Tech in Asia: In 2016, Chris Halim and Raena Lim piloted a fashion rental platform called Style Theory. When the waiting list for the service grew to more than 3,000 people, the Singapore-based duo decided that the idea was worth pursuing.
They launched the platform in their home country and expanded to Indonesia in 2017. Although there are other startups, such as MadThread and The Treasure Collective, that also provide similar services, Style Theory stands out with its geographical coverage and funding.
Since inception, the company has raised US$25 million, including a US$15 million series B funding round led by SoftBank Ventures Asia in December 2019. It also counts Alpha JWC Ventures and The Paradise Group among its investors.
“We saw an opportunity to raise more money – maybe a couple of millions more – in the next few months,” Halim tells Tech in Asia.
He claims that the company’s platform now has more than 200,000 registered users.
Fashion startup on the outside, logistics startup on the inside
Clothing rental is not a new business. Several boutiques have provided the service before. Typically, people go directly to these stores, rent clothes, and return it after they wear it.
Today, websites like Belsbee and TheDressCodes in Indonesia, Covetella in Singapore, Style Statement in Thailand, and Lola in Malaysia allow you to rent their collection of dresses and gowns online. All of these sites, however, focus on outfits for special events, like weddings or ceremonies.
In contrast, Style Theory focuses on day-to-day outfits. It provides a subscription service that lets users pay a monthly fee to rent unlimited clothes from its collection, limited to three to five pieces at a time. Lim likens the platform to a “cloud wardrobe.”
While the approach allows the company to retain users, it’s a nightmare from a logistics point of view.
“Our business is really unique,” Halim says. “Everything that goes out needs to come back. It’s very different from ecommerce that only needs one-way logistics.”
When he started Style Theory, the co-founder partnered with more than 30 third-party logistics firms and employed various warehouse management systems. He found that most of them did not invest enough money into their reverse logistics solutions because the segment is relatively small for a typical logistics business. For Style Theory, however, reverse logistics – the step in the supply chain that typically involves returning an item to the manufacturer – is equally as important as shipping products to consumers. An inadequate reverse logistics solution could cause a lot of pain points for customers.
The return logistics process is complex: Items should arrive on time so the clothes can be washed according to schedule, and the items must be checked whether they are counterfeit or not. The system should then understand where to store the clothes, so it’s easier to pick them up when another customer wants to rent them.
“We finally asked ourselves, how can we take it in?,” recalls Halim. “Can we enjoy the economic side of the business? That’s when we started to evaluate everything and build a logistics and warehouse system from scratch.”
decision to build their own RFID tag, warehouse management system, and courier fleet in Singapore has increased customer satisfaction from 88% to 98%, says Halim. He admits that his company looks like a fashion startup from the outside but is more like a logistics startup from the inside.
“The rental service is more time-sensitive than ecommerce because [customers] already have a specific use case in mind,” explains Lim. “You want to wear [an item of clothing] for a specific occasion. Our users’ retention depends on it.”
When Style Theory expanded to Indonesia, a much larger market than Singapore, it faced a new challenge. It couldn’t rely on in-house couriers like it did in Singapore, because it needed a bigger fleet to cover a much bigger area. Fortunately, there were reliable third-party logistics firms that they could hire in the country.
“In Indonesia, the third-party logistics is better in many ways,” Halim says. “There is a lot of competition too, which is good for us.”
In the archipelago, Style Theory collaborates with Gojek to provide next-day delivery for within Jakarta and delivery firm Paxel to offer two- to three-day deliveries for Surabaya. Although customer satisfaction with the service is more than 90%, there is still room for improvement, especially in timeliness and the return service, Halim says.
“We believe that the most important metric of the business is retention rate, as it is proof of how valuable the product is and whether customers are willing to pay and stay,” says Jeffrey Joe, managing partner of Alpha JWC Ventures.
Halim and Lim admit that they are cautious about scaling their business in Indonesia. Today, they are focused on Greater Jakarta, which is home to 35 million people, and will continue to do that this year. The company also has small operations in Surabaya.
“We will go to other big cities like Medan and Makassar if we can find a good partner who can give a good enough rate and speed,” says Halim. “But for now, our focus is still in Greater Jakarta.”
The company is also planning to expand to another country outside of Indonesia and Singapore this year, but opted not to disclose specifics.
The sheer amount of logistical challenges is one reason why there aren’t many big rental players like Style Theory in the region.
Singapore-based MadThread, which was founded in 2018, has received US$513,000 in seed funding from angel investment community AngelCentral. The number of visits to its websites and total app downloads are far lower than those of Style Theory, according to data on SimilarWeb and Google Play.
In Malaysia, a startup called Zarrel tried to provide the same service in 2016, but it has since stopped operations.
“[Style Theory’s] business model is not easy to execute,” says Alpha JWC’s Joe. “If you look closely, it is a very complex business, and they have executed it well. Rental businesses like Style Theory require strong tech, marketing, and operations excellence – from clothes buying to laundry – to maintain its service quality. And of course, to do something at this scale also requires significant funding.”
Online clothing rental is still a niche market, but it’s a very promising one. A recent report from Research Nester reveals that the global online clothing rental industry was valued at US$1.1 billion in 2018 and is estimated to reach US$2.8 billion by 2027. Asia Pacific is estimated to witness intensive growth and occupy 22.14% of global market share by 2027.
‘Test first’ mentality
Since the beginning of Style Theory, Halim and Lim have operated on one mentality: Always test first.
The inception of the startup itself stems from this thinking. The duo aimed to sign up 500 members within a month and were prepared to scrap the idea if they could not reach the target.
The attitude guided even their decisions on product innovations such as the launch of the firm’s bag-rental service in Singapore and the release of new items in its inventories.
“We are very data-driven,” explains Lim. “We collect 80 different data points and use it to decide which clothes that we will purchase.”
For instance, the startup usually buys a piece in size small and medium first then checks whether there is a demand for a smaller or larger size. If the demand for a specific size is big enough, it will purchase that size, too.
When Style Theory launched in 2016, there was no similar service in Southeast Asia, so the company tried to model after fashion subscription service Rent the Runway in the US and other rental players in China. However, the market in Southeast Asia was pretty unique.
“In Singapore, people move around with public transport, so we work a lot with stations so users can pick up the package when they want to go to the office or go back,” says Lim. “It’s different from the US, where delivery service usually goes directly to the doorstep.”
Singaporeans are also less trend sensitive. They don’t really want to wear the latest release from a specific designer but are more concerned with the event that they want to go to or the people they want to meet, says the co-founder. They will dress according to that.
In Indonesia, the customer profile is slightly different.
“They’re younger, around 20 to 25, and are really influenced by social media,” says Lim. “The working environment is also different because even for formal business situations, people dressed more casually.”
Despite its foray into Indonesia, the majority of Style Theory’s business is still in Singapore. This is because the company has been operating longer in the market and has more services there – such as renting out bags.
However, it is employing a similar strategy to grow the business in both countries: getting strategic real estate partners or investors on board.
In November 2019, it opened an offline store in Singapore.
In Indonesia, the company has partnered with The Paradise Group, which owns various malls in the country and is an investor in co-working space operator GoWork. Style Theory also has a warehouse and office in FX Mall, a mall near SCBD area in Central Jakarta, which belongs to The Paradise Group as well.
“Malls are relevant in Indonesia; people like to go there,” explains Lim. “But we’re still exploring how to take advantage of it.”
On the other hand, Style Theory also wants to focus on tech products. The investment it got from its recent fundraise will be used to hire more engineers, product managers, product designers, and researchers in Indonesia, says Halim.
The fashion startup currently has more than 200 employees, around 120 of them work from Indonesia. All of their product and data teams, around 80 people, work at its Jakarta office.
But the clothing-rental business is not without its challenges. In 2019, Rent the Runway stopped accepting new subscribers and has one- to two-day delays on deliveries. Talking about the issue with the US-based startup, Halim thinks that it’s more of a system issue rather than a scalability issue.
“It’s really important to test every system properly, forecast and plan everything from clothing to the warehousing system,” says Halim, who wants to grow the business more than three times this year. “That’s why we were really busy for the past two months, and now the planning has been done.”
All photos are courtesy of Style Theory
Text: Aditya Hadi Pratama / Tech in Asia