customers who have one dress on order that recommend similar dresses that are in stock. We're only confined by what inventory we have. Because it's such a fluid business, it's almost impossible to go back and order another 200 units from the manufacturer, who has already moved on to the next season.

One of our biggest investments is building out our data analytics department. It's probably a no-brainer when you think about this business, but we believe this is a strategic area. We need to anticipate certain trends and behaviors, and become better buyers to optimize our inventory. If we have the data, it makes the decisions a lot easier.

Because logistics is core to your business, and you've created this subscription-based model, would you consider expanding the kind of product you rent or sell?

Yes, The opportunity is tremendous. First, we are selling some clothing to customers after they rent it. But if we can offer them the whole look, customers will jump at it. We're just getting started, but our ambition is to become a full e-commerce business.

We feel like we have an edge in leveraging the subscription piece. I call it the free ride. Consider this as an example: A woman rents a dress. Does she know her dress goes well with a certain pair of boots or that gold bracelet? We have an upsell opportunity. The customer clicks on the boots and the bracelet, and the transaction goes through.

With the way our fulfillment system works, we can match that purchase with what the customer just rented—so the whole outfit is shipped at once. Other businesses might charge the customer separately for that. But in today's world, everyone is trying to move toward free shipping or at least lower-cost shipping. So we get that added benefit.

Everything that drives logistics ultimately drives a positive experience with the customer. You cannot survive in e-commerce today if you're not thinking about logistics.