BUS 406 Company Analysis - Everlane PDF

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BUS 406 Company Analysis on Everlane Company...

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Strategic Consulting Project Everlane

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Executive Summary Everlane is a clothing company that bases their business practices on the idea of transparent pricing as well as sustainability, fair labor practices and working conditions for their factory workers. They have been extremely successful since their opening in 2010, and operates almost exclusively in the e-commerce space with just two brick and mortar flagship stores. Everlane was the first clothing company of its kind, and now many companies are beginning to follow their lead in the transparent and sustainable clothing industry. Yet unlike some of their

competitors, Everlane is fairly vague about their environmental impact, how they are evaluating their factories and they lack third party verification of their sustainability efforts. They need to make a change quickly as companies such as Allbirds, Patagonia, TOBI, Cuyana, Reformation, etc. are putting actual numbers to their sustainability programs and are participating in similar fair practices and transparency. In order to maintain their competitive advantage, they must seek third party verification, make more information about their factories, wages and labor practices available to the public, as well as launch a marketing campaign reaffirming their transparency and sustainability efforts to their customers helping build greater brand loyalty. A. Industry Analysis Everlane is an innovative clothing company that is introducing the idea of “Radical Transparency” to the clothing industry. Everlane is the first company of its kind to be completely honest about their full supply chain, and are creating high quality, trend defying and cost efficient clothing. The Everlane model focuses on the ecommerce space and operates with only two flagship brick and mortar stores in San Francisco and New York. Everlane’s business model essentially created a new industry out of a consumer need for honesty and transparency. According to an Antea Group study, 78% of consumers say they feel better about buying products they know are sustainably produced6, and Everlane fulfilled that need and were one of the first in the industry to be completely honest about their sustainability practices. Everlane has been wildly successful fulfilling this niche and has garnered million in profits. Due to Everlane’s success, several companies have begun to follow suit in the realm of sustainability and honesty, yet no company has fully copied Everlane’s model of complete supply chain transparency. When analyzing Everlane’s competitive environment with Porter’s Five Forces model, it becomes clear that Everlane’s risk of copycats and competitors is relatively low. There is a low

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threat of new entrants to the sustainability and transparent clothing industry because the market Everlane is occupying is relatively niche and it is difficult for companies to remain profitable while also being completely honest with their consumers. There is a low threat of substitute products for the similar reason as above, most companies would struggle to recreate this model because Everlane has created a unique model that combines honesty, high quality fabrics and reasonable prices. Buyer power is low in the case of Everlane because there are very few other companies in the industry who can provide the same level of honesty and quality of products. There are other companies such as Patagonia, Reformation and Cuyana who are offering similar ideas of sustainable practices, yet their clothing items are not a direct substitute for Everlane. There is a relatively low supplier power because Everlane has specific contracts with their suppliers, but there are also many other clothing industry factories and suppliers Everlane could source from if needed. While Everlane’s supplier standards are high and their process of finding reliable and ethical factories takes many months, there are factories all over the world they can source from. The level of existing companies is very low, as Everlane was the first company to break into the space of completely transparent clothing practices. Now though, many companies are beginning to incorporate and promote sustainable practices, as many as 57% of companies have integrated sustainability into their strategy, which is why it is likely Everlane will have direct competitors soon. Within the clothing industry, some of the key success factors include innovation, ecofriendly products, high quality products, speedy delivery of products to consumers, flexibility, and solid supply chain networks. Everlane capitalizes on three of these key success factors in order to create a successful business model. Their model is innovative in itself, and a firmly established and managed supply chain is at the heart of their business and what allows them to

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differentiate themselves. Lastly, Everlane’s clothing is manufactured with mostly sustainable fabrics and the clothing itself promotes sustainability through its high quality products and long life cycle that is free from trends. In order to fully understand the industry segment Everlane operates in, we have to look at the political, economic, social and technological factors affecting the industry. A big political factor affecting the clothing industry is the importing and exporting of goods as well as the regulations affecting duties and manufacturing of goods outside of the US. The economy of the US market has a large effect on what consumers are willing to buy as well as the amount of buying power they have. The economies in other countries, especially countries where companies have factories and suppliers can affect the bottom line. Social trends is what helped Everlane capitalize on a new niche of consumers who are asking for honesty from brands they buy from. The trend leaning towards more sustainable fashion and away from fast fashion companies has heavily influenced the way the clothing industry operates and how and what consumers buy. Technology has played a huge part in how the fashion industry has changed, and Everlane has completely adapted to this need by making their stores essentially all online, catering to the modern millennial consumer who prefers to shop online. We can further dive into where Everlane’s strengths, weaknesses, opportunities and threats lie through a SWOT analysis compared to the clothing industry. Some strengths that set Everlane apart from the rest of the industry are its high quality products, their ethical practices as well as their transparency in pricing. Some of the weaknesses of Everlane include their lack of product selections, they just recently introduced a denim line and their availability of products is fairly limited and there is often a long wait list for their products. With Everlane’s platform, they have the opportunity to educate the public about how their practices can help our planet and how

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sustainable fashion is affecting the industry. They also have the opportunity to influence how other companies operate and can help make a positive change in the industry through modeling how transparency can still be profitable. The threat to Everlane’s model comes mostly from companies attempting to copy their model and philosophy of sustainable high quality clothing. B. Analysis of Competitors The top executive at Everlane have identified their niche and built high-quality products that will withstand the constantly changing trends in fashion and retail. They have also identified other businesses that share their values of radical transparency and social consciousness to collaborate with10.The clothesline pairs fitting market strategies for their target customer with high-quality products. Everlane's top competitors include TOBI, Reformation and Victoria Road. When compared to other mid-level brands, Everlane's price range is very competitive and they have been able to maintain the quality of their products and the brand values. Everlane uses radical transparency as a unique selling point. It provides unprecedented amounts of information regarding how and where they source their raw materials to its customers which sets it apart from the other clothesline retailers it competes with (Nailor). However, even though Everlane has many unique selling points, the other competitor brands are more recognized and accessible to the clients. Everlane is a new player in a very saturated fashion clothing market. It's CEO also has no experience in retail. Everlane is, however, working on this by introducing pop up shops, and using technology especially social media to create brand awareness and interact with its customers. The Everlane brand appeals more to minimalists who want good quality products without being plastered with brand logos. This is because Everlane products are of good quality and functional with minimal colours and aesthetics(Nailor). This is both a strength and a weakness in that it caters to a unique clientele but it also locks out other potential customers

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giving Everlane's competitors and edge. By eliminating physical warehouses and shops, Everlane has been able to reduce its operating costs drastically and transfer this benefit to their customers. It also has a low mark-up on its products. Its prices are six to eight times lower than those of its competitors. C. Internal Analysis of Everlane The internal environment is determined by a firm’s ability to leverage its resources to create organizational capabilities and key competencies. Everlane has built a strong ethical brand due to visionary leadership, innovative culture, and strategic partnerships in marketing. The greatest resource at Everlane is the visionary leadership of Michael Preysman and Jesse Farmer. The two realized the wasteful nature of the fashion industry, noted the pressure for sustainability, and created a firm that addressed this problem. By embracing radical transparency, they have positioned Everlane as a leader in ethical fashion. Moreover, the company embraces a collaborative culture, which serves as the basis for teamwork and innovation According to Segran, Everlane does not have the lead designer like its competitors. Instead, they maintain a team of designers whose objective is to create designs “out of their own inspiration.” The firm also has gained several capabilities due to the proper use of the available resources. First, the firm has exceptional customer service. Hence, it has an elaborate feedback mechanism, which is utilized by a team of designers to create better designs. Second, the firm has managed to create quality products that are designed to withstand any trends. The team spirit in the organization is the key driver for those designs11. Everlane has also secured some of the best partnerships, particularly in marketing. For instance, they have famous American Actress and humanitarian-Angelina Jolie and Duchess of Sussex, Meghan Mikhel wearing their clothes.

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Lastly, Everlane has secured a lot of funding in terms of seed money $1.1 million by 2015) due to capable leadership, which was able to sell the idea to investors11. Based on these resources and capabilities, Everlane has gained two major core competencies. First, the company has gained a reputation as an innovative brand creating new standards for the fashion industry. Everlane is also recognized as a leader in ethical fashion. Part I. Identifying Strategic Challenges 1. Backing for Claims of Sustainability and Innovation Radical transparency - these are often not the first words you think of when talking about the clothing industry. But Everlane, a rule-breaking clothing company, built their business on just that, being completely honest about how their clothes are made, by who, and exactly how much they are making on each garment. If you visit Everlane’s website, they provide a breakdown of their prices down to how much they pay in duties and transportation as well as the exact amount they are making in profit (Appendix 1). Everlane was a first mover in the world of transparent fashion, and they have continued to maintain their competitive advantage through their high quality and timeless designs. This sustainable and honest approach is what appeals to Everlane’s main target consumer group-Millennials. The millennial consumer is quickly becoming disenchanted by fast fashion companies who aren’t making bold claims about sustainability and fair practices, so these consumers are beginning to switch to companies such as Everlane who are promising to give you the full picture. According to a Forbes article, 79% of Millennial consumers are loyal to companies that “care about their effect on society”1 which is why Everlane has seen such success, reaching revenues upward of $100 million in 2016.2 As well as being transparent about their pricing, their

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model of creating designs that are well made and defy trends helps discourage the idea of fast fashion. While Everlane is making all these claims about transparency and sustainability on their website, when you look a little bit below the surface at the sources of Everlane’s products, they don’t actually tell you the names of their factories, where they source their materials, how they review factory ethical practices, what their laborers are being paid, or many of the other radical claims they make on their website. Actually, fast fashion companies Everlane claims to be more transparent than like Zara, H&M and Uniqlo list the names of their factories and are honest about their factory vetting and ethical standards. Companies like Patagonia and All Birds have similar production honesty, yet are utilizing a larger range of organic and recyclable materials and create arguably higher quality products than Everlane. Reformation, one of Everlane’s direct competitors participates in a similar idea of radical transparency, yet puts out a quarterly sustainability report to back up their claims. So the problem lies in the fact that the very philosophy Everlane built their success on lacks validation by actual numbers, facts and certifications proving their sustainability claims. This is an urgent problem for Everlane because they are not actually supporting the claims they make about sustainability and ethical practices, which is what their company is based on. This is based on the idea of brand authenticity, which Millennials highly value in a company; they want the entire truth, not just an external perception of getting the whole truth through a sleek website. According to an international study conducted by Cohn and Wolfe, it found that 72% of Millennials value authenticity over innovation and 71% value authenticity over product uniqueness.3 With this is mind, it is clear that Millennial consumers will not be fooled by sleek products and innovation and demand the whole truth from the companies they buy from.

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There are several ways in which Everlane is falling short in terms of ethical practices, sustainability and transparency. First, Everlane’s claims about ethical labor practices are all internally audited and monitored; since they lack third party verification of their labor practices it is impossible to know if they are actually following and implementing the ethical labor practices they claim.4 Also, Everlane’s claims about broadcasting their code of conduct and auditing practices are not unique to them, many fast fashion companies Everlane claims to be “better than” post similar standards. While Everlane uses some biodegradable products, many of their materials such as wool, leather and cashmere 5 use immense amounts of water to produce. While Everlane does list the type of materials used, they do not provide the sources of their raw animal materials. It seems that Everlane lacks the actual verification behind many of their claims, and as the Millennial consumer is moving towards more authentic brands, it is imperative that the company takes steps towards backing their bold claims as quickly as possible. 2. Everlane Facing “Copycat” Companies Sustainable fashion is a trend and mechanism to facilitate a transition in fashion goods and the retail process toward greater environmental integrity and social justice. Sustainable fashion is more than about textiles or products of clothing. This requires explaining the whole style system. As the world is more concerned about pollution compared to decades before, more companies and industries are now trying to utilize sustainable materials to produce their products. Clearly, Everlane is not the only company that is focusing on the sustainable industry. Even brands that had traditionally been synonymous with fast-fashion companies with chemicals are investing in a rebrand for sustainability. Recently, the H&M group released their 2017 sustainability report, outlining all of the organization's efforts toward more sustainable manufacturing practices. The report shows that sustainable or recycled materials now account for

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35 percent of the total use of material by H&M. As more and more clothing companies targets using sustainable materials, Everlane currently faces a copycat problem in the industry. According to scientific figures, as much as 20% to 35% of all primary source microplastics in the marine environment are from synthetic fabrics. According to the journal Ethical Market, the size of the ethical fashion industry rose by 19.9 percent in 2018. Fortunately, young consumers are becoming aware of the problem and subsequently changing their consumption habits. Recent research by consultancy firm Deloitte has reported that over 80 percent of Millennials across Australia, Canada, China, India, the UK and the US find it necessary for companies to behave ethically and take steps to reduce their impact on the environment. Consumers between the ages of 25 and 35 are expected to spend US$ 150 billion on green products by 2021. With the given information, it is obvious that many other companies are trying to get involved with reducing the pollution caused by the fashion industry sector. Therefore, Everlane faces the issue of losing revenue and having more competitors as the market for sustainable clothing increase. Part II. Sustainability and Three Strategies Everlane can start by obtaining third-party certification from trusted groups like BCorporation or Cradle 2 Cradle. The company currently lacks any means of backing its claims on transparency and any ethical practices they do. This is a potential hazard for the future, when their claims are questioned, they will have no means to back their claims and potentially suffer backlash for it. By having third-party certification, Everlane can guarantee its customers that their stores are indeed ethical and transparent, and worth shopping at. Tying in with the first strategy on third-party verification, Everlane lacks any evidence that they pay living wages. Many countries lack sufficient minimum wages or offer little to no protection of worker interests. Everlane is not certified by Fair Trade, GOTS, or any other trusted

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third-party to back claims on worker rights and well-being. This is yet another hazard for Everlane as this damages their claims on “radical transparency” and can be detrimental to their future image. Customers who shop at Everlane are typically proud of Everlane’s self-proclaimed transparency, but seeing how the company lacks any backing to their claims, word may eventually come out that they aren’t ethical or as transparent as they make themselves to be. Everlane should include more eco-friendly materials into its production of clothing while aiming for higher standards in the quality of their clothing. Companies like Patagonia and All Birds are capitalizing on sustainable materials like organic cotton, hemp, and tree fibers to create quality clothing that many would argue are superior to Everlane’s products. Everlane needs to follow their example and start using more eco-friendly materials while focusing on making higher quality goods that can compare to their competitors. Since Everlane focuses on a simplistic, minimalist design, they will need to emphasize quality more to have their products be on par with their c...