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ModCloth’s Vintage Threads Lift Sales Past $100 Million

For Eric and Susan Koger, the husband-and-wife duo who founded online shopping site ModCloth Inc. as high school sweethearts, a division of labor has always been clear: he’s tech and she’s fashion.

That balance helped ModCloth stand out in a sea of e-commerce rivals and expand sales to “well over” $100 million last year, according to Chief Executive Officer Eric Koger, 29. It also informed a push into wireless devices, which now account for nearly half of visits to its store, he said.

“What really sets us apart is this marriage of art and science, left brain and right brain,” said Susan, 28, the chief creative officer. E-commerce companies “don’t really get the fashion” and the world’s top clothing designers “don’t have that analytical background” to compete online, she said.

ModCloth and upstart e-retailers Inc., Zulily Inc. and The Fancy, are vying for shoppers in the $186.2 billion U.S. online commerce market dominated by Inc. Led by the Kogers, ModCloth is focused on the mobile-buying experience, turning smartphones into vintage clothing boutiques and using customer feedback to decide which items to stock.

Sales will increase by over 40 percent this year, Eric Koger said in the interview, the first time he’s publicly revealed details about ModCloth’s 2012 revenue and growth rate. He declined to say whether the company is profitable.

Amazon Investments

E-commerce has traditionally been a challenging market for startups, because Amazon invests heavily in new businesses at the expense of profitability. The Seattle-based company also has close to $8 billion in cash and marketable securities.

Still, most purchases happen offline, so ModCloth and others are betting there are plenty of opportunities for growth. In the first quarter, e-commerce accounted for 5.5 percent of total U.S. retail sales , up from 4.9 percent a year earlier, according to the U.S. Department of Commerce.

Started in 2002 -- the year Eric and Susan left their hometown in southern Florida to attend Carnegie Mellon University in Pittsburgh -- ModCloth has become a top shopping site for women. It buys dresses and other female apparel from designers, stores the items in its Pittsburgh fulfillment center and promotes them online using whimsical names like “Olive Your Dress” and “Sailor Swift Skirt.”

Data collected from users on its website and social networks such as Pinterest Inc. help ModCloth decide which items to keep in stock and which ones to abandon. Its “Be the Buyer” program, started in 2009, encourages users to give detailed feedback on newer pieces offered in the store, which designers may then incorporate into future products.

User Feedback

“A customer might be saying, ‘I like the print, but I don’t feel like the silhouette is flattering,’” said Trisha Kiblinger, a national sales manager at Tulle, which has sold goods on ModCloth since 2007. The fashion label adjusts designs based on feedback from ModCloth users, Kiblinger said.

Customers increasingly view, rate and buy products using mobile devices, which account for 42 percent of visits to ModCloth, up from 27 percent at the beginning of 2013, Eric Koger said. This year, the company released apps for Apple Inc.’s iPhone and iPad, and saw higher spending per purchase on tablets than on desktop computers.

While the CEO declined to discuss ModCloth’s profitability, he said margins are comparable to those of Asos Plc, the U.K.’s largest fashion-only retailer. The London-based website’s gross margin last year was about 50 percent.

IPO Alternative

ModCloth investors including Accel Partners, First Round Capital and Norwest Venture Partners, have put $40 million into ModCloth. Norwest led the most recent financing round last May, helping the company put off a potential initial public offering while it focuses on growth.

“We’re going to deliver liquidity to them eventually, but we don’t have a specific timeline yet for an IPO or an acquisition,” Eric Koger said.

ModCloth has about 450 employees in San Francisco, Pittsburgh and Los Angeles, and plans to add about 100 workers in 2013, he said. As the male CEO of a growing company full of stylishly dressed women, Koger takes comfort in knowing that he has a personal style consultant.

“I would be markedly less fashionable if it weren’t for Susan,” he said.

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