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Vivian Weng

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The Billion-Dollar Question: When Will the Fashion Tech Bubble Burst?

Posted: 03/23/2012 7:37 pm

Just this past week, a friend asked me when I think the fashion start-up bubble will burst. What was interesting to me is that she didn't ask whether I thought there was a bubble in the first place -- she just assumed.

It's easy to see why someone might jump to this conclusion. Starting in 2007, with the early success of flash-sales pioneers such as Gilt Groupe and Ideeli, fashion start-ups began cropping up at an increasingly rapid pace. What was different than prior attempts in the space, however, is that venture capitalists and "serious" investors were paying attention. In the last 5 years, the momentum has only increased. Assembled Fashion, a conference focused solely on new business models in the fashion space, was completely sold out last November. The week after, Raise Cache put on a fashion show, where foursquare cofounder Dennis Crowley and venture capitalist Fred Wilson sported designs from 20 New York City-based fashion start-ups.

But surely there cannot be customer appetite for hundreds of new fashion e-commerce sites, can there? Of course not. And, in fact, there are many examples of fashion ventures started in the last few years that no longer exist. In the flash-sales space, a wave of consolidation occurred in 2010. This past year, two key players -- DailyCandy's Swirl and Prive -- quietly shuttered their doors. Even Google, who entered the fashion world with its social shopping site Boutiques, has since gotten out. I would venture to guess that a similar wave of consolidation and "weeding out" will occur in other areas within the fashion space (for other trends in the online fashion world, see my post from Jan. 3, 2012).

But in spite of all this, I would argue that what we're seeing isn't a bubble per se, but rather a natural and very necessary trial-and-error process, where everyone -- entrepreneurs, fashion industry executives, investors -- is learning what works and what doesn't. In the past, the fashion industry has been so slow to adapt to technological changes that it's only now trying out these new technology-enabled business models. A "bubble" implies that lots of cash is being poured into overvalued companies. This isn't a bubble -- a basic e-commerce site can be built for less than $50,000 these days, and no one's balking at the valuations these start-ups are raising at (not yet, at least).

The real billion-dollar question, then, isn't when the bubble will burst but rather: What does the future hold for the "survivors"? Will they eventually IPO and become the next generation of blue-chip retailers? Or will they be acquired and digested by today's big retail and media companies? In a recent interview, Gilt Groupe CEO Kevin Ryan acknowledged the possibility of an acquisition by Amazon. Gilt, Ryan pointed out, is currently the second-most valuable e-commerce company in the U.S. market, as Amazon has historically acquired any e-commerce player that surpasses the billion-dollar mark. So perhaps this is a billion-dollar question that only Amazon can answer.

 

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