Bonobos: Hybridizing the Digital and Physical Shopping Experience

For many men, the ideal shopping experience is markedly different than what women typically envision. The ecommerce platform, Bonobos, took advantage of this difference to create a business model specifically targeted for the needs of male shoppers. To achieve their value proposition, the Company has paradoxically turned to operating features characteristic of more traditional retail: hands-on customer service and brick-and-mortar stores

Introduction

Bonobos is an apparel retailer that predominantly sells business-casual trousers to male millennials via ecommerce.  Conceived at Stanford Business School in 2006, the brand has rapidly gained traction in the US and expanded in subsequent years to offer shirts, ties, swimwear, outerwear, suits and accessories.  In the coming year, the Company is on track to make over $100mm in annual gross revenue! [1]

The core of Bonobos’s business model is simple – targeting male millennial shoppers with a value proposition of great-fitting apparel and maximum convenience during the shopping experience at an affordable price.  The CEO of the Company presented the following equation for male utility that defines the value proposition of the business [2].

bonobos_shopping_1

Business Model

The Right Fit:  During their time at Stanford GSB, the founders of Bonobos realized there was a market inefficiency in men’s apparel.  The current landscape of pants was dominated by skinny Euro-cuts and baggy pleated styles (referred to as “Khaki Diaper Butts” by employees of the Company) that rarely fit the physique of many young adults [3].  To address this void, Bonobos crafted contemporary designs to cater to this underserved demographic.  The Company was also willing to frequently go the extra mile to ensure the customers found the perfect pair of pants.  Fit was often a key determinant for male shoppers in developing loyalty to the brand.  As a result, Bonobos believed that focusing on this aspect of the product would lead to financial success due to repeated purchases from loyal customers.

Convenience:  In the denominator of the “Male Shopping Utility” equation are the criteria of time and hassle.  Unsurprisingly, men typically do not derive enjoyment from the process of shopping for new clothes.  Many young male adults view the process of having to find the right fit and style of clothing through multiple visits to different retail establishments to be a harrowing experience.  Bonobos aims to create a shopping experience that is quick, painless, and stress-free with a healthy dose of hand-holding.

Operating Model

With the challenge of appeasing the young male shopper, the Company has developed several distinct components to its operating model to achieve this goal.

Hassle-Free Service:  Bonobos has tailored its operations to ensure maximum convenience during the shopping experience.  At its core, Bonobos’s ecommerce platform allows men to avoid the need to physically visit a brick-and-mortar retailer to buy clothes.  Bonobos has also invested heavily in customer service.  As stated by CEO Andy Dunn, “the key to overcoming resistance to buying apparel online is to make the experience fun and convenient” [4] For all of its products, the Company sacrifices a percentage of gross margin to offer free and fast shipping and the ability to return merchandise at any time.  To complement this, they have created a sizable customer service group– fondly referred to as “ninjas” – that are empowered to do whatever is necessary to assist customers in every step of the purchasing process.  Each Ninja is given a full-scale handbook to learn the Bonobos culture and best-practices for building brand loyalty [5].

the-bonobos-ninjas-handbook-to-customer-service-1-638

Vertical Integration:  To build a sustainable model that provides quality product and high-touch customer service at an affordable price, the Company relies on a vertically integrated organizational structure.  Bonobos exclusively sells product through its own branded ecommerce website, controls its own manufacturing process in Portugal with onsite quality control, and operates its own distribution hub in greater New York for delivering merchandise.  Through this process, Bonobos is able to avoid selling wholesale to a 3rd party in the value chain, and can thus retain margins on its product.  However, Bonobos has made slight compromises to this model in the recent past.  In 2012, the Company signed a distribution deal with Nordstrom.  In this case, product is sold to Nordstrom for a lower wholesale price in exchange for the increased distribution and awareness that the retailer provides [6].

Guideshops: Perhaps the most unique aspect of Bonobos’s operating model is the decision to pursue the Warby Parker approach of opening physical showrooms to complement the ecommerce platform.  These stores, referred to as “guideshops,” do not carry physical inventory but allow customers to inspect and wear samples to find the perfect fit and style.  The store experience typically involves an appointment with a Bonobos “ninja” who greets the customer at the door with a beer and provides one-on-one fitting and fashion advice.  These shops further enhance the value proposition of convenience by removing the greatest pain point with ecommerce retail.  Namely, consumers are able to evaluate product fit and feel before purchasing the apparel online.  Moreover, without inventory, the Company can operate smaller and more profitable stores by saving on rent and inventory holdings costs.  At one point, Bonobos had five guideshops that generated $1,000 in retail sales per square foot per year — only Tiffany’s, Apple and Lululemon exceeded or matched that performance [7].

Conclusion

Despite the clever decisions made by management to support its value proposition to customers, the jury is still out on whether Bonobos truly is a success.  While revenue growth, customer satisfaction, and brand awareness have been impressive, the Company still has not been able to turn a profit.  The management team expects to turn the corner from further refinements to the model and tailwinds from economies of scale.  What do you think?  Is Bonobos a success?  Or is the jury still out?

Sources

[1] “Bonobos working with Allen and Company for new round of funding” Fortune Magazine. March 4, 2014. http://fortune.com/2014/03/04/bonobos-working-with-allen-and-company-for-new-round-of-funding/

[2] Liew, Jeremy. “Thing Big. Move Fast. Why Lightspeed Invested in Bonobos” Lightsquared Venture Partners. December 16, 2010. http://lsvp.com/2010/12/16/why-lightspeed-invested-in-bonobos/

[3] Thau, Babara. “Why A Store You’ve Likely Never Heard Of Hints At Retail’s Future.” Forbes. July 8, 2015. http://www.forbes.com/sites/barbarathau/2015/07/08/bonobos/

[4] Petruccelli, Justin. “A Perfect Pair.” Enterpreneur. http://www.entrepreneur.com/article/195864

[5] Clancy, Heather. “Why Bonobos lets its customer service ‘ninjas’ improvise solutions to complaints.” ZdNet. http://www.zdnet.com/article/why-bonobos-lets-its-customer-service-ninjas-improvise-solutions-to-complaints/

[6] Rusli, Evelyn. “Stores go Online to Find a Perfect Fit.” NY Times. April 11, 2012. http://dealbook.nytimes.com/2012/04/11/stores-go-online-to-find-a-perfect-fit/

[7] Lacy, Sarah. “Nice pants: Bonobos raises $30m off of strong growth and Nordstrom deal.” Pando. https://pando.com/2013/03/13/nice-pants-bonobos-raises-30m-off-of-strong-growth-and-nordstrom-deal/

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17 thoughts on “Bonobos: Hybridizing the Digital and Physical Shopping Experience

  1. Great post! I think they are a success and admire their quest to make the clothing shopping experience more palatable to millennial men. A beer upon arrival certainly supports the business model of creating a painless and stress-free shopping experience. I have never been to a Bonobos guideshop myself, but it seems like they have created a strong set of policies and employee training regimen to make the customer feel comfortable doing something he is inherently uncomfortable doing.
    I wonder, however, what supports the tenet of customer convenience more: the guideshops or the hassle-free shipping and return policies. Prime retail space is paramount to offering convenience, and although the smaller stores reduce their rent expenses, it seems like their need to be centrally located in their target customers’ neighborhoods could come at a significant cost. If it turns out that the guideshop experience is the true driver of consumer satisfaction (more so than fit or convenient shipping policies), it could prove to be quite expensive. That being said, I appreciate their creativity and ability to formulate an operating model that closely supports their business model.

  2. I like the ease of this model and think there could be a way for them to even expand into women’s as well (shopping can be a hassle for anyone). Given the speed of fashion, I wonder if they will be able to keep up on the style front even though it is a smaller part of the equation for men or if it will become more of a fad. Also, since the guide shops have to be very expensive, I wonder if there is a way to do this virtually through technology (e.g. uploading photos) or partnering with Nordstroms so guys can go there to try on sizes and Bonobos can leverage this data.

  3. Great post Akeel! I wonder how Bonobos will maintain the “Male Shopping Utility” equation you mentioned even when distributing to stores like Nordstrom which fall outside their vertical integration. Or, it might actually be strategic because a bad experience at Nordstrom could fuel more people to go to their standalone stores because the experience is unmatched.

  4. Akeel, I think you do an awesome job hitting on the key aspects of what makes them valuable to male millennials. I think Bonobos has found a way to penetrate the male shopping market and we will see in a few years that this model works. I wonder in the future when this model does work if they will try to branch into a higher income market. Since the customer needs to just got to a Guideshop to find the right fit, is there a way for Bonobos to expand their business model to custom create clothes? Can they provide swatches of fabric to the clients who then pick what they want and Bonobos can custom make it and send it to them? Again, this allows them to keep a low inventory yet charge a premium for the product made. This would be a way for them to attract a more sophisticated clientele who would spend more money yet still retain their current operating model. Based on what happens with the relationships with the bigger retail stores, this could be a way to supplement their current revenue streams and help them turn a profit.

  5. Great summary. Bonobos clothes are great. I question whether they will be able to turn the next corner for growth and still maintain their unique identity. One thing that does give me hope though comes from the article below. It discuss how Andy had to bootstrap the company and the challenges he faced along the way. He ultimately concludes that what made him successful was an attitude that “the risk is in the risk not taken.” If the company can maintain that attitude and continue to push the ecommerce retail forward more success should be on the way for them.

    https://medium.com/@dunn/the-risk-not-taken-40cf0a8919cb#.dq5xpu94r

  6. Interesting post! Now I’m very tempted to give Bonobos a try. Similar to CBL’s point, I can see Bonobos offers custom shirt and suit product lines and capture a high margin, similar to Indochina and Proper Cloth. I’m also curious to see whether this model works for female apparels since I suppose that’s a much bigger market.

  7. Nice post, Akeel! The guideshop model is quite interesting. While I’m sure they boost the confidence of users on the fence about buying online, I think the company is getting away from its core competency. As your post mentions at the beginning, Bonobos was a product innovation. They made trendy pants that fit normal people (not super skinny, not baggy grandpa khakis). The function of having sales associates assist customers in finding what size they should buy is generic. Any retail store can do that. Perhaps male customers don’t even need all the employee attention. They just need to try the clothes on for themselves and see if they fit. These shops put heavy cost pressure on Bonobos. I question if it’s the right strategy compared to just focusing on product and distributing through normal means.

  8. Also curious–how has Warby Parker done with its hybrid model? If they have turned a profit, what are the reasons they have been successful while Bonobos hasn’t yet?

    1. Rohan, Warby Parker has been incredibly successful in terms of sales (~$3,000 per square foot) and currently has a $1.2B valuation, but the company is not yet profitable, according to an article published in the WSJ in April 2015.
      http://blogs.wsj.com/digits/2015/04/30/eyeglass-retailer-warby-parker-valued-at-1-2-billion/

  9. Great post! Bonobos’s operating model of combining e-commerce and brick-and-mortar stores with “Ninja” is very unique, but totally makes sense to deal with the pain point of male apparel shopping. Although Bonobos seems to operate only in US so far, their business and operating model would work outside of US, as well, since they are addressing the problem all the men have, including me.

  10. Great company! I actually haven’t had any personal experience with Bonobos, so this was a great opportunity for me to learn what all the buzz is about. Very unique business model. I like how they position themselves at the intersection of utility and style – and I can see how this is a winning formula with males. With fashion being such a volatile industry though, I would be curious to see if this business/operating model is so effective in this exact context though, if it will be sustainable and adaptable. Is the Bonobos merchandising team the true superstar here? Regardless, it’s impressive what they’ve created and how they’ve revolutionized male shopping in this way!

  11. I really like the value proposition that Bonobos offers to male customers offering the hassle-free shopping experience. I actually wouldn’t mind the female equivalent considering how buys our schedules are. I do wonder if it’s scalable in its current form, and if the agreement with Nordstroms pushing it one step closer to becoming just another classic menswear designer or does the current model really give it an edge?

  12. I agree with Seanna on whether their push into Nordstroms compromises their operating model’s advantages (i.e. they simply join an existing channel and lose margins). I also wonder what their cost structure looks like (fixed v variable) from them to have $100M in revenue and capture full margin on their products and still not turn an overall profit. Have they already invested in their fixed infrastructure and just need unit sales increases to turn the corner, or is Seanna on the money and will they have to find changes to their core model?

  13. Loved your post. I love how Bonobos has targeted a very specific audience and focused their business model on how to address men’s pain points in the inherently painful shopping process! Very interesting model of combining physical stores with the online platform – being really selective in adding physical stores but using them to capture customers and driving repeat business via the online accounts/ordering. Also an interesting way to optimize working capital (only having “model apparel” at the stores for fit purposes and keeping all retail inventory separately and delivering upon order), fixed overhead costs of retail stores, etc.

    So, your thoughts – an interesting business proposal that seems interesting to address a targeted market. What do you think about long-term viability? How does this Company scale to become profitable… and what changes would you recommend to achieve?

  14. Nice post Akeel. I have heard of Bonobos a few times since coming to HBS, but never shopped there. I can definitely relate to the problem of finding the right fit for the pants. However, I haven’t been able to figure out from your post how they ensure a great fit for their customers? Nonetheless, I guess I’ll have to give Bonobos a try.

  15. Interesting post, Akeel! A very comprehensive formula to capture the male shopper’s mindset. it lays out the key levers for Bonobos’s business and operating model.

    A similar concept exists in Asia. A company called Zalora. The key differences:1) target audience are both men and women 2) Zalora aggregates clothes from different brands onto a one-stop shop 3) it began with an online business for several years and recently started a brick-and-mortar store in a few key cities such as Singapore where shoppers can try the fit of clothes.

    With positive outlook on revenue growth, what do you think is the key factor as to why Bonobos is still not yet profitable?

  16. Bonobos as a concept is incredibly interesting! But you left out Andy Dunn’s leadership style, which I think plays a critical role in the company’s struggle for profitability. While very charismatic, Dunn also is incredibly sexist, controlling, and egotistical, which has made HR management very difficult. He’s moved the tech team across coast three times, and four tech teams have quit on him. His co-founder, who created the company concept as well as the pants, left the company because of the toxic relationship with Dunn. In fact, they now teach a case at Stanford GSB on how their relationship transformed from great roommates to completely dysfunctional and dramatic. Additionally, Dunn has created a toxic work environment for women. Former employees have accused the culture of being “broish” and dismissive of women, which Dunn has undoubted contributed through his uninformed comments (e.g., Dunn openly has said that women are inherently not as strong as men in computer science and math).

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