Top Deal: Hemster Brings A Data Driven Approach To Clothes Shopping

Key Stats:

Summary

As of August 23rd, Hemster had raised $23.2K of the current round

The Hemster team has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our deal diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com

You can also check out our Founder Profile with Hemster Co-Founder & CEO, Allison Lee HERE.

Problem

Did you know that only 11% of the US population actually fits into the conventional small, medium and large clothing sizes that are typically produced by clothing manufacturers? Despite this fact, the business of tailored clothing has remained an inefficient one dominated by outdated small businesses.

According to IBIS World, the US clothing alteration market in 2017 was $2.7B, and employed 76K employees across 70K unique businesses (1.1 employees per organization). The reality is dealing with small business tailors that are often removed from the actual point-of-sale of clothing leaves many customers either returning clothes or feeling discouraged by how they look.

By 2020, it is estimated that $25B (or 28%) of $90B in total e-commerce clothing sales will be returned due to poor fit. In a separate 2015 study by BodyLabs, it was found that across all retail channels over $62B in apparel (and footwear) was returned due to poor fit, with 64% stating incorrect fit as the reason for returns.

As you can see, there is a large and apparent need for a service that makes tailoring and alteration services accessible at the point of sale (POS) to ensure customers buy and keep clothing that looks and feels good.

With the current mom-and-pop network of tailors living off the grid and with retailers, even at the high end, struggling to keep tailoring services in-house, a new solution is very much needed. That is where Hemster comes into play.

Solution

To date, no solution has existed to provide tailoring services at scale in all clothing stores. Unless, you shop at high end department stores like Neiman Marcus, where they have in-house tailors, it is unlikely you will be asked or presented with options regarding tailoring services when in-store.

Since tailors are often inaccessible and cost additional money, most customers just return their clothes or leave the store empty handed. Hemster wants to change that.

Hemster has developed a simplistic tool that can be utilized by any retailer to measure their customers dimensions in-store and provide them with a plethora of options in the local area to get the tailoring services completed within 48 hours.

In 4 steps, (1) Measure, (2) Input order, (3) identify tailor, (4) store your fit data, Hemster can take what used to be a non-existent or painful experience and have made it as easy as normal check out.

There are three major values to what Hemster is doing. For customers, they finally can get the fit they need with ease. For retailers and malls, they get to provide a high-end, high touch point experience for customers while keeping cost low in order to do so.

Lastly for clothing manufacturers and retailers they get access to all of your fit data. This enables them to become smarter about trends in their shoppers sizing for future product planning. Additionally, they can offer a customized shopping experience for customers.

With all parties deriving value from this “tailored” tech-enabled tailor service Hemster has created a uniquely valuable B2B2C offering that can scale efficiently while meeting a major market demand.

The Distribution Approach

Hemster is the type of tech enabled company we like at KingsCrowd, because when identifying a startup that we think can scale we look for what distribution channels they have access to because acquiring customers can be a costly exercise.

Understanding what these cost could look like is valuable to understand. Business-to-consumer (B2C) can be challenging to do cost effectively and acquiring customers can become very costly. The team at Hemster has found a way to be a consumer company while finding a more efficient distribution mechanism to do so.

For Hemster, they have found that utilizing partnerships with malls, retailers and even apartment buildings can provide a fast and efficient way to scale the business. Allison Lee, Co-Founder & CEO of Hemster has found that, “the real estate properties like shopping malls, high-end apartments and offices plug in our services to offer premium amenities to their tenants.”

The model is working as the team has already made inroads to partner with malls including, “all major mall operators such as Simon, GGP, Macerich and Taubman, who controls over 90% of Grade A malls,” says Lee.

The team is also working directly with retailers including Outdoor Voices, Diesel, Michael Kors, Reformation and Bonobos. We think that this model will work well for Hemster because of two major market trends that are driving retailers and malls to want to work with an offering like Hemster.

The Market Opportunity

The first major market tailwind that is driving malls to partner with Hemster is that malls are increasingly moving towards providing engaging consumer experiences in order to drive foot traffic. Whether you realize it or not, malls are not just dying and going away.

What is really happening is mall companies like Simon are reducing their footprint and improving the customer experience in the locations that they are prioritizing. Intuitively it makes sense. As e-commerce grows in prominence, the way to win in retail is to create an experience that you can’t have online. That is where malls can still win.

McKinsey recently highlighted that the way malls are winning are by (1) differentiating the consumer offering, with a focus on experience and convenience, and (2) transforming the mall experience by leveraging technology and multichannel strategies.

Hemster helps with both of these initiatives to reinvent the mall experience, and likely why they have been able to partner with so many of the major mall brands even though they are such a young company.

When it comes to the retail front there has been a growth in what some call the “master of one” retailers, which focus on doing one thing for customers really well with the vision that no one size fits all.

Examples include Bonobos, ModCloth, Untuckit and the like. In this recent Quartz piece, they mention that in 2017 consumers were purchasing clothes from 560 more clothing retailers than just three years prior.

This rise in new master of one retailers has been led by a major shift in buying behavior by consumers who have come to expect that their individual needs and desires are being heard and addressed

In order to continue to execute their vision and mission at a high level stores like Bonobos are showing a willingness to work with Hemster to ensure the fitting experience is as amenified as the rest of the purchase process.

With malls and retailers alike trying to service this customer at a higher level, Hemster fits in perfectly with this strategy and will benefit markedly from this new shopping experience reality.

Why We Like it

1. 10X improvement to current experience: Outside of getting suits and dresses tailored, I think few of us have ever made the effort to go and get a pair of jeans hemmed as the burden of finding a shop, getting measured and spending extra money all make the process painful. Hemster is the first solution that brings the tailoring experience into the modern day and makes it a seamless part of the checkout experience.The fact that over $60B a year is returned due to poor fit is telling that the current experience of acquiring tailoring services doesn’t work. Making it frictionless will prove highly valuable to retailers looking to reduce that return figure.
2. The power of data: Hemster’s service is powerful enough, however it is the data they are collecting on the backend that may prove even more valuable. If you think about it, so few brands make an effort to understand what actual seam length, exact waist size, etc. you actually are.With no depository and mass standardized system for collecting this data, most clothing manufacturers know very little about the actual needs and trends of consumer sizes. Hemster can change all that, which could empower manufacturers with the data they need to create optimized inventory and make the purchasing experience more customized. Over time this depository of standardized data will create a boon for the SaaS service the team is offering to retailers.
3. Effective distribution: By partnering with major malls, retailers and even apartment buildings Hemster has found a way to get their offering to market quickly and cost affordably. Having already partnered with most of the largest malls and with entrant into the “master of one” store category, we think the team can continue to grow the business in the range of the 230%+ quarter-over-quarter growth they have seen since launch in 2017 over the next year or two.
4. Strong margins: In 2017, just as the company was getting the business going, the team was able to drive gross margins of ~50% (on $20K in revenue) with zero scale. We think this will improve significantly as they do scale, which makes this an extremely attractive business over the long term. The fact that marketing cost will be minimal is what makes this a really promising offering.
5. Sticky product: Since launching, order values typically 2X over the first 6 months of being launched in a store. This speaks to the fact that the customer experience is really strong and once you’ve had one good experience you want to come back for more.  And satisfaction is high with 99% of orders being correctly completed. Imagine after years of struggling to find a pair of jeans that are your right length and fit well around your waist, getting to have your pants easily tailored from the store? It’s a major step change for consumers, and one that will drive repeat purchase.

The Founding Team

Allison Lee took her experience growing Peel from a $20K to $15M business in 12 months and as her inspiration to build this business. In her words she had, “witnessed the power of bringing data into a ‘black box’ industry,” which was the TV-viewing experience and, “wanted to bring the same innovative framework to retail, especially ready-to-wear apparel industry, which is a giant black box worthy of $100 billion dollars.”

With a degree from UC Berkley and having spent time speaking with her, I have strong convictions that Allison Lee is a special founder with the capability of building a 9 figure business.

Allison has also employed the help of Angela Hung as Head of Retail. Angela comes with over 12 years in fashion including a significant amount of time working as a buyer for organizations such as Sears, Elizabeth Charles, and Satine Boutique. Needless to say, she brings the right mindset and knowledge base of the retail space to help this team execute effectively as they approach retailers.

The Supporting Cast

Acting as advisors, Paul Raffin brings with him over 40 years of retail experience, including stops as President of Express for 10 years, and President, Mail Order of J. Crew for 3 years. He has also spent significant time as CEO of several organizations include Frye, Frette, and The Merchant Matrix.

Currently he is the Chief Revenue & Strategy Officer of Loomia, a tech company in the smart textile space. With his deep experience in retail, running expansive clothing retailers, he brings both a stacked rolodex of industry leaders to help the organization to grow as well as experience and intuition to help get the team off the ground.

Bebe Chueh, is an experienced founder and attorney having built a company called AttorneyFee, which was acquired by LegalZoom, where she became the CMO of LegalZoom Local. She also recently started up once again in the legal space with a company called Atrium.

 Though her experience may not be in retail she brings a knowledge and know how to building startups and will likely provide some boots on the ground support to Hemster as they navigate the early days of starting up.

Rating

The Recommendation: Top Deal

With a strong founding team, several market tailwinds supporting the growth of tailored in-store services, and early signals of being capable of building a data-driven B2B2C marketplace we think this is a TOP DEAL worth investing in.

Having already put in place partnerships with 90% of the mall footprint and gaining foothold with several key retailers, Hemster has the opportunity to completely upend an industry that has been left untouched for decades. The market needs is overwhelming. Reducing returns for retailers, improving the experience for customers, and optimizing utilization of local tailors are really powerful value-adds.

We think the offering is uniquely differentiated and will continue to build its moat as the database on customers continues to grow and scale.