How Indochino is suiting up for a massive retail expansion

The online seller of made-to-measure suits started out selling cheaply online. With plans for 150 stores, can it measure up?

 

Why Design Matters

Indochino CEO Drew Green

Indochino CEO Drew Green. (Carlo Ricci)

A half-hour into our appointment, it’s clear that Noah knows a lot about me. He’s discovered how much ankle I like to show (just enough to see the pattern on my socks), diagnosed an old shoulder injury (“Your right shoulder slopes about a half-inch more than your left”) and beheld my dismay at learning that my waist is actually four inches rounder than I’d believed. Noah is a style guide for Indochino, one of the tactful employees at the retailer’s downtown Toronto showroom who measures, fits and counsels men looking to buy a custom suit. It’s an unfamiliar undertaking for many Indochino customers, so Noah provides some gentle guidance. “Face the mirror again, and cross your arms. And then just keep them crossed for the rest of the appointment,” he instructs me. “I find that guys don’t know what to do with their arms, so I just tell them.”

Style guides like Noah are a key part of how Indochino, which began as an online retailer selling made-to-measure suits, plans to expand into the bricks-and-mortar world in a big way. The company was founded by two university students with no fashion expertise, but they managed to design the perfect way for men to buy a custom suit online at an affordable price. After years of optimizing that process, Indochino is making an aggressive push into the real world, with plans to open 150 bricks-and-mortar locations by 2020, in addition to greatly expanding its product line. To guide this growth, Indochino landed one of the biggest rounds of financing in Canadian e-commerce history and recruited a management team of fashion and retail veterans, led by a new top suit with experience scaling businesses. “I want to create a multi-billion dollar company by 2020,” says recently installed CEO Drew Green.

The Indochino suit itself is fairly standard. You can get the jacket with one, two or three buttons; with wide lapels or narrow ones. Pants come with pleats or without them. For a personal touch, you can add a monogram. But what the company’s success to date shows is that designing a simple, fast shopping experience is just as important, if not more so, than designing a standout product. The question now is whether Indochino can meet its audacious growth targets and bring its finely tailored customer experience to the physical world—without comprising the model that made the company successful in the first place.


In 2007, University of Victoria student Heikal Gani needed a suit for a conference. But he couldn’t find one that fit well at a price he could afford. So Gani and classmate Kyle Vucko decided to start a company to solve that problem. Indochino began as a website offering a small selection of suits, priced around the $300 mark, as well as shirts, accessories and outerwear.

There were some early issues—one poster on a menswear forum reported that the elbows on the company’s shirts were susceptible to giving way, and another noted that his jacket didn’t quite accommodate his “funky square shoulders.” Jeffery Diduch, an industry expert on made-to-measure suits who regularly orders and evaluates garments from different brands for his blog, last put on an Indochino suit in 2012. While he was impressed by the company’s approach, he was less enthused by the garments. “They knew the technology, but knew nothing about making clothes,” he recalls.

If Indochino’s garments weren’t quite a perfect fit initially, its timing was. Men have been moving away from the decidedly casual style of the early 2000s to something more polished. “There’s this generation of guys who want to dress up and to look better, and who associate that with images of success,” says Diduch. Menswear is growing at twice the pace of the market for women’s clothing, according to the NPD Group Canada. Tailored and business clothing racked up $4.83 billion in sales in 2015, a 3.7% increase over the previous year. Beyond dressing better, men are simply buying more to keep their wardrobes current.

Indochino also offered a compelling value proposition: a made-to-measure product at a ready-to-wear price, delivered in about three-and-a-half weeks, almost as quickly as buying a suit off the rack and having it altered. To make the process painless for men, Indochino designed the online shopping experience to match the way men shop. Plenty of them own only one suit, usually bought for a wedding or a funeral, and have little—if any—experience with made to measure. A suit could be the most expensive garment they’ve ever purchased. That’s why Indochino guides new users through the customization and measuring process. The website is filled with helpful descriptions about options like lapel notches and pocket flaps, and features 14 videos to show customers how to take accurate measurements. An algorithm alerts the customer service team to follow up if the numbers don’t make sense. The site continues to evolve (visitors can now toggle between fabric swatches, and search by colour) and the process can be completed in five clicks, down from 30. These changes have helped boost the company’s online conversion rate.

The day after a customer places his order, it’s reviewed by a team of pattern makers at Indochino’s Shanghai office, and then allocated to one of the company’s four production partners. Indochino represents a significant cut of these manufacturers’ made-to-measure volume, which allows it considerable control over the tailoring process. In the early years, production took as much as 15 days. But through frequent visits to China and changes to the production process, such as conducting quality assurance on the line to spot and correct errors, Indochino cut it down to an average of five days. Once the finished garment is assembled, it’s returned to the Shanghai office, where it’s checked against the customer’s measurements, and shipped out. (Indochino offers a $75 alteration credit if the suit doesn’t fit perfectly out of the box.)

Having found success online, Indochino is branching into physical retail. It’s part of a wave of e-commerce players opening up storefronts, a shift motivated by the growing competition for consumer attention online, according to Sucharita Mulpuru-Kodali, vice-president and principal analyst for e-business and channel strategy at Forrester Research. “It’s very difficult to gain brand recognition in this crowded landscape,” she notes. “You have to either pay Google or Amazon to help people discover your products, or you have to engage in brand advertising, which can be very costly. Stores are valuable to drive awareness and for the trial of products. They can be viewed as a marketing expense that in part pays for itself.” E-commerce brands see storefronts as more than just another point-of-sale. Physical spaces are an opportunity to showcase products and connect with customers in a way that a digital ordering process, however refined, simply does not permit. “It’s a tactile experience—you’re feeling the fabric, you’re draping it over yourself,” says Pilar Catala, Indochino’s director of e-commerce and product development. “Online, you don’t have that luxury.”

The company first moved into physical retail in 2012 with Traveling Tailor, a series of pop-up shops in high-traffic locations such as Chicago’s Union Station and at King and Spadina in Toronto. The concept was “wickedly successful,” then-CEO Vucko said in an interview with Canadian Business last year, helping Indochino measure the bricks-and-mortar retail opportunity and connect with customers in person. Today, Indochino has seven permanent locations in cities like in Vancouver, New York and Boston. The showrooms provide a high-touch alternative at the start and end of the custom suit process—you can get measured at a boutique, and then take your suit back after it arrives to be pinned up and altered if necessary. That’s a comforting option for many customers. (“We’ve had guys that were trying to measure themselves with a ruler, and that doesn’t really work for going around cuffs,” quips Catala.)

During my session with Noah, the style guide peppered me with a series of observations about my figure that I wouldn’t have noticed on my own, like the fact that my shoulders rotate forward, causing fabric to pile up behind them—a problem fixed by rotating the jacket sleeves a half-inch forward. As Indochino dramatically expands its showroom count, that kind of individual attention and expertise is set to become available to a lot more customers.


The move into bricks-and-mortar retail prompted a reshuffling of Indochino’s top ranks. “I don’t want to say we had to put a little more grey around the table, but we recognized the need to bring in some really great perspectives and experiences,” says Faheem Gwadry, Indochino’s senior vice-president of operations and chief financial officer. Despite only joining the company in 2013, Gwadry is a Indochino veteran—most of the management team arrived in the last two years from organizations like Louis Vuitton, Kit and Ace, and eBay. Indochino also brought in a new CEO, tapping Shop.ca founder Drew Green.

The first task Green undertook upon arriving in November 2015 (the switch was announced the following month) was to draft a five-year business plan for Indochino, based on a deep dive into the company’s historical data, conversations with the team, and an extensive schedule of travel and customer outreach. To put that plan into action, Green needed to raise capital from a strategic investor, and on March 9, Indochino announced it had secured a US$30 million investment led by Dayang Group, a clothing manufacturer based in Dalian, China, and one of Indochino’s existing production partners. The deal is one of the largest single rounds of financing in Canadian e-commerce history. Dayang’s involvement is integral to Green’s plans for Indochino. Working with its strategic investor will reduce Indochino’s production costs by around 20%, which is “an incredible number,” boasts Green. “All of that flows to our bottom line.”

Indochino announced its 150 showrooms-by-2020 target the same day as Green’s appointment, and he admits the goal has elicited some incredulous reactions in light of the broader trend from physical to digital—a shift Indochino helped set in motion. The scale of the company’s bricks-and-mortar ambitions dwarfs anything its emerging omnichannel competitors, such as Montreal’s Frank & Oak, have attempted. Storefronts are expensive, and there comes a point at which the value of increased brand loyalty doesn’t justify the real estate and operational costs. But Indochino sees its showrooms as more than an awareness play, and besides, they’re designed for maximum efficiency, just like everything else the company does.

Indochino doesn’t necessarily need to locate in prime, expensive spots, says Dean Handspiker, the company’s director of retail (North America). “We’re destination retail,” he notes. “We have the ability to draw the client to the showroom.” The current Toronto space, for example, is outside of the downtown retail strip, but conveniently located for the Bay Street and condo-dwelling crowds. Most of the business is appointment-based, allowing Indochino to staff more efficiently than other retailers. The company’s made-to-measure model also allows it to save big in another area. “We don’t have millions of dollars of inventory on our floors or in our factories,” Gwadry observes. Rather than pay upfront for product and risk inventory obsolescence when styles or trends shift, Indochino charges customers up front and then fulfills orders. As its retail footprint expands, first in major North American markets, then in Asia and Europe, the company will also defray showroom startup costs through distribution partnerships and perhaps co-branded stores.

Indochino’s deal with Dayang is set to drive another kind of expansion, too. Dayang is one of the world’s largest manufacturers of ready-to-wear suits, producing garments for the likes of Ralph Lauren, BCBG and J.Crew, giving Indochino access to a wealth of expertise and enabling a huge upgrade of its product catalogue. As of July 1, the company will offer customers a choice of three different suit silhouettes, up from the single, slim-fit style it currently offers. Customization options will increase from some 45 to 190. And the number of fabric variations (a particular material in a particular colour, print and texture) will jump from 90 to 300. Such an array of choices will add complexity to the company’s model, Green admits. But Indochino has proven adept at managing complexity. “If you pull back the curtain, it’s an extremely complex business. There are thousands of moving pieces,” he says. “Our job is to make the complicated very, very simple for the customer.”

Indochino will also be moving into pricier segments of the menswear market. The company tends to attract an older millennial customer, and as members of that cohort climb the income ladder, they could leave their Indochinos in the closet in favour of premium labels. To keep them, Indochino has to shift upscale. “We’ll have fine Italian mills providing us some of the best fabrics in the world,” says Green. “If you want to spend $1,500 on a suit, we’ll have that opportunity.”

Considering Indochino’s most expensive suit is $799, targeting the upscale client could represent a challenge for the company. Price, after all, is about brand. Indochino doesn’t carry the fast-fashion stigma of H&M or Zara, but it’s still known for value—not luxury. As men have grown more interested in dressing well, they’ve also become more conscious of fashion brands. A decade ago, most men “wouldn’t have known an Armani if it sat on them,” jokes Diduch. “They were buying it for a label, not because there was a particular aesthetic to it.” That’s no longer the case, and this new contingent of fashionistas might balk at dropping four figures on an Indochino over a brand more closely associated with luxury. Green emphasizes that while he admires premium suit makers like Hugo Boss and Tom Ford, his aim is to “serve the masses.” Loyalty and value will ensure customers for his company, he says.

None of these goals will be easy to achieve, but Green is already making progress: Indochino achieved 60% year-over-year sales growth from mid-November to mid-February. With the company’s early entry into e-commerce, there’s no doubt that Indochino has been ahead of the curve in the retail and fashion industries. Still, to become a billion-dollar company, Indochino will need to learn to thrive both online and off, and stitch together a brand that appeals to a wider group of shoppers. Green believes he measures up. “I like to build big companies, and frankly I know how to do that.”


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