Hope you didn’t hear it first here, but few days ago Nasty Gal announced that they have filed for bankruptcy. Take note that the Los Angeles based apparel brand filed for the Chapter 11 bankruptcy protection, which under the law of US permits them to reorganisation. Founded by Sophia Amoruso in 2006 (it was Nasty Gal Vintage at first, which she sells vintage stuffs on eBay), the fashion retailer has become one of the most sought after brand and in extend has risen up Amoruso as inspiration for women and entrepreneurs everywhere.
Here at Rêves Studio HQ, we also highly regard both Nasty Gal and Sophia Amoruso as a brand and persona that we look up to. We are definitely supporting all the #girlboss movements that are happening.
From the outside world the announcement came by as a surprise. By the end of last year, Forbes reported an estimation that the company surpassed USD300 millions in revenues. The company even opened its first offline shop in Los Angeles the year before. On the other hand, Nasty Gal is one of many apparel retailers in the past two years to face financial problems in which most of them are trend drive and youth targeted (remember Urban Outfitters, Kitson?)
So what can we learn from it?
#Girlboss, the frank tell-all autobiography by Amoruso about the challenges of building Nasty Gal turned is a major bestseller; even a Netflix series adapted from the book is set to premiere in 2017. However, this is actually an effort for Amoruso to distanced herself from the brand demonstrated by her stepping down as CEO to be replaced by Sheree Waterson in 2015.
The success of the book and the growing movement of #Girlboss surrounding do not translate into a huge sales to Nasty Gal. It also does not help that there are many allegations about toxic environment of the company were surfacing. From negative reviews on Glassdoor, layoffs to several wrongful termination lawsuits.
Even though the company raised investments up to USD40 million in 2012 and again in 2015 for USD16 million, they had taken several missteps. First, they invested in fulfilment and logistics – including in renting a 500,000 square-foot warehouse. Other startups would have taken years to achieve that step as they usually use third-party services. Also, a shift in strategy was implemented, where they target higher-price brands backfired sales-wise. They would have move into a healthier margins if they shift to direct retail compare to working with wholesalers.
Next, they heavily invested in paid e-commerce acquisition. Google Adwords and Facebook ads are great to drive people to visit your website and be first time buyer – which they have no problem with. Retention is what halts Nasty Gal’s progress, as customers are not coming back to buy again because of perceived low quality and value of the product. Moreover, it is difficult to deliver consistently and keep up for an apparel retailer that is driven by youth and trends.
However, what happened to Nasty Gal can be a learning lesson for us. Whatever the future holds for Nasty Gal, their founder is a genius in constructing brand. Whether the company will achieve success in restructuring or not, Sophia Amoruso is one unstoppable #Girlboss.