Many moons ago, I was living in America and writing about fashion.
At the time, there was no such thing as an “influencer,” but an array of variously stylish bloggers had arrived on the fashion scene, cameras and laptops in hand.
Initially, these fashion bloggers were considered to be interlopers by the fashion journalism elite. They were routinely mocked and shut out of fashion week events.
But designers and brands were paying attention. Brands didn’t care about old school or traditional forms of journalism. They cared about making money, and bloggers helped them do that.
So much so, in fact, the term “bloggers” was no longer fitting. These people had impact.
Thus, the term “influencers” was born.
And over in Los Angeles, an ecommerce company called Revolve Clothing — founded in 2003 by Michael Mente and Mike Karanikolas — was riding the influencer wave.
Revolve Clothing would gift the influencers free clothes, and usually also throw in a cash payment. In exchange, the influencer would style the clothes into outfits (see: the #ootd hashtag on Instagram, which stands for “outfit of the day”) and share the stylised photographs on their various social media and web channels, while tagging Revolve Clothing, which allowed followers to identify the designer of the clothes photographed.
An influencer’s followers would then click through to Revolve Clothing and buy the clothing. Win-win!
After a few years of this, Revolve Clothing began to think of new ways to partner with influencers and expand their reach. It created events, installations and hashtags, oh my.
For example, in 2014, Revolve Clothing started inviting a bevy of influencers to Coachella, the annual Californian music festival. Revolve Clothing provided them with clothing and accommodation — and branded hashtags, naturally — and reaped the rewards through the tagged social media posts of the influencers.
In 2018, Revolve Clothing hosted around 90 influencers and put them up in a hotel.
And this is just one example. If you check out the #RevolveAroundTheWorld hashtag on Instagram, you’ll be able to see just how far and wide the influencer partnerships have reached.
Revolve Clothing also uses its own Instagram feed to drive sales.
Revolve Clothing's 3.1 million followers can tap and buy clothes, shoes and accessories directly from their Instagram feeds.
What’s interesting is that Revolve Clothing tracks the items that are getting clicked, shared and bought, and uses an algorithm to detect patterns from the data it’s collected.
This gives Revolve Clothing a huge advantage, especially in the cut-throat world of ecommerce.
You see, by tracking the data, Revolve Clothing can add more of the styles that satisfy the trends it has tracked. This means there’s less inventory holding risk. As such, unsought-after inventory is unusually low. In fact, in 2018, approximately 79 per cent of Revolve Clothing’s offerings were sold at full price, and the average order value was US$279.
The outcome of Revolve Clothing’s smart foray into influencer marketing and a data-powered Instagram feed is profit. In 2018, the company earned US$31 million in profit on sales of US$499 million, up from US$5.3 million in profit on sales of almost US$400 million in 2017.
That it’s profitable is good news for the swarm of shareholders who bought in when Revolve Clothing began trading on the New York Stock Exchange just a few weeks ago.
And it was evident that shareholders had warm, fuzzy feelings, given the share price soared in the hours and days after Revolve Clothing made its public debut.
But here at Spaceship, we wonder about the risk attached to Revolve Clothing’s marketing strategy — specifically, it’s reliance on social media, and in particular, Instagram.
Social media networks such as Instagram have been known to tweak their algorithms. Not so long ago, you’d view Instagram posts in reverse chronological order, but in 2016, Instagram changed the algorithm so you’d see the posts it deemed most relevant to you.
In October 2018, renowned fashion-industry trade journal Women’s Wear Daily (WWD) reported that up to “70 per cent of current overall sales at revolve.com are driven by an influencer.”
So, imagine the possible outcomes for Revolve Clothing if Instagram tweaked its algorithm again in a way that impacted Revolve Clothing's visibility to followers.
In June 2009, gaming company Zynga launched its best-known game, FarmVille, on Facebook. It quickly became the most popular game on the site. Therefore, Zynga grew. By 2011, when it filed to go public, it was reporting profit of approximately US$90 million for its 2010 fiscal year.
But we think Zynga had essentially sold its soul to Facebook and was therefore at its mercy.
When Facebook tweaked its algorithm in 2012, it became a “more challenging environment” for Zynga, which in turn led to the company missing analyst estimates. Shares of Zynga dropped sharply through 2012, and to this day have not reached the same price.
This isn’t the only time Facebook has made an adjustment and, as a result, wreaked havoc on a business. Publishers such as Mic and Buzzfeed have fallen victim too.
As a result, you could say Facebook is the biggest influencer of all.
And if Instagram — which is owned by Facebook — decides to follow suit, Revolve Clothing might have to figure out a way to “revolve” its business around more than influencers.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager has considered investing for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s potential investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
