Bonobos: A Better Fitting Model for a Better Fitting Pant

How Bonobos is capturing the best of both worlds as it straddles the line between digital and physical retailing.

The Business Model

Bonobos’s core business model is nothing new. Bonobos, basically, sells pants to men.

Creating Value through The Perfect Pair of Pants

But there has to be a reason those pants are growing so fast, with annual revenue growing from $9.5mm in 2010 to $69.3mm in 2013 (implied revenue of $300mm for 2015)[1] and 250,000 customer purchases in the last 12 months.[2] Bonobo’s seems to be giving the male shopper something he didn’t have before: the perfect pant. Bonobos launched in 2007 with a single pair of corduroys. Today Bonobos sells 140 pant options and 230 shirt choices[3], in addition to formal wear, swimsuits, and golf clothes, all with an emphasis on fit.

 

Pants

Source: Bonobos

Bonobos creates value for the customer in another way- the shopping experience. In 2011, Bonobos opened a “guideshop”[4] – a showroom which held no inventory (just one size of each model), but would allow customers to try on clothing items within the store, and then with the help of an agent complete their order via the e-commerce site.

The guideshop experience aligns perfectly with Bonobo’s target demographic, who shop for clothes on average of once/twice per year[5], and would prefer a shopping experience during which they can receive fashion consultancy and fitting from a professional, and then leave the store without having to carry it with them.

Guideshop

Source: Racked.com

All of the above factors create value for Bonobo’s target customer, and people are willing to pay for it. The average price of a Bonobo’s men’s pant is about $100.[6]

The Operating Model

Imagine walking into a store where nothing was for sale. That’s the model Bonobos is using, and the model 895,800 retail establishments in the US are not using.[7]

Check Out The Experience Here

Bonobo’s operating model, a hybrid between a pure play e-commerce and brick and mortar, aligns perfectly with their business model. As a retailer, Bonobos reaps almost all the scalability benefits of a pure play e-commerce sites, and avoids the common operational difficulties associated with maintaining retail outlets.

How Bonobos Captures the Benefits of E-Commerce…

Margins Online sales are simply more profitable, with industry gross margins of 70% versus wholesale margins of approximately 35%.[8] Furthermore, they can control the brand experience with the end user, without having to worry about relying on retailers to present the brand’s overall experience.

Data Ownership Bonobos owns its own data. By selling only digitally, Bonobos receives 100% of customer data. The availability of this data can feed back into continuing business operations, and help Bonobos drive future decisions on designing, procurement, and marketing. 

Inventory Management Without pressure to stock multiple retail outlets, Bonobos has full flexibility to manage inventory from procurement to direct customer. There are significant financial advantages to this model, with lower working capital needs for the company, and much less unused inventory.

Employees / Fixed Costs By maintaining only 19 guideshops[9], Bonobos is able to run a lean team as well maintain low store maintenance costs. Bonobos cost per store is lower than a traditional retailer, which would have to employ more sales people, a full cashier system, and spend time and resources on restocking. The result is exponentially higher sales per person and per square foot than the traditional retail model.

…But Also Brick and Mortar

Marketing Beyond driving sales, the guideshop serves as an important way to improve brand recognition for Bonobos, particularly in metropolitan areas. Strategic placement of guideshops guides traffic to Bonobos’s site.

Better Customers/Fewer Returns Order values in guideshops are double what they are online[10], with customers less likely to return products and more likely to repeat transactions. By attracting stickier customers through a good shopping experience, Bonobos is building a stable and continuing source of revenue for the long term.

Relationships with Customers While e-commerce is, in many ways, the future of shopping, people still care about feeling and touching their products before purchasing, and that remains true for clothing.[11] By maintaining physical presence, Bonobos also doesn’t leave the interpersonal component out of the model. Stores matter as a way for employees to understand the consumer, have boots on the ground to relay changing purchasing habits and trends back to the design department, and contribute to the longevity and growth of the business model.

Spongebob

Sources:

[1] Yang, Marshall. “Bonobos Revenue, Growth, and Projection,” <http://www.marshallyang.com/post/67264612451/bonobos-revenue-growth-and-projection”

[2] Feloni, Richard. Business Insider. “After 8 Years and $128 Million Raised, The Clock is Ticking for … Bonobos”. <http://www.businessinsider.com/how-bonobos-is-maturing-into-a-major-brand-2015-8>

[3] Lieber, Chavie. “Bonobos and the Brotherhood of the Flattering Pants”. < http://www.racked.com/2015/6/11/8762431/bonobos-andy-dunn>

[4] Feloni, Richard. Business Insider. “After 8 Years and $128 Million Raised, The Clock is Ticking for … Bonobos”. <http://www.businessinsider.com/how-bonobos-is-maturing-into-a-major-brand-2015-8>

[5] Feloni, Richard. Business Insider. “After 8 Years and $128 Million Raised, The Clock is Ticking for … Bonobos”. <http://www.businessinsider.com/how-bonobos-is-maturing-into-a-major-brand-2015-8>

[6] Bonobos website.

[7] St. John, Oliver. USA Today. “Bonobos Opens Stores that Don’t Sell Anything” <http://www.usatoday.com/story/money/business/2013/03/12/savvy-small-business-bonobos-pants/1916885/>

[8] Fubini David, Joshua Margolis, Kerry Herman. “Susie Mulder at NIC+ZOE”. Harvard Business School.

[9] Feloni, Richard. Business Insider. “After 8 Years and $128 Million Raised, The Clock is Ticking for … Bonobos”. <http://www.businessinsider.com/how-bonobos-is-maturing-into-a-major-brand-2015-8>

[10] Chen, Joy. “Reinventing Retail: ABonobos Case Study”. <http://cargocollective.com/joychen/Reinventing-Retail-A-Bonobos-Case-Study>

[11] Chen, Joy. “Reinventing Retail: ABonobos Case Study”. <http://cargocollective.com/joychen/Reinventing-Retail-A-Bonobos-Case-Study>

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5 thoughts on “Bonobos: A Better Fitting Model for a Better Fitting Pant

  1. Love this post, as a great example of aligned operating and business models which allow for flexibility over time. The guideshops are a necessary source of growth past early adopters, but remain true to the original seamless experience. This is especially relevant as many new CPG/retail companies struggle to balance e-commerce with brick and mortar presences (Birchbox, Warby Parker, Harry’s).

  2. It’s really interesting how Bonobos has achieved operating efficiencies (selling online, carrying less inventory, etc) by matching the shopping experience to customer preferences in a unique way – e.g., guys want the fashion consulting piece in-store and don’t want to have the carry the clothes out with them afterwards. And the no-discounts approach seems to also appeal to a certain customer demographic that doesn’t like dealing with pricing complexity – Zara also does something pretty similar and it seems to work!

    1. Hi Niha – Yes the pricing strategy is something I didn’t discuss here but it’s actually really interesting in that its the opposite of dynamic pricing. It seems like some customers actually just prefer a very simple model where they can walk into the store knowing what to expect on pricing. Traditionally the expectation is that retailers rely on sales seasons/promotions to drive much of their traffic.

  3. I like that you focused on how Bonobo “straddles the line between digital and physical retailing”. In doing so, they have come up with a very interesting way to differentiate themselves in an increasingly crowded e-commerce space.

    When I was living in San Francisco, I noticed the exploding popularity of Bonobos among even just my friends. Several went to the guide shop in the Financial District to get fitted before ordering online. The ingenious implication of this free consultation is that it lowers the barrier to order clothes online. While generous return policies have become common place, a much better solution for both seller and buyer is guaranteeing that everything will have that “perfect” fit. I appreciate the clear focus on men and pants too. Men are an underserved segment in online fashion retail, and emphasis on pants probably keeps SKU complexity at a manageable level. From an operations perspective, it is smart that they keep no inventory at the stores, leveraging the high margins of e-commerce, while preserving a brick and mortar experience. I bet we will see more players creatively straddle the digital/physical line in retail.

  4. As a former management consultant, Bonobos is a brand I’m very familiar with. It was often referred to as the consultant’s uniform on the west coast. We frequented the guide shop that was down the street from the office and enjoyed the dedicated customer service and emphasis on fit. As your post correctly points out, we shop a few times per year. By virtue of that, I feel that we are not good at ordering things online, trying them on and returning items that don’t fit. With the Bonobos guide shop that all goes away and I think is an operating model masterstroke. Great choice of company!

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