Wednesday, June 4, 2008

How Technology Can Save Retailers

Teenagers are easy to reach if you know how to play their game.

For the fashion industry, traditionally a late adopter of
technology, it has been a particularly steep learning experience even
though pre-teens and teens directly and indirectly control billions of
dollars in purchasing power. But a small Swedish company called
Stardoll seems to have cracked the code on how to hook young girls (see
Teen Market Overview).

Stardoll is an online community where girls ages 8 to 18 play with
virtual dolls. They can make "MeDolls," dolls that look like
themselves, or celebrity look-alike dolls. Girls can also dress
themselves and celebrities with merchandise from a virtual shop in its
virtual galleria called the "starplaza," and they can also network with
other users on the site.

Stardoll Chief Executive Mattias Miksche admits he didn't completely
understand his market when he began heading the company a few years
ago. "When I first saw the initial site I didn't really get it--like
most men," he says. "But I showed it to my wife, who was 35, and to my
daughter, who was 5--and they both absolutely loved it. So I figured
there could be quite an untapped market there."

Today, Stockholm-based Stardoll features more than 330 dolls and
tens of thousands of virtual garments and accessories. It is also the
No. 1 site worldwide for pre-teen and teen girls, according to
comScore. The site has over 7 million unique visitors per month and 16
million registered users from 200 countries.

Compare these numbers to TeenVogue, Conde Nast's magazine that targets the same demographic and has less than 3 million readers. TeenVogue's
mission statement says: "Style-conscious girls everywhere know there's
only one source for relevant fashion and beauty news communicated in a
sophisticated tone with the power of the Vogue brand. In a time of expanding media choices, true authority is irreplaceable--and unmistakable."

Is it?

Stardoll, like Vogue, earns revenues from advertising.
Advertisers on Stardoll include major fashion and entertainment brands
such as Donna Karan, LVMH, Disney


and Sephora. Stardoll also earns revenues from products sold in its
virtual shop. The site sells between 60,000 to 180,000 items per day.

Sequoia Capital and Index Ventures think Stardoll is building an
addictive destination for a prized demographic, and they have invested
$10 million in the company.

Despite Stardoll's success, the fashion industry hasn't yet figured
out how to take advantage of the company to help it build brands.
Here's an example of how this might work.

Zara, a retailer based in Spain, launches a virtual collection on
Stardoll, which becomes an instant viral hit among pre-teen and teenage
girls. Let's say seven designs in the collection bubble up to the top
as the most popular, each with an average following of 1.2 million
girls. Knowing this, would Zara need any other focus group or market
research to figure out exactly what is striking a chord with its target

If Zara becomes really disciplined, it can pre-launch each season's
designs into Stardoll, collect market feedback and provide that data to
its stores around the world. Zara can also do geographically targeted
research through Stardoll. For instance, Zara's Florida stores can look
at data for Florida consumers, while Los Angeles stores can drill down
on what teens in L.A. like.

I spent a year working with the fashion industry during the dot-com
heydays, and I was struck by how little science and analysis is applied
in the fashion business. As a result, the industry remains a nightmare
of surplus inventory, which leads to markdowns and unhealthy
profit-and-loss statements that precariously balance companies at the
edge of life and death.

But it doesn't need to be this way. Other industries, such as
financial services, manufacturing and insurance, have embraced
technology and benefited tremendously from its infinite potential. Why
not fashion?

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