Business Model Innovation at Wildfang

NA0460

Business Model Innovation at Wildfang

Charla Mathwick, Portland State University

CEO Emma Mcilroy had logged another 70-hour week, preparing for the major funding pitch to support national expansion of Wildfang, a menswear-inspired fashion brand built around a badass tomboy image. Described as “the home of tomboy style and culture,” Wildfang’s e-commerce operation was complemented by two brick-and- mortar retail locations in Portland, Oregon. Expansion planning was in full swing by the summer of 2016 as Mcilroy and her executive team considered various scenarios to scale the company. Two business models were on the table. One was based on a bricks-and-clicks (B&C) private label retail strategy, building on what had been tested during the previous three years. The other involved a pivot to a multisided platform, linking an affiliated network of products and services to Wildfang’s growing tomboy community. Pouring herself another cup of coffee, Mcilroy knew it was time to dig into the lifetime value analysis that would back up her 2017 expansion pitch.

THE WILDFANG LAUNCH

It had been a helluva ride since the frustrating trip to Urban Outfitters back in 2010 that had inspired Mcilroy and Julia Parsley to launch Wildfang. These two self- described tomboys, who both worked at Nike at the time, had been scouring the men’s department, looking for the menswear silhouettes they both loved. Naturally, nothing fit.1 Mcilroy remembered asking, “Why doesn’t anybody make clothes like this for us?”

The company Mcilroy and Parsley eventually left Nike to launch became a social media sensation that belied its actual size when celebrities like Ellen Page, Kate Mara, and Evan Rachel Wood began championing the brand. These A-list endorsements helped the company raise $2.2 million by December 2013. The team opened their first retail location that same year—the Wildfang Fort—which also served as corporate headquarters.

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Copyright © 2017 by the Case Research Journal and by Dr. Charla Mathwick. This case study was prepared as the basis for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The author wishes to thank Emma Mcilroy, CEO of Wildfang, and Jon Miller, Wildfang retail director, for their valuable insights during personal interviews. They also generously shared photos, documents, and e-mail messages relevant to the case development. To protect proprietary Wildfang information, the customer-specific data presented in the case has been disguised. The author thanks John J. Lawrence and the anonymous CRJ reviewers for their helpful suggestions on how to make this a more effective case. A previous version of the case was presented at the 2016 Western Casewriters Association Conference in Portland, Oregon.

Business Model Innovation at Wildfang 1

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By June 2015, 2 1⁄2 years in, they were generating more than $2 million annually, were growing at a rate of 250% year-over-year, and had attracted a base of 120,000 enthusiasts. Parsley had moved out of her role as Wildfang’s chief operating officer by that point, though she remained active on the board of directors. That left Mcilroy to spearhead the start-up’s brand-building and market validation efforts, which included the decision to open a second retail location in Portland—the Wildfang Outpost. The Outpost concept was created to test a localized tomboy experience the team hoped would anchor their national expansion.

Although the company was projected to turn a profit by the end of 2016, both founders and investors were looking for more, as Mcilroy explained,

I see retail as a very broken model – you work your ass off to eke out a relatively small margin, it takes time, and it only really makes sense at scale. So, I’m trying to kick-start that. I don’t want to spend all my time raising money and hitting sales targets, when maybe there is a different game we should be playing.

For example, I’m thinking do we have to buy product? There are two things that come with product – epic amounts of financial risk and people. Could someone else buy the product and carry the inventory risk. If I don’t buy product, expenses associated with a number of key functions -- buying, merchandizing, inventory, fulfillment — begin to drop and that can change the game.2

Consequently, as Mcilroy began working on her expansion plan in the summer of 2016, she pondered whether or not to pivot and take the company in a different direction. If she pursued physical expansion of the B&C strategy, the intent was to expand the Wildfang clothing line with the goal of generating nearly 70% of future revenues from Wildfang’s private label sales. However, that would require bolstering skills in-house to support product design, manufacturing, inventory management, and retail site selection. The alternative was to scale as a multisided platform to leverage the Wildfang brand by giving affiliated merchants access to Wildfang’s highly engaged tomboy market. A platform strategy implied that the merchandise assortment would be heavily weighted toward third-party brands, an increased investment in IT infrastructure, and the development of affiliate management skills.

Given her background at Nike, Mcilroy was familiar with the private label retail model; however, she knew a pivot to a multisided platform had merit. Multisided platforms had been among the fastest-growing businesses of the past decade (e.g., Airbnb, Facebook, eBay, Square), making this business model attractive to the venture capitalists she planned to court for the next funding round.3

BUILDING THE WILDFANG BRAND

Mcilroy and Parsley had spent over a decade at Nike where Mcilroy worked on the Nike+ FuelBand activity tracker and Parsley worked for the Nike Foundation on the Girl EffectTM brand. Their experience at Nike meant that both founders had been schooled in the art of translating customer insights into brand strategy. So, their first step after taking the leap to launch Wildfang involved spending hundreds of hours interviewing prospective customers, going through their closets, and collecting insights into clothing tastes, shopping patterns, and frustrations.

Many of the girls they interviewed voiced the same