Fashion is a tough business, and fashion subscription boxes are even tougher. From the top down, this seems like a great business model. Subscribers are sent a new, hand-picked box of clothes or accessories each and every month. As you’ll see in the interview, the process actually emulates one aspect of the high-end shopping experience.

In practice, however, this has proven to be a tough market to make a profit in and fashion subscription box startups around the world are blowing through their capital and going out of business as investors turn their attention to newer, shinier objects.

Satoshi “Ash” Amanuma and the team at AirCloset, however, thinks they have found the secret to making it work and they have the numbers to back it up. They’ve been overwhelmed with the response since they first announced their service and have had to implement a waiting list to keep things from spiraling out of control.

In fact, they came dangerously close to being bankrupted by their own success.

It’s a great discussion and I think you’ll enjoy it.

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Show Notes for Startups

  • How you get women to tell you what they want
  • Simulating the shopping experience
  • Why AirCloset’s success in Japan almost bankrupted them
  • When AI will start to replace personal shoppers and stylists
  • When cost control is more important the growth
  • What’s pushing Japanese startups to go global

Links from the Founder

Transcript from Japan

 

Disrupting Japan episode 53.

Welcome to Disrupting Japan. Straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for listening.

Now, fashion is a tough business and fashion subscription boxes are even tougher. Now, in case you have run across fashion box startups before, they basically operate by sending subscribers a selection of new clothes or accessories for their consideration each and every month. Satoshi Amanuma or Ash, as his friends call him, and I discuss in the interview, the model looks great from the top down. In fact, it emulates an important part of the high end shopping experience.

But this business is much harder than it seems. And fashion subscription box startups around the world are blowing through their capital and going out of business as investors turn their attention to newer, shinier objects. Ash and the team at AirCloset, however, think they have found the answer.  Much of the secret to success in the fashion business is in the decidedly unglamorous area of cost control and operations. In fact, at one point, AirCloset was almost bankrupted by their own success.

It’s an amazing story so let’s get right to the interview.

Tim:    So I’m sitting here with Satoshi ‘Ash’ Amanuma of AirCloset. Thanks for sitting down with me.

Ash:    Thank you very much.

Tim:    Now, AirCloset is a subscription fashion box for women. But that’s a really kind of high level overview so why don’t you tell us a bit about what AirCloset is.

Ash:    So it is a new type of subscription fashion box startup in Japan. And also we have is renting casual fashion items for ladies. Our target is basically the 20s up to 40s ladies.

Tim:    Well, 20s to 40s is a big range. But how does the system work? So they fill out a form or do they select pictures or…?

Ash:    Regarding registration, the customers they choose pictures out of four, then out of seven. So that we can understand each fashion types they prefer. For example, skirt types, pants types or dark colors or cool types or…

Tim:    Oh, okay. So instead of having them explain it to you, you just let them choose pictures?

Ash:    Exactly, yeah. Followed by that, we have form for preferred colors usually each which colors they wear. Some of our customers usually prefer navy, black and white or something like that. But maybe they want to try red or yellow or … because it’s rental, so they want a challenge. Then we ask about their body size and we also about their clothes size they usually wear. And after that, we ask personal questions regarding fashion, kind of a FAQ for the regarding fashion.

Tim:    What kind of questions?

Ash:    Some of our customer wants to hide their arms or hips because –

Tim:    So just very kind of personal things. Alright. You get a lot of information and a lot of opinions from each person.

Ash:    But our steps are quite easy for… 4 or 5 steps we have. So maybe around 15 to 20 minutes they need and then their kind of whole body photo for our stylist.

Tim:    So they upload a picture of themselves as well?

Ash:    Yes, yes.

Tim:    And then what happens?

Ash:    Then the registration’s finished. All the data will be sent to our stylist so that consumers usually just wait for 3-4 days then they receive one box including three fashion items. Usually two tops, for example, one shirt like a knit and then one bottoms for like pants or skirt.

Tim:    They’re items that can be worn together or they’re items that just fit the profile for the user?

Ash:    Fit the profile for the user and also including one coordinate. We usually send two tops and one bottoms or maybe tops and bottoms and one piece. So stylist usually prefer, for example, please wear with this top and this bottom –

Tim:    Oh, so they put together an outfit for them?

Ash:    In total, it should be followed by user’s profile or what kind of, types of fashion they prefer. Then user just enjoy until they feel satisfied. So we do not have any renting times or anything.

Tim:    So they can keep it as long as they want?

Ash:    Yes.

Tim:    Or send it back and get a new box?

Ash:    Mmhm, mmhm. So when they send back a box, we check the clothes and then after that we just send another box followed by their feedback. Our stylist understand more and more if users use our services.

Tim:    So the service costs around $60 dollars a month, right?

Ash:    Yes. But we usually have two types of plans. The first one called Life Plan, which is only one-time exchange allowed which is around $60 dollars. Then our $90 dollars or $100 dollars, we call Regular Plan, which is unlimited.

Tim:    And so what happens if they like one of the items of clothing, they want to buy it.

Ash:    Yeah, they just open their – we call the MyPage, then they can check the fashion items and they just type if they want to buy it.

Tim:    And they just keep it and return the other two items.

Ash:    Yes, exactly.

Tim:    Ah okay, so they’re actually buying used clothing, right?

Ash:    Yes.

Tim:    Huh. So it’s actually in a way you’re describing it as a fashion rental service. But in a way, it’s also very much like a home shopping service where they’re being delivered these items to try on.

Ash:    Exactly.

Tim:    That’s really clever. In fact, the very first time I ever went shopping with my wife at a really nice department store, I was really impressed when I realized what their sales strategy was which is basically, you get the woman in the fitting room and then you just keep throwing clothes over the door and just don’t let her come out until she, you know, just keep the clothes coming and she’ll buy something. And it sounds like a very much the same sort of model.

Ash:    Yes. So our business service is not renting clothes more like discovering new items.

Tim:    Right. That are already tailored to the tastes of your customers.

Ash:    And also thinking about e-commerce. You usually buy ourselves, choosing by ourselves. But we want to create a new kind of discovery of clothes by recommendation from someone which is our professional stylist.

Tim:    Tell me about your customers. You mentioned an age range but that’s pretty broad so who are your customers? What do they like –

Ash:    Basically, we keep the busy kind of businesswomen and also moms.

Tim:    Moms? Ah, okay. So basically just people who are really busy.

Ash:    Yeah. They’re really busy and they do not have time to think about new fashion items or discovery of new fashion items or go shopping and so forth. They do not need to change their lifestyle, they just need to register and wait for new discovery.

Tim:    And they’ll have a new box of new clothes to try on when they get home.

Ash:    Yeah. So thinking about mom going out they just can shop or they just can try on during their baby’s sleep. Which is I think is a new experience.

Tim:    So what segment of the market are you targeting? I mean, what is the average price of the items? What kind of price point –

Ash:    The price range is not like a fast fashion we call in Japan, which is really low in price; it’s not our target. And also the high end brands, top brands is not our target. We are focusing on middle range but with the high quality clothes. So the one item is about $80 dollars to $250 dollars. So we’re focusing on kind of, how can I say, in Japan we generate called conservative fashion style. So I don’t know how we call…

Tim:    Yeah. How would I explain this is in English… It is everyday fashion.

Ash:    It’s not casual fashion but our customer can go out for work and also our customer can go out for I don’t know, friend’s party or something.

Tim:    Let’s take a step back, talk about when you started AirCloset or even little before that. You worked as a project manager at a consulting company for like 8 years and then you worked at Rakuten.

Ash:    Which is an e-commerce company.

Tim:    Yeah, big e-commerce company. How long were you there? 4 years?

Ash:    3 years.

Tim:    Why start a company and why women’s fashion?

Ash:    Good question. From the beginning of my career, I have started thinking about building a company. So during my career more than 8 like 9 years as I.T. and Strategic consultant, I’ve also been a kind of global manager. I have created hundreds of business ideas.

Tim:    Yeah, let’s dig in to this because one of the questions that people who want to be entrepreneurs ask me a lot is how do I decide on a startup idea? Coming up with 150 ideas is actually not that hard. But what was the process you used to decide that one out of 150 that you wanted to do?

Ash:    The first one is we really like internet and we’re thinking about internet service, so we think that we should chose internet service. Then the second one is we really like sharing economy or like collaborative consulting services. So sharing the economy is our second keyword. And the third one is if we start up a business.

Tim:    So why did this model win out? What made it about this model that made it number one?

Ash:    The first thing is how many or how much the happiness we can create. And also, of course, it’s based on our kind of experience, shopping experience with my wife. Go out to the, for example, department store in Japan. We usually have what we call a floor map.

Tim:    Sure, the map so you know where to go for each item.

Ash:    Usually, if I see the map with my wife, I can kind of guess which store my wife will go in and which store my wife will not go in because my wife is quite busy, she never discovers new fashion brands or discover fashion style.

Tim:    Ah, so she was just going to the same stores again and again.

Ash:    Yeah. And also going to the same shops and comes up with same types of clothes she already has. I thought, why is that kind of thing happens and come up with the idea. I think it’s kind of a lack of discovery of clothes. My wife is working as a mom so she’s really busy and she does not have time to discover new fashion items by watching TV shows, reading fashion magazines and also she does not have enough time to go shopping for her clothes.

Tim:    It really was a problem that was right in front of you.

Ash:    Yeah, my problem but… I think if we create that kind of service or business, my shopping time can be reduced maybe. That’s, I don’t know, So yeah, the value itself, we start to think about creating a service is for ladies.

Tim:    Now, when you originally started the company, did you get funding immediately or did you boot strap it for a while?

Ash:    Funded it immediately from the one incubator called Samurai Incubate in Japan so which is really a small investments

Tim:    So Samurai Incubate’s a well-known accelerator here in Japan. Did you go through their acceleration program?

Ash:    We went into their pitch contest, got the prize and they decided to invest in us.

Tim:    Okay, so it was just straight investment.

Ash:    Mmhm, mmhm. So right after the first investment, we have started taking our business model and also we went for kind of hearing for the potential users.

Tim:    So like market surveys or…

Ash:    Surveys and also we have looked for partnerships, for example, warehouse companies and other companies.

Tim:    And once you had the basics and the logistics set up, now you had an incredibly successful pre-launch. You had many more people signed up than you expected…

Ash:    Sometimes I think I know than we have expected…

Tim:    For a small startup, that can be so dangerous. You can be bankrupted by your own success. How many people did you have signed up before you even launched?

Ash:    Around 25,000.

Tim:    25,000. And you were expecting like 2,500. Well, that’s a good thing, although, kind of scary. So what was your strategy? How did you get the word out? What was your marketing plan pre-launch?

Ash:    So at the pre-launch, we just published one press release. Also, Nikkei…

Tim:    Yes, the biggest I.T. kind of the Wall Street Journal of Japan, yeah.

Ash:    We had also I think around 10 online media just picked up the press release at the same time. So then after that, I think, the biggest success of our kind of pre-launch is that social networking marketing, SNS marketing, is I think our biggest success.

Tim:    Did you go into the social network marketing with a marketing plan or was it more of just word of mouth?

Ash:    Word of mouth.

Tim:    Wow, that’s fantastic. That’s amazing to actually get that level of traction from basically a press release is

Ash:    No plans for the big success of pre-launch, though.

Tim:    So you had to delay that launch a little right? While you got stock. But it was successful.

Ash:    Yeah, the delay comes up with the too many pre-registration of users we had. So we had that kind of crash with our system so around 10 days we needed to reconstruct our system infrastructure itself.

Tim:    Well, 10 days delay isn’t too bad. You launched with 25,000 registrations and how many customers do you have now?

Ash:    Around 90,000 customers but 90,000 registration users including free registration users, waiting registration users.

Tim:   Let’s talk a bit about the business model. Because a lot of fashion box companies in Asia and the U.S. have had problems with the model, that’s that they haven’t seen the traction that you guys have so quickly. But the item themselves are selected by real people and those have to be packed and boxed and sent out. And the returns have to be unpacked and dry cleaned and restocked. This is a lot of manual labor. How do the economics work out?

Ash:    The biggest one is, I think, the number of stylists we need or which is directed to…

Tim:    To select the items?

Ash:    Yeah.

Tim:    Is that something you’re thinking about maybe using artificial intelligence for?

Ash:    In the future, of course, yes. Though currently, we are focusing manually. But thinking about picking up clothes, usually our professional stylists pick up directly but instead of that, we have our own system which can allow the selecting through online so we have style search screen, our stylist can select for our customers. So that’s quite easy to select the items through online instead of picking up directly.

Tim:    Your stylists are using a web interface to pick out these items so it’s reasonably efficient. Okay. Can you talk about your conversion rates? So on average, if you send out 10 boxes, how many pieces do you sell?

Ash:    So the conversion rate of our selling conversion rate keep increasing which is, I think, really good. And also, user satisfaction rating itself keep increasing which is also nice. The key point of this business model, I think, is the cost reduction because thinking about one box going out to your customer and it comes back, as you have discussed, we need to think about the dry cleaning and also pickup cost from the warehouse.

Tim:    I’m sure your dry cleaning cost must be huge.

Ash:    It is, yeah. We have one big warehouse company as one of our investors so that we can reduce the cost of keeping our clothing in their warehouse and pickup cost of the warehouse. And also we have the biggest cleaning company in Japan as another investor so that we can reduce the cleaning cost. In the future, we have a promise we keep reducing our cost. So that’s I think our strategy, having our platform as reasonable cost.

Tim:    The other big business risk that seems to be there is the clothes that you send out to your customers, are they on consignment from the manufacturers? Or do you have to buy the clothes and keep inventory?

Ash:    We have more than 300 brands as our partner and we need to discuss with them, most of our stocks we have purchased.

Tim:    Wow, well, that’s a lot of inventory for a startup to hold.

Ash:    Yeah. But thinking about fashion style, our focus is basically for working women. So we do not need to think about for example, I don’t know, rock fashion or more like evening wear. Or we do not think about dresses and we do not think about coats.

Tim:    Ah, so you’ve managed to keep it fairly targeted. Okay, that makes sense.

Ash:    Targeted not only fashion types but also sizes.

Tim:    You recently raised a new round of funds. Congratulations.

Ash:    Thank you very much.

Tim:    So is most of that money going to be used to increase your inventory holdings or is it going to be spent on marketing?

Ash:    Both and also we will use for hiring new members.

Tim:    Does AirCloset have plans to go global?

Ash:    Yes, thinking about going global. I think, the biggest value of our service is not the fashion items, more like the styling, the fashion coordinate by our stylists which is Japanese fashion coordinate. So we can, I think, go out with that line. We can setup, for example, the same business model in Asia or Southeast Asia with our Japanese clothes, with our Japanese coordinate.

Tim:    Oh, I see. You’d be operating in Taiwan or Singapore for example but selling it as Japanese fashion.

Ash:    Exactly.

Tim:    Okay, it’s interesting. I mean, there certainly is a lot of interest in Japanese fashion and Japanese culture all over Southeast Asia. Do you think the market is big enough there to make market entry worthwhile?

Ash:    I think we need another marketing research, of course. But based on my experience, for example, in Thailand or Indonesia and so forth, I think we do have enough market size.

Tim:    Your investors now, are they all Japanese investors or is it a mix of Japanese and Western?

Ash:    All Japanese. And I think thinking about Japanese startup, all investors are unique because we focus on not only from but also from kind of what can I say…

Tim:    Strategic investment?

Ash:    Yeah. With some on the operating side.

Tim:    Yeah. That is some of the best money you can get. But the reason I asked that is that I’ve noticed that Japanese startups who have either foreign investors or a mix of Japanese and foreign tend to get a lot of pressure to go global quickly. And I was wondering since you have all Japanese investors, are they also pressuring you to go global quickly?

Ash:    Basically, not.

Tim:    Oh, okay. Interesting.

Ash:    We have two types of investors. The first one is financial they are thinking about, of course, IPO and the second one is our strategic investors. They’re focusing on how they can add money from the core business model itself.

Tim:    Right. They want you to succeed so they’ll make more money.

Ash:    So I think thinking about those kind of business, they’re pressure is quite low.

Tim:    So they’re mostly focused on the Japanese market. It’s you and the team that’s looking globally.

Ash:    Mmhm.

Tim:    Let’s talk about startups in Japan in general. Going global is something that most startups here say they want to do. What do you think the biggest challenge companies have when they try to do that is? Is it language or culture?

Ash:    I think language is the biggest challenge.

Tim:    Still?

Ash:    Still.

Tim:    Let me ask you kind of a personal question.

Ash:    Mmhm, sure.

Tim:    Because starting a company in the U.S. is a very popular, accepted thing to do. In japan, it’s still not completely accepted. It’s still viewed as incredibly risky. So when you made the decision to leave what was a very promising career in some really good companies to go found your own startup, was your family and friends supportive of it?

Ash:    My family really have supported. If our business has not succeeded, of course, we can just go for another job, get another job like before. So I think we should not think about starting up companies are not risks, more like, I think people just fear – usually in Japan, fear itself they think it’s a risk.

Tim:    So you think most people are afraid not because of monetary risk but a risk of status or face?

Ash:    Yes, right.

Tim:    You think it’s changing?

Ash:    Actually, not. I don’t think so.

Tim:    Oh, that’s too bad.

Ash:    But I think, it’s not really changing. For example, recently 10 or like 5 years ago in Japan, we usually have 20’s entrepreneurs in general. But recently 30’s or 40’s entrepreneurs or the number of 30 years old or 40’s  are increasing.

Tim:    So the number of older entrepreneurs are increasing.

Ash:    Yes, increasing with the increased experiences.

Tim:    That’s a good sign in two ways. I mean, one is it’s much more experienced people are coming into entrepreneurship. And also it means that it’s becoming more socially acceptable because those are the people with the biggest amount to lose. So that’s a good sign. Before we wrap up, let me ask you what I call my magic wand question, okay. And that’s, if I gave you a magic wand and I told you that you could change anything about Japan, anything at all. You could change Japanese culture, the education system, the way people thought about risk, to make it better for startups, what would you change? Take your time. This is why we don’t do it live.

Ash:    Yeah, that’s really a nice question. In Japan, basically we think that failure is not a good thing. If we can change the mind of Japanese people of thinking about failure to more like a good experience, it’s not failure.

Tim:    Okay, so you would change the way people think about failure to turn it into more of an experience or a learning experience. That would be a huge difference.

Ash:    If they think that way, I think they would be happy to take risks to have a good experience which is currently thought a bad idea.

Tim:    Actually, I think that is starting to happen. If you look at some of the books on starting a startup that had become popular in Japan, whether it’s the lean startup or Steve Blank’s books. All of them frame it as experiments, you’re just trying to get the results. And that idea’s starting to take over.

Ash:    I think so too, yes.

Tim:    So before we wrap up, is there anything that you want to talk about that we haven’t talked about yet?

Ash:    I’m thinking not about business model or not about our services bit more like I want to talk about our team. Our team is really focusing on user experience itself. Our services is not fashion renting services, our services is more like kind of an emotional service. Our goal is to create a wonderful fashion discovery.

Tim:    Every company says they really are focused on user experience, right. So what is AirCloset that’s different from normal companies?

Ash:    In general, in Japan, I think they do not say we are focusing on user experience, more like they’re focusing on user satisfaction, I think. But we’re focusing on user experience itself. So user experience mean it’s not only the touch points with our service, more like in their lifestyle, how they experience. So for example, with our service they can receive new fashion item with beautiful card for example. Then she can just go out shopping or go out for a walk. Then her colleague maybe say you look different but it really fits you. I think that experience is really happy for her.

Tim:    Oh, I see. So when you’re talking about a user experience, you’re not talking necessarily just about their experience directly to your service but how it impacts their lifestyle and their life.

Ash:    That’s what we want to create so we usually have meetings for thinking about the user experience and focusing on how – thinking about how we create that.

Tim:    Listen, it’s been great. Thank so much for sitting down with me.

Ash:    Thank you very much, thank you very much. It was really a nice time.

 

And we’re back.

It’s clear that AirCloset has a demand side covered. They’ve been oversubscribed with a lengthy waiting list since weeks after their first announcement and the trend doesn’t look like it’s going to be stopping any time soon.

Managing the supply side, the inventory, the personnel costs, that’s what sinks most fashion box startups. And it seems like Ash and the team are focused on this. After their first multi-million dollar round, far too many young founders both in Japan and overseas tend to do a lot of prestige spending. They move to nicer offices, they revamp their online presence and embark on expensive marketing campaigns.

One of the things that impressed me most about AirCloset was that in our discussions both during and after the interview, the team focused on how the new investments will enable economies upscale, better inventory management and other ways that operations can be optimized. I think we’ll be hearing a lot from AirCloset in the future, they have a fighting chance in a brutal market.

If you’ve had either a great or a terrible online fashion experience, Ash and I would love to hear from you. So come by disruptingjapan.com/show053 and let’s talk about it. When you drop by, you’ll find all the links and sites that Ash and I talked about and much, much more in the Resources section of the post.

I also want to let you know that our 2nd anniversary live show is coming up on September 13th at Super Deluxe in Roppongi. If you’re on the mailing list, you’ll be getting updates and information. If you’re not on the mailing list, well, come on, you should really be on the mailing list. You can sign up at the site or you can just get the event info there or on our Facebook page. Please let people know about us and get the word out. If you like what we’re doing, share it with your friends. If you hate what we’re doing, share it with your enemies.

And most of all, thanks for listening. And thank you for letting people interested in Japanese startups know about the show.

I’m Tim Romero and thanks for listening to Disrupting Japan.