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Ebay Business Success Case Study

A case study focusing on eBay strategy

This case study summarizes the strategic approach used by eBay to take advantage of increased consumer adoption of the Internet. We have created it as an update for students and professional using Dave Chaffey's books which feature this case study. In this article we summarise eBay's objectives, strategy and proposition and key risks. At the end of the article we give sources to find the latest approaches used by eBay.

Updates will be added at the top of the case study

2018 update: Over 50% of purchases on eBay in the UK from mobile

At the end of 2017 eBay had 168 million 12-month active buyers, an increase from 90 million active in 2010. Nearly two-thirds of transactions are now international. The challenge of growing the business can be seen by the near static GMV in the last three years. Globally 58% of GMV is now transacted on smartphone.

Updating eBay brand positioning using traditional media

In an interview with eBay UK marketing director Gareth Jones, explained that:

“We don’t want to be defined by that online car boot sale reputation anymore. We need to get people to consider eBay in a completely different way. The UK is the petri dish for testing a new approach to rebuilding the brand globally. It is all about a shift away from the marketplace and over to being the ultimate shop”. 

He is candid that a past focus on prioritising digital channels has had a “small impact” on changing eBay’s perception. Despite stating we’re in an age of digital-based marketing, he believes TV is the best channel for brand building. This is based on regional tests that proved TV is the best place to get people to reap-praise eBay as a brand:

“TV is still on fire and a wonderful medium to get neurons into people’s brands in order to rewire their perceptions. If you ask someone where they are shopping on Black Friday then TV is the best place to put eBay at the front of their consideration set.”

Context

It’s hard to believe that one of the most celebrated dot-coms has now been established nearly 20 years. Pierre Omidyar, a 28-year-old French-born Software Engineer living in California coded the site while working for another company, eventually launching the site for business on Monday, 4 September 1995 with the more direct name ‘Auction Web’.

Legend reports that the site attracted no visitors in its first 24 hours. The site became eBay in 1997 and by 2012, it had 112 million active users globally defined as users who have bid, bought or listed an item during the preceding 12 month period, with the total worth of goods sold on eBay $60 billion, which is equivalent to $2,000 every second. Total revenue was $8.7 billion.

eBay's Mission

eBay describes its purpose as to ‘pioneer new communities around the world built on commerce, sustained by trust, and inspired by opportunity’.

eBay’s 2016 report describes the company’s view on current marketing approaches of exploiting Big Data and Artificial Intelligence.

To deliver the most relevant shopping experience, we continue our efforts to better understand, organize and leverage eBay’s inventory.

With our structured data initiative, we are able to begin organizing our vast inventory around products rather than listings and aggregate insights into supply and demand. We continue to broaden the coverage of structured data, which enables us to create and start rolling out new consumer experiences that are modern, simple and differentiated.

One of our goals is to deliver a more personalized shopping experience by determining what products to show our consumers and highlight the incredible price and selection advantages that eBay often provides across categories.

eBay's Revenue model

The vast majority of eBay’s revenue is for the listing and commission on completed sales. While it is best-known for auctions, 80% of UK sales now coming through new items of which the majority are fixed price. UK marketing director Gareth Jones told Marketing Week he wants to focus on top-of-the-funnel consideration: "it wants British consumers to see it as the first choice for buying new items as opposed to its historic online car boot sale reputation".

For PayPal purchases an additional commission fee is charged.

Margin on each transaction is phenomenal since once the infrastructure is built, incremental costs on each transaction are tiny – all eBay is doing is transmitting bits and bytes between buyers and sellers.

Proposition

The eBay marketplace is well known for its core service which enables sellers to list items for sale on an auction or fixed-price basis giving buyers the opportunity to bid for and purchase items of interest. Software tools are provided, particularly for frequent traders, including Turbo Lister, Seller’s Assistant, Selling Manager and Selling Manager Pro, which help automate the selling process, plus the Shipping Calculator, Reporting tools, etc.

Today over 60% of listings are facilitated by software, showing the value of automating posting for frequent trading.

An example of a new Shopper feature which is part of its OVP is the eBay ShopBot on Facebook Messenger.

This uses artificial intelligence to provide a personalized shopping assistant that helps people find the best deals from eBay’s one billion listings.

According to the SEC filing, eBay summarises the core messages to define its proposition as follows:

For buyers:

  • Trust
  • Value
  • Selection
  • Convenience.

In 2007, eBay introduced Neighbourhoods where groups can discuss brands and products they have a high involvement with.

For sellers:

  • Access to broad global markets
  • Efficient marketing and distribution
  • Opportunity to increase sales.

In January 2008, eBay announced significant changes to its marketplaces business in three major areas: fee structure, seller incentives and standards, and feedback. These changes have been controversial with some sellers, but are aimed at improving the quality of experience.

Detailed Seller Ratings (DSRs) enable sellers to be reviewed in four areas: (1) item as described, (2) communication, (3) delivery time and (4) postage and packaging charges. This is part of a move to help increase conversion rate by increasing positive shopping experiences.

For example, by including more accurate descriptions with better pictures and avoiding excessive shipping charges. Power sellers with positive DSRs will be featured more favourably in the search results pages and will gain additional discounts.

Risk factors

Fraud is a significant risk factor for eBay. BBC (2005) reported that around 1 in 10,000 transactions within the UK were fraudulent; 0.0001% is a small percentage, but scaling this up across the number of transactions, this is a significant volume.

To counter this, eBay has developed 'Trust and Safety Programs’ which are particularly important to reassure customers since online services are prone to fraud.

For example, the eBay feedback forum can help establish credentials of sellers and buyers. Every registered user has a feedback profile that may contain compliments, criticisms and/or other comments by users who have conducted business with that user. The Feedback Forum requires feedback to be related to specific transactions and Top Seller status was introduced in 2010 to increase trust in the service.

There is also a Safe Harbor data protection method and a standard purchase protection system.

The fees model that eBay uses is often changed and this can cause problems with users, but the impact is calculated that it does not affect overall sales. In their 2012 SEC filing eBay note: 'We regularly announce changes to our Marketplaces business intended to drive more sales and improve seller efficiency and buyer experiences and trust. Some of the changes that we have announced to date have been controversial with, and led to dissatisfaction among, our sellers, and additional changes that we announce in the future may also be negatively received by some of our sellers. This may not only impact the supply of items listed on our websites, but because many sellers also buy from our sites, it may adversely impact demand as well'.

In common with other global platforms like Amazon, Facebook and Google, eBay note the potential threat of the shift to tablet and smartphone platforms noting that one risk factor is: 'Our ability to manage the rapid shift from online commerce and payments to mobile and multi-channel commerce and payments'.

There is also the common risk factors for online pureplays of retaining an active user base, attracting new users, and encouraging existing users to list items for sale, especially when consumer spending is weak.

Competition

Although there are now few direct competitors of online auction services in many countries, there are many indirect competitors. SEC (2012) describes competing channels as including online and offline retailers, distributors, liquidators, import and export companies, auctioneers, catalogue and mail order companies, classifieds, directories, search engines, products of search engines, virtually all online and offline commerce participants and online and offline shopping channels and networks. In their SEC filing, eBay states that the principal competitive factorsfor the Marketplaces business include the following:

  • ability to attract, retain and engage buyers and sellers;
  • volume of transactions and price and selection of goods;
  • trust in the seller and the transaction;
  • customer service; and brand recognition.

Amazon is one of the biggest competitors since it also has marketplace sellers integrated into its products listings. It’s latest SEC filing notes: Consumers and merchants who might use our sites to sell goods also have many alternatives, including general ecommerce sites, such as Amazon and Alibaba, and more specialized sites, such as Etsy.

Competitive factors today are listed as:

  • ability to attract, retain and engage buyers and sellers;
  • volume of transactions and price and selection of goods;
  • trust in the seller and the transaction;
  • customer service;
  • brand recognition;
  • community cohesion, interaction and size;
  • website, mobile platform and application ease-of-use and accessibility;
  • system reliability and security;
  • reliability of delivery and payment, including customer preference for fast delivery and free shipping and returns;
  • level of service fees; and
  • quality of search tools.

Before the advent of online auctions, competitors in the collectables space included antique shops, car boot sales and charity shops. Anecdotal evidence suggests that all of these are now suffering. Some have taken the attitude of ‘if you can’t beat ’em, join ’em’. Many smaller traders who have previously run antique or car boot sales are now eBayers. Even charities such as Oxfam now have an eBay service where they sell high-value items contributed by donors. Other retailers such as Vodafone have used eBay as a means to distribute certain products within their range.

Objectives and strategy of eBay

The overall eBay aims are to increase the gross merchandise volume and net revenues from the eBay marketplace. More detailed objectives are defined to achieve these aims, with strategies focusing on:

  • 1 Acquisition – increasing the number of newly registered users on the eBay marketplace.
  • 2 Activation – increasing the number of registered users that become active bidders, buyers or sellers on the eBay marketplace.
  • 3 Activity – increasing the volume and value of transactions that are conducted by each active user on the eBay marketplace.

The focus on each of these three areas will vary according to strategic priorities in particular local markets. eBay marketplace growth was driven by defining approaches to improve performance in these areas.

  • First, category growth was achieved by increasing the number and size of categories within the marketplace, for example Antiques, Art, Books, and Business and Industrial.
  • Second, formats for interaction. eBay Stores was developed to enable sellers with a wider range of products to showcase their products in a more traditional retail format including the traditional ‘Buy-It-Now’ fixed-price format.

eBay has constantly explored new formats, often through acquisition of other companies, for example through the acquisition in 2004 of mobile.de in Germany and Marktplaats.nl in the Netherlands, as well as investment in craigslist, the US-based classified ad format. Another acquisition is Rent.com, which enables expansion into the online housing and apartment rental category. In 2007, eBay acquired StubHub, an online ticket marketplace, and it also owns comparison marketplace Shopping.com.

Finally, marketplace growth is achieved through delivering specific sites localized for different geographies as follows.

You can see there is still potential for greater localization, for example in parts of Scandinavia, Eastern Europe and Asia. Localized eBay marketplaces:

  • Australia
  • Austria
  • Belgium
  • Canada
  • Singapore
  • South Korea
  • Spain
  • France
  • Germany
  • Hong Kong
  • India
  • Ireland
  • Sweden
  • Switzerland
  • Italy
  • Malaysia
  • Netherlands
  • New Zealand
  • Philippines
  • United Kingdom
  • United States

In addition, eBay has a presence in Latin America through its investment in MercadoLibre.

eBay’s growth strategy

In its SEC filing, success factors eBay believes are important to enable it to compete in its market include:

  • ability to attract buyers and sellers;
  • volume of transactions and price and selection of goods;
  • customer service; and brand recognition.

This implies that eBay believes it has optimized these factors, but its competitors still have opportunities for improving performance in these areas which will make the market more competitive. According to its 2010 SEC filing: Our growth strategy is focused on reinvesting in our customers by improving the buyer experience and seller economics by enhancing our products and services, improving trust and safety and customer support, extending our product offerings into new formats, categories and geographies, and implementing innovative pricing and buyer retention strategies.

Updates on eBay case's study information

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Much has been written about Nasty Gal founder Sophia Amoruso’s “rags to riches” story. The simplified version, as she recounts in her recent memoir, is this: a community college dropout who had recently been fired from a high-end shoe store, Amoruso was a self-described “broke, anarchist ‘freegan’ dead set on smashing the system” [1] when she developed a hernia. Unable to afford treatment, she took a job checking IDs in the lobby of an art school and worked there 90 days, just long enough for her health insurance to kick in.

Image via Washington Post

During this period, she spent a lot of time sitting at a desk browsing MySpace—after all, it was 2006—where she received tons of friend requests from vintage sellers on eBay. An avid vintage shopper, Amoruso explains, "I realized that the world is your market. I was just like, 'Oh my God, I can find this stuff for way cheaper for what they’re selling it for on eBay,' and I went for it.” [2] And so in 2006, twenty-two year old Sophia Amoruso launched an eBay store called Nasty Gal Vintage. She says:

“The first thing I did was buy a book: Starting an eBay Business for Dummies, which taught me how to set up my store. The first order of business was to choose a name. Many of the vintage shops already on eBay were so bohemian it hurt, with names like Lady in the Tall Grass Vintage or Spirit Moon Raven Sister Vintage. So the contrarian in me grabbed the keyboard and named my shop-to-be Nasty Gal Vintage, inspired by my favorite album by legendary funk singer and wild woman Betty Davis. … I thought I was just picking a name for an eBay store, but it turned out that I was actually infusing the entire brand with not only my spirit, but the spirit of this incredible woman.” [1]

Her early aspirations for the shop were humble enough: cover her rent. [2] But according to Amoruso, Nasty Gal Vintage has been profitable since the very beginning. [3] In 2008, after being suspended from eBay for promoting her upcoming stand-alone e-commerce store, Amoruso launched Nasty Gal as an independent website. [4] By 2011, revenues had reached $28 million, [3] and by 2012 that number had swelled to a reported $100 million. [5] So how did Nasty Gal grow from a vintage shop on eBay to an ecommerce site with $100 million in sales, customers in over 150 countries, and two brick and mortar stores? [5]In this growth study we’ll break down Nasty Gal’s growth engine including early traction efforts of:

  • Building a relevant brand that resonated with millennials
  • Turning vintage finds into high margin sales
  • Leveraging social networks and eBay to reach their audience
  • Using data and Amoruso’s fashion sense to find and style pieces that sell

To their more recent growth efforts including:

  • Going from vintage to original designs and an independent clothing line
  • Turning the Nasty Gal brand into a mission and philosophy
  • Fostering word of mouth and customer loyalty
  • Expanding into brick and mortar stores

The Early Days: Making Magic Out of Nothing

Amoruso says it took her years to realize Nasty Gal could be what it is today. She says, “I was thinking, 'What am I going to do with my life?' This works for now, but do I want to schlep on eBay for the rest of my life?" [2] Amoruso initially she did all of the work for Nasty Gal single-handedly—everything from sourcing inventory to learning HTML to photographing, listing, writing item descriptions, and shipping. Though she was an avid vintage shopper, it proved difficult to scale her recreational thrifting to a level that was sustainable for her growing business. Furthermore, most sellers closely guarded their sources. As Amoruso explains, “You have to establish relationships. One person leads you to another person, if that person is willing to talk. It’s like the drug trade.” [4] Most of Nasty Gal Vintage’s inventory came from rag houses, which Molly Young describes as:

“warehouses of Salvation Army rejects waiting to be sold in bales to Africa or picked through by vintage sellers. It was a needle-in-the-haystack situation, with every tissue-thin Rolling Stones shirt buried under a thousand preshrunk Ozzfest tees.” [4]

Though Amoruso remembers these days fondly, the fact of the matter was that digging through clothes at rag houses required as much luck as skill, and it wasn’t uncommon for her to drive ten hours for “a pile of last year’s Forever 21 dresses.” [4] Sometimes Amoruso modeled these clothes herself, but typically she used girls she found on MySpace. "In the beginning, I was basically paying the models with hamburgers,” she explains, “They were normal high school girls that you find on Myspace. I would buy them lunch and maybe give them $20 a day." [7] After a year and half of this, Nasty Gal Vintage was doing around $115,000 in sales and earning $20,000 in profit, and Amoruso had moved the business from its initial location in a rented beach house to a studio outside of San Francisco. [8] One secret behind these impressive numbers is Amoruso’s philosophy “that you sell things for more than you bought them.” [8] She elaborates on this concept in her memoir, #GIRLBOSS:

“Once, I found two Chanel jackets in the same shopping cart. Flip, flip, flip—Chanel jacket—flip, flip, flip—another one! I paid $8 for each of those Chanel jackets. I listed each of them at a $9.99 starting bid and sold them for over $1,500. I didn’t know what a ‘gross margin’ was, but I knew I was on to something.”

Although for the most part the company no longer deals in vintage, the notion of selling things for more than you bought them is still very much relevant. As Forbes reported in 2012, 93% of Nasty Gal’s inventory sells at full price thanks to the fact that the company buys limited runs and avoids accumulating a backlog of merchandise that must then be marked down. [8]

Building a Relatable Brand

A perhaps more important component of Nasty Gal’s success is in presentation. Between the girls Amoruso recruited off MySpace to model new finds, to how the models were shot, everything exuded Amoruso’s vision for making girls “feel awesome.” Beginning in the company’s eBay days and continuing to today, Nasty Gal’s signature styling speaks to the company’s millennial audience in a distinct and tangible way. As Amoruso explains:

"You can turn [an item] into the most covetable piece of vintage because you put it on a girl…who’s showing you how to wear it, having an attitude that’s approachable but still sexy, friendly and cool. There, you have this whole fantasy from this piece that probably started in a plastic bag in the backroom of a thrift store." [2]

For Amoruso, digging through vintage clothing was like “finding a penny on the street.” She explains:

“At a certain point, I could hold something up on a hanger and know exactly how it would look on a girl, how I could style it, and how it related to what's going on in fashion today. It became a treasure hunt. … it was finding my future. Being able to turn something that has no inherent value, like a vintage blouse, into something that some girl feels is total gold—and is willing to pay the price of gold for—just felt really great.” [9]

She asserts that “Nothing will teach you more about perceived value than taking something with literally no value and selling it in the auction format. It teaches you the beauty and power of presentation, and how you can make magic out of nothing.” [9] This notion of making magic out of nothing—of taking something worth a few dollars and making it work a few hundred (or more) through styling, photography, and presentation is not only what allowed Nasty Gal to become profitable immediately, but also one of the primary reasons Nasty Gal’s customer base grew so quickly. Plenty of shops were selling vintage clothing, but Nasty Gal was selling something more than that. As Amoruso explains:

“If I saw a sequined Golden Girls tracksuit on the floor of a warehouse, I’d take the jacket and sell it. Anyone could have sold it for $9.99. But to put it on the right girl, with the right hair and the right attitude, showing people how they could wear it—that was everything.” [4]

Even after launching a standalone site, hiring staff, and handing over the creative reigns, Amoruso continues to tweak the presentation of certain items in order to make magic out of nothing. For example, when she insisted that a wrap dress with lackluster sales be photographed on one of Nasty Gal’s most popular models, the dress saw a 400% increase in sales. [8]

A Mission of Making Girls Look & Feel Awesome

It’s important to stress that, according to Amoruso, the notion of making magic is about more than just making money. In #GIRLBOSS she asserts, “I always knew that Nasty Gal Vintage was about more than just selling stuff, but this proved it: What we were really doing was helping girls to look and feel awesome before they left the house.” She goes on to explain:

“I remember perusing a vintage store in San Francisco when the girl working there confessed to me that to get outfit inspiration before going out on Fridays, she visited Nasty Gal Vintage. I started to realize that, though I’d never intended to do so, I was providing my customers with a styling service. Because I was styling every piece of clothing I was selling head to toe, from the hair down to the shoes, I was showing girls how to style themselves. And though you’ll rarely hear me advocate giving anything away for free, this realization was one of the most profound and welcome ones I’ve had with the business.” [1]

This is inextricably linked with the notion of “selling the fantasy,” as mentioned above, and it infuses every element on the Nasty Gal brand, from the aforementioned “free styling” to the name Nasty Gal itself to model selection and photography—in the eBay days, Amoruso solicited successful freelance photographer Paul Trapani [1], while today the company uses notorious fashion photographer Terry Richardson. [10] Everything works together to not only “sell stuff” but evoke a signature experience that Nasty Gal’s customers have responded to in a major way.

Optimizing ECommerce

Though much the above is very qualitative in nature, Amoruso has also paid close attention to Nasty Gal’s quantitative benchmarks and metrics from the very beginning, approaching her eBay store with the same methodical, data-driven zeal that you’d expect from standalone ecommerce sites with much larger inventory and customer base. She tracked popular search terms as a means of predicting upcoming trends—as Molly Young explains, “batwing, lamé, and lumberjack were big in 2007; studded and architectural and origami in 2008.” [4] She also took note of regional peculiarities at the rag houses from which she was sourcing her inventory and optimized her buying trips accordingly. During Nasty Gal Vintage’s stint on eBay, the site restricted sellers to a 55 character heading and an 80 x 80 pixel image. Amoruso used these constraints to test and optimize her listings. Among other things, she learned that clothes on humans sold better than clothes draped on mannequins or the backs of chairs, and that she got more clicks when a garment’s silhouette was immediately apparent. [4] In addition to obsessing over garment styling and model selection, Amoruso cross posted photos to MySpace, and when bids were unimpressive and comments were negative, she would try a similar garment on a different model to see how conversions increased or decreased. [8] As she explains in #GIRLBOSS:

“Each week I grew faster, smarter, and more aware of what women wanted. And each week my auctions did better and better. If it sold, cool—I’d instantly go find more things like it. If it didn’t, I wouldn’t touch anything like it with a ten-foot pole ever again.” [1]

This not only helped her to outperform herself week after week, but to stand out from her initial eBay competitors. By the time she had outgrown eBay, Amoruso realized that she was doing much more than turning a profit on vintage clothing—she was using photography, styling, messaging, and meticulous testing to tell a powerful story about personal image and self-worth. More than anything else, this allowed her to forge a powerful connection with millennial buyers, helping Nasty Gal to stand out from traditional retailers.

From Vintage Resale to Original Designs

In 2008, Amoruso began including a link to her newly-acquired URL, nastygalvintage.com (at the time nastygal.com was a porn site), in her eBay transactions. [7] Because of this, she was accused of taking traffic away from eBay, as well as shill bidding—an accusation she denies—both of which resulted in her being suspended from eBay in June of 2008. This suspension was just the jolt she needed to spend the next few weeks getting Nasty Gal ready to launch as an independent website. Leaving the eBay platform didn’t slow her down. In fact, she sold out her entire inventory the day the site launched, and Kelly Ripa’s stylist called to see if a sold out jacket was available in a size extra small. Though it obviously wasn’t because the jacket was vintage, Amoruso realized the demand generated by her growing following could no longer be met by one-of-a-kind, vintage items. She approached labels like MinkPink and Jeffrey Campbell and began taking the steps necessary for Nasty Gal to sell new clothes. [7] Because of the company’s engaged and growing customer base, it’s unsurprising that in 2012 the company began offering original designs. "Designing was the natural next step for us,” Amoruso explained in 2013, “It's going on seven years for me that I've been selling clothing to the same awesome girl. And we've understood the kind of silhouettes and cuts that she likes over time." [7] To get their independent line off the ground, Nasty Gal hired Sarah Wilkinson, formerly of ASOS, as vice president of design, as well as print designer Lauren McCalmont, who had worked with luxury shoe designer Nicholas Kirkwood and womenswear line Peter Pilotto. [7] Weird Science, Nasty Gal’s first line of independent designs, debuted at New York Fashion Week in September of 2012. [13] Since the debut of Weird Science, Nasty Gal has gone on to launch various collections, including accessories, swimwear, lingerie, and an in-house footwear line called Shoe Cult in August of 2013—with items ranging from $68 to $188. [14] By 2013, 30% of the site’s sales were generated by the Nasty Gal label. [7] Though this first line was designed by Amoruso herself, [8] in 2013 she claimed that she was limiting her input to final say, in other words: "I approve it or say it needs to be sexier." [7]

Image via Nasty Gal

The Social Brand and Word of Mouth

As of March 2015, Nasty Gal had 1,174,907 Facebook fans, 208,000 Twitter followers, and 1.5 million Instagram followers. Social and word of mouth have been huge growth levers for the company since the very beginning. As Amoruso explains #GIRLBOSS:

“I had friend-adding software, which was totally against MySpace’s policy. I would look up, say, an ‘it girl’s’ friends and add only girls between certain ages in certain cities. … Soon I had tens of thousands of friends on MySpace, which I used to drive people to the eBay store. I did a MySpace bulletin and blog post for every single auction that went up on Nasty Gal Vintage. I didn’t know it at the time, but what I was doing here included two keys to running a successful business: knowing your customer and knowing how to get free marketing.” [1]

Even after Amoruso made the switch from eBay to NastyGal.com, social has remained an important element of the company’s growth. It wasn’t long before MySpace was replaced by Facebook, and the company’s presence on that platform began to grow as well. Despite the fact that Nasty Gal didn’t begin paying for advertising until around 2013, [7] by June of 2012, the company had earned $128 million in sales, with gross margins of more than 60%. [8] Forbes’ Victoria Barret cites the company’s ability to “translate likes into sales,” [8] and the importance of Nasty Gal’s social engagement can’t be overstated. Between 2011 and 2013, Nasty Gal’s Facebook followers increased tenfold, growing to nearly 831,055. [7] As Amoruso explained in a 2013 interview with Wall Street Journal’s John Ortved, the evolving company’s presence on social media was not merely a tool for growth, but a means of understanding and connecting with a target market:

"Nasty Gal really emerged from a conversation. I've probably spent more time than any other brand reading every last comment. To listen to people the way you're able to online is very powerful. I think other companies are just starting to figure that out." [7]

Danny Rimer of Index Ventures echoes that sentiment, asserting that, "What led us to Nasty Gal was the fact that Sophia had created something extremely special in terms of a connection between what she was doing and her customer base." [7] Nasty Gal’s millennial customers are undeniably more plugged in to social media, and leveraging this connection (even using scrappy, semi-questionable techniques like friend-adding software) has been another integral means of reaching this audience in a way that traditional retailers have yet to pull off.

Fiercely Loyal Customers

Indeed, Nasty Gal’s social presence has been critical in identifying and encouraging loyalty among their ideal customers, who Amoruso described in 2010 as:

“She’s in her late teens or early-mid twenties and super body-confident. She knows how to dress for her shape and isn’t afraid of wearing makeup and short skirts and being sexy. She’s into fashion but her taste doesn’t just apply to what she wears: It applies to food, interior design, and travel. She wants to have awesome experiences and be the best-dressed girl around — without spending an arm and a leg.” [11]

Sharon Langlotz, a 25-year-old Nasty Gal customer, explained in 2013 that she first encountered the company via a Nasty Gal dress posted on Pinterest. From there, she went to the Nasty Gal site, and she found the “trendy, not too pricey” garments appealing because they reminded her of “the stylish clothing she sees on street-style fashion blogs.” [7] Langlotz began following Nasty Gal on Instagram, Pinterest, and Facebook, and twice a week she checks the site for new merchandise—“I fill up my shopping cart and dream,” she explains. She says Nasty Gal has changed the way she views online shopping. [7] Langlotz’s experience is not atypical. In June of 2012, 25% of Nasty Gal’s 250,000 customers were visiting the site at least once a day and spending at least seven minutes there, while the most engaged 10% of users were visiting more than 100 times per month. Half of the site’s sales were coming from 20% of customers. [8]

Funding

Through building the distinct Nasty Gal brand, leveraging social media at a time when many other retailers were scrambling to figure it out, and forging a unique connection with millennials, Nasty Gal was able to sustain remarkable growth with little outside help. Nevertheless, by 2010 the company was attracting attention from VCs and equity firms, and in 2012 Nasty Gal decided to raise money in order to further accelerate growth. Amoruso says she chose to go with Danny Rimer and Index Ventures because:

"I don't really have any mercenary relationships in the business, and Danny is someone I really like as a person, who I'm friends with, who is like family. … No one was investing in Net-A-Porter, no one was investing in Asos [when Rimer approached them]. Index is contrarian in their thinking, which I am." [7]

The feelings seem to be mutual. “We’ve been really interested in fashion and fashion has always been strong in Europe [where Index is based],” Rimer explained in a 2012 interview with TechCrunch’s Alexia Tsotsis, “We had not seen anything like this in terms of groundswell and relationships with customers.” [3] To date, Nasty Gal has raised $65 million in three funding rounds, the most recent of which was in February of 2015 and resulted in $16 million, led by former Apple executive Ron Johnson with participation from Index Ventures. [15] Index Ventures also provided the company’s Series A funding in March of 2012 and Series B funding in August of 2012—$9 million and an impressive $40M, respectively. [16]

Brick & Mortar Stores

One way in which Nasty Gal has expanded is through the construction of brick and mortar stores. “I’ve created a very human brand online,” Amoruso explained in early 2014, “and our customers really want to engage with us and our product in real life.” [9] The first brick and mortar Nasty Gal store opened in Los Angeles on November 24, 2014, followed by a second store in Santa Monica on March 27, 2015. As LA Confidential’s Erin Magner explains, the recently-opened Santa Monica store will be “a hub where the Nasty Gal faithful can make friends IRL.” [12] Designer Rafael de Cárdenas, who worked with Amoruso on both locations, describes the storefront:

“Clear walkways will lead shoppers through the different branding experiences, and there will be central cage-like gathering areas where special items are displayed. The Melrose store has one-way mirror glass in the fitting rooms so you can see out but no one can see in, and deep blue carpeting that gives off a boudoir feel. Both are repeated in Santa Monica. The Santa Monica store will also have a proprietary shoe salon, which is nice because shoes is an area of particular importance for Nasty Gal.” [17]

Nasty Gal stores feature the company’s own designs as well as pieces from brands such as Jeffrey Campbell, For Love and Lemons, Cameo, and vintage pieces from Chanel, Louis Vuitton, and Moschino. [18] After the opening of the Los Angeles store, Amoruso asserted, “Our girls are just so in love with our clothes and our story. Our brand has a look and a sound and a feeling, and I wanted to bring that to life.” [12]

Company Culture

An important—though difficult to quantify—component of Nasty Gal’s growth is Amoruso herself and the ethos she has constructed around her brand, or, as she explains in #GIRLBOSS, “I thought I was just picking a name for an eBay store, but it turned out that I was actually infusing the entire brand with not only my spirit, but the spirit of this incredible woman.” [1] In a 2014 article for The Cut, Molly Young sums up the company culture at Nasty Gal:

“Nasty Gal’s office in downtown Los Angeles is a cool girl’s fantasy of corporate life. There are potted fiddle figs, Rihanna on the sound system, rainbow sprinkles in the communal fridge. There is a yoga room. There are printouts of Lil’ Kim and Shelley Duvall taped to the walls. There are dogs, but only cute dogs of cuddling dimensions: ‘We’re a dog-friendly workplace, but the dog has to be under 25 pounds,’ says … Amoruso. ‘That’s an official rule.’” [4]

Indeed, it seems that much of the culture at Nasty Gal is an extension of Amoruso herself. Erin Magner asserts that, among Nasty Gal’s millennial client base, Amoruso has become “as much of a celebrity … as the ones that turned up to the Nasty Gal store launch party. …On opening day, 20-something women lined up for hours—one of whom flew from DC for the occasion—to take selfies with the 30-year-old Amoruso as if she were Beyonce.” [12] Both because of the company’s ownership of its overt sexiness as well as Amoruso’s unlikely success story and the recent publication of her memoir #GIRLBOSS, another important facet of the company’s culture is its purported feminism. As Amoruso explains in the first chapter of her book:

“#GIRLBOSS is a feminist book, and Nasty Gal is a feminist company in the sense that I encourage you, as a girl, to be who you want and do what you want. But I’m not here calling us ‘womyn’ and blaming men for any of my struggles along the way.” [1]

It’s a brand of feminism that Amoruso admits would make Portlandia’s feminist bookstore owners uncomfortable, one that Molly Young captures quite succinctly:

“Amoruso is pacing the headquarters of her seven-year-old company with YSL pumps on her feet and a toy poodle named Donna Summer under one arm. Wherever Amoruso roams, there are women: women with lilac hair and slouchy blazers, women in booty shorts, women juggling Starbucks cups and greeting each other with girlfriendly hugs. One hallway is lined with recent magazine clippings of Amoruso from the pages of Fast Company and Entrepreneur, which makes her feel funny, but she has no choice about the clippings: Her mom gets them framed and mails them over, then bills the company for her services. More than three-quarters of Nasty Gal’s 300 employees—a number that does not include Amoruso's mother, who clips on a freelance basis—are women.” [4]

Nevertheless, as we’ll touch on in just a bit, the company culture at Nasty Gal has received criticism as well as praise.

#GIRLBOSS – The Millennial’s Guide to Business

Amoruso’s business bible/memoir #GIRLBOSS was released by Putman (a subsidiary of Penguin) in May of 2014. When asked who #GIRLBOSS was written for, Amoruso claimed:

“I have something like 70,000 Instagram followers beating down my door every day for a job, like, ‘Oh, my God, I wanna model for you, I wanna intern for you.’ They say, "Oh, my god, you had shitty jobs too. That makes me hopeful.’ Or I meet women at conferences who tell me, ‘I have a 20-year-old daughter who's totally flailing, but you give me hope for my child.’” [9]

She went on to explain that as Nasty Gal grows, she wants to be able to reinforce “what’s at the core of our success,” to tell her story on her own terms, even if that means admitting the first thing she ever sold online was stolen. “I’m not glamorizing that lifestyle,” Amoruso says, “but you know: Don’t make my mistakes, or go make your own mistakes—it’s okay.” [9] When someone tweeted that grown women shouldn’t call themselves girls, Amoruso responded: “How’s #BROADBOSS? or would you prefer #MATRONBOSS?” She elaborated in a 2014 interview:

“I mean, come on. I don’t like when an old man says, [creepy voice] ‘Let’s invite the girls to dinner,’ but I think it’s okay to call girls girls. … And I think it’s okay to call girls bossy.” [9]

The reference to Sheryl Sandberg’s #banbossy campaign is particularly noteworthy, considering that #GIRLBOSS has been called the millennial alternative to Sandberg’s Lean In as well as Lean In for the 99%. “It’s easy to get the sense, reading Lean In,” says Molly Young, “that Sandberg is writing for women who’ve already made it. #GIRLBOSS is for those who haven’t, which means it is aimed at people who have nothing to lose, which makes it a much riskier and more enjoyable manifesto.” [4] The book does seem to have been well-received by the “girls” for whom it was written, with mostly positive reviews on both Amazon (where 87% rated it 4 stars or higher) and Goodreads (where 60% rated it 4 stars or higher). As Amoruso explains:

“On my book tour, we had girls waiting around for the event to start, and they’re exchanging business cards… whether they have businesses or not. This generation is super ambitious. They want to network and better themselves and learn everywhere they can. That’s the next step—mobilizing our girls around doing more than shopping in the stores.” [12]

Ultimately, the company culture at Nasty Gal as well as the publication of #GIRLBOSS have been important ways for Amoruso to stay true to the Nasty Gal brand and broadcast it to a wider audience as well as engage with her current fans.

Potential Concerns

Despite the inspirational, rags-to-riches story, the impressive online following, and the two beautiful storefronts, Nasty Gal has faced some challenges over the past year, facing the fickle nature of millennials and younger shoppers to find what’s next and new and perhaps buckling under their own success, the pressure of increased funding and the expectations that come along with it. To begin, in September of 2014, Nasty Gal laid off up to 27 employees, including executives, PR, tech staff, and employees from the company’s Kentucky-based fulfillment center, representing a 10% cut in staff overall. [19] Amoruso’s statement to TechCrunch regarding the layoffs reads:

“We made some changes yesterday in order to strategically re-organize the business to fit our vision of the future. We are building a powerful brand that leads the market and are committed to creating something that has never been created before. We are excited to open our first two stores in the near future and continue to build the team to support that growth. Part of these changes were to work exclusively with agencies on the PR side, which we have done in the past and we know performs for the business. Our Technology team was affected as well. I’m hell-bent on Nasty Gal continuing to be great at what we always have and raising the bar for what an American fashion brand can achieve. Best, Sophia” [19]

Amid controversy over the layoffs, Adele Chapin of Racked.com pointed out that the company’s Glassdoor stats were quite discouraging: explaining that only 30% of employees would recommend working there while just 42% approved of the CEO. As one reviewer explained:

“PR and hype can't mask what's really going on here. You drink the kool-aid for the first few months working here, then start to realize it's all just smoke and mirrors. Terrible leadership, some extremely condescending managers and employees, and people that try too hard to be ‘cool’. There are of course a handful of people who are fantastic, super smart and well intentioned, but they are probably soon to leave. I have never worked in a place where so many people talked so poorly about their co-workers. There is a complete lack of teamwork and willingness to help each other and work toward a common goal...but there really is not common goal at all, because the company lacks any sense of direction and has no clearly defined goals.” [20]

For a company whose culture—in particular, the personality and story of the CEO—is so integral to its success, Nasty Gal’s Glassdoor page is indeed troubling. Furthermore, as of March 2015, those numbers have fallen to 29% and 28%, respectively. [22] Amoruso has remained obstinate about the fact that Nasty Gal will remain an independent company. When asked in March of 2014 whether Nasty Gal might get acquired, she asserted:

“No. No. No. I wanna take this as far as I can. If being under the wing of someone else seems like a good idea at some point, I'd consider it. But I'm not a very good employee, so it would have to be someone pretty special. I'm having fun with my autonomy.” [9]

By contrast, she has been more open about the notion of hiring someone else to serve as the company’s CEO. Amoruso explained in May of 2014 that she had consulted with J.Crew CEO Millard Drexler over whether she should hire a CEO, and though he apparently told her she was “crazy,” she nevertheless asserted that the day may come when she decides to step down. [4] Similarly, Rimer said that “one of the best things about Sophia is that she actually continues to question, as the business grows, whether she is the right CEO.” [4] At the time he too asserted she should be running the company. Nevertheless, Amoruso did eventually decide to abdicate her role. On January 12, 2015, she announced that Sheree Waterson, who formerly served as the company’s president, would take her place as Nasty Gal’s CEO and also join the board of directors. Amoruso now serves as Founder and Executive Chairman and leads the Creative and Brand Marketing functions. Before joining Nasty Gal in February of 2014, Waterson was an executive at Lululemon, Speedo North America, and Levi Strauss & Co. [21] News of Amoruso’s stepping down broke just one day after ModCloth’s Eric Koger announced that Matthew Kaness would take over as Koger’s role as ModCloth CEO. It’s noteworthy that ModCloth, like Nasty Gal, began as a tiny vintage resale shop (ModCloth even started out on eBay) that went on to produce original designs, garner attention from investors, and subsequently endure layoffs before eventually handing the reigns of the company over to a clothing industry veteran. In February of 2015, Gigaom’s carmel DeAmicis speculated that the relatively small funding round of $16 million was yet another indication of trouble at Nasty Gal, explaining:

“This is a comparatively small amount for Nasty Gal, since its last round was a $40 million Series B, led by Index. Normally rounds get bigger as the company grows unless there’s trouble with the business and investors decrease their valuation expectations.” [15]

DeAmicis went on to speculate, however, that Nasty Gal’s notoriously cautious leadership perhaps “didn’t want to raise any more money than absolutely necessary.” [15] With the company now under new management, time will tell if the past year’s events were merely a rough patch or if Nasty Gal is indeed, as one former employee asserted, “all smoke and mirrors.” [20]