Leaders League talks to Tim Hirsch, General Counsel at CaaStle, on the clothing as a service industry and its potential for disruption.
Leaders League. Could you give us an overview of the clothing as a service industry and how CaaStle fits into this industry?
Tim Hirsch. It is interesting to take a step back and look at how the clothing industry has been working until now. Traditionally it has been a transactional industry built around one-off transactional episodes between retailers and consumers. Over the past 20-25 years this industry then extended into the online world with the development of e-commerce. From there, one of the ways in which the clothing industry evolved or branched out is to have subscription-based purchasing, consumers through a subscription fee, bought boxes of clothes and the likes.
Clothing as a service (CaaS) is changing the means of accessing clothing, creating a shift from the traditional ownership model through one-off transactions to a rental-based system. Christine Hunsicker, the CEO and founder of Gwynnie Bee (the consumer-focused [B2C] daughter company of CaaStle), noticed a move away from ownership models in certain industries (ride sharing, food…) and saw a gap in the clothing market, specifically the plus size clothing market, where a rental model would fit nicely.
She always thought that this could then be extended from a consumer-led, B2C, model to working with retailers to allow them to offer subscription rental to their own consumers. This becomes a business-to-business (B2B) managed service to retailers aimed at allowing them to offer CaaS to their customers. We want to create a new economy for apparel that enables retailers to offer non-ownership-based ways of interacting with their customers.
How disruptive can this industry be to the wider retail sector?
This is the beginning of a revolution in the way in which people interact with clothing. We are as a society moving away from ownership and so it’s massively disruptive because we feel there is huge demand and it will disrupt consumption habits. However, I don’t believe it will disrupt retailers themselves as, with our B2B services, we are offering them the possibility to enter this market in a manner that is incremental and additive to their existing models. It will bring new customers to their brand and is a fantastic way for them to grow market share without a fundamental change to the way they operate. The retailers that are working with us today are already seeing benefits from adding a CaaS aspect to their business.
We really believe that clothing rental makes sense on so many levels because the current transactional model is highly inefficient. For a retailer it makes sense to get more utilisation out of clothing. For a more environmentally-aware society it helps cut waste and reduce carbon footprints. For consumers, it gives them access to thousands of pieces of clothing without having to commit much capital or closet space. These days, consumers live lives that are fast paced and this model of a virtual closet that moves with them and follows their fast-paced life is what people are craving. It fits their lifestyle and allows them to experiment. On the consumer side, you also see this with cars for example and it explains why leasing and short-term rentals in that industry are booming.
What is the scope of progression for CaaS outside of its home US market?
The vision of CaaStle is international however there is a heavy logistical component to our business - we own and operate the cleaning facilities that are integral to our offering for example and we have to ship the clothes to our subscribers - which constrains the speed at which we can scale up geographically. But Christine’s vision was to test this in the US and then scale up. Just like Uber starting up in the US and then expanding very quickly. We want to bring this experience to as many markets as possible.
What stage of development is the industry at?
On the B2C side, Gwynnie Bee has a couple of competitors in what is a growing market that is starting to mature but on the B2B side we are not aware of anybody else offering what we’re offering to retailers. We were able to scale up Gwynnie Bee, which was established six years ago or so, and leverage all our knowledge and IP to expand into B2B. We have geared up to offer B2B for the entire history of Gwynnie Bee and the vision was always to have a core B2B component. Christine realised that in coming to the market with something so fundamentally different you had to show retailers that your idea works and that there was consumer demand for CaaS that would underpin the need for retailers to then embrace it themselves. She realised that the road to B2B had to go through B2C.
What does your role involve?
I am the General Counsel for CaaStle and in that capacity I oversee all the legal function for the company, which, with its 500 or so employees spread across the US and India still functions like a start-up, in terms of pace and flexibility, but less so when you look at our scale. I report to our CEO and am part of the management team. My many responsibilities include contract negotiations, IP, compliance, employment matters, handling tax issues and managing equity plans as well as investor relations. I am also secretary of Company.
There is a growing data privacy component to our business as data insights are key to what we do: retailers hugely value the data we can compile, which is not available in traditional retail. IP is another huge component of the company’s proposition and takes up a lot of my time as a focus. I also work very closely with GCs at retailers to make sure business and legal terms are advantageous to all parties. Each day brings different challenges and being nimble and adaptable is key to facing these.
What are the biggest challenges that you face in this role?
One of the things that makes this role so exciting is that no one is doing what we’re doing, there is less of a reliance on templates and existing models for me as a result. We are in unchartered waters and this forces you to be extra creative, that to me is the exciting part. We are really writing a new chapter in the history of retail and I wouldn’t trade it for anything else.