Fashion Sense

Nov 01, 2004 10:30 PM  By

WE ADMIT IT: The Web site of eFashion Solutions LLC may look a little too pretty for hard-core techies. Once you download the required Macromedia Flash Player, your first impression is of color — a lot of pink and black, punched up with zippy music that you rarely hear on a business-to-business site. The navbar, done up to look like a garment price tag, dreamily drifts down from the top. Category titles float across the screen, much like movie credits. High-fashion illustrations leap at you, then dissolve and fade in unexpected ways. For a site that offers a variety of services, there isn’t much promotional material of any kind; all information about the company and its founders is downplayed, and it’s hard to understand what the business is about until you get past several screens.

But we also admit it: Behind that façade lies something totally inventive in the world of retail. On the face of it, what eFashion Solutions does seems simple. It manages the online operations of several major branded or licensed fashion apparel manufacturers, including XOXO, Baby Phat, JLO by Jennifer Lopez, OP, and Rockawear. The services EFS offers — Web site design, e-commerce technology, fulfillment, order processing, shipping — aren’t much different from those of its competitors in the third-party fulfillment business. What’s different is that EFS uses a single platform to manage all those components of e-commerce. What’s also different, and perhaps more remarkable, is that the founders created and built that platform themselves.

EFS is the brainchild of Ed Foy, a Brick, NJ-based entrepreneur whose experience in fashion retailing includes stints at Macy’s and Calvin Klein Inc. After a brief foray into an online venture that didn’t survive the dot-com bust, Foy, along with his wife, Jennifer, started EFS in 2000. This time, profitability came quickly — the company now employs 110 people, represents 15 online properties (with another ten slated to sign on by the first quarter of 2005), and expects to earn over $25 million this year and $40 million in 2005.

To hear Foy tell it, most of that success is the result of his unique, centralized information system. His 71,000-sq.-ft. facility, he says, is an “e-commerce center, almost a city, that concentrates on all the components of e-commerce.” Most retail technologies today are isolated, he adds; a company can buy software for e-commerce, reverse logistics, inventory control, or reporting, but can’t find a single application that does it all in an efficient and cost-effective manner. In eight years of searching, Foy discovered that every e-commerce system he looked at was missing something. “The fulfillment system, you could tell, was built by somebody who had worked in a fulfillment center, but was never in the front end of the business, never sold jeans at Calvin Klein, never engaged in direct-to-consumer relationships on the Web site,” he says. “You look at the order processing and reporting systems that came from another vendor, and you could tell that they were never in the fulfillment side of the business.” Foy couldn’t find a holistic platform that could take a product all the way from merchandising and marketing to shipping, returns, and real-time transaction analysis.

So, he says, he built one. The goal was to design a system that brought together all of the elements that were missing in the other applications he’d seen: “It’s like going to a restaurant and you hear about this great dish, you sit down, you taste it, it’s good, but it’s just missing a little something — maybe a little garlic, a little butter, a little salt and pepper. And that’s what we did, we put that ingredient into the system, into the technology, that everybody else was just missing.”

Foy also did something else that few retailers were doing five years ago — he programmed the entire system in open source code. He really had no other choice, in his view, given his plan to handle multiple Web sites and the tight budgets of his potential customers. “My knowledge of the fashion industry is that when it comes to technology, they don’t spend money,” he says. “So the last thing I could have done is gone out there and paid [for a] Microsoft product and certified this and that and pay thirty to forty grand for every server I plugged in for every Web site that I service, because the clients I’m going after are not going to pay that. So five years ago, we really went hard after open source, and everyone thought we were crazy. We built this platform of Linux, Unix, PHP, and the open source community, and I think that’s what makes us unique. We’re transacting $25 million to $30 million in business — an average transaction for us is $50. We were told that open source could never handle that many line items. And we’ve proved them wrong.” Even the creators of the PHP programming language, Foy says, were surprised that EFS was able to power several high-end Web sites with six million unique visitors a month.

Foy’s innovations baffled a conservative industry that hadn’t seen much other than conventional order processing applications running on an AS400 or similar system. In the late 1990s, most attempts at Web commerce were based on patchwork programs slapped onto legacy systems, and few vendors were developing applications that addressed e-commerce from the ground up. Foy’s went several steps further.

Not only was his platform built for online transactions; it was also an end-to-end system that provided total visibility into them. Many retailers and parcel carriers now offer this kind of visibility, but when the Foys approached UPS officials five years ago, they were speaking a language UPS didn’t understand. “We sat down with UPS,” Ed Foy recalls, “and we said, ‘It’s too labor-intensive to use WorldShip and type in your invoice numbers and download them to an ODB connection, FTP, or whatever. This is too costly, and I cannot get my business to the next level. We need to build real-time tools that use the Web, that communicate with your servers, that generate a label, that generate the manifest, that generate your billing, and that direct the whole billing process by package.’ And they looked at us like, ‘Whoa, back up, what are you talking about?’”

The problem, as Foy outlined it to UPS, was that the only way eFashion Solutions could grow rapidly without adding costs was by harnessing the power and potential of the Web. He was able to persuade UPS to give his company access to UPS’s online tools — such as they were at the time — so they could be used to set up a Web-based shipping manifest with the carrier. EFS clients would gain remote access and could log in and see how many packages they were shipping each day. The deal, Foy says, was one of the first of its kind.

The shipping alliance with UPS, coupled with his proprietary system, gave Foy an unprecedented look into the workings of an online business. No longer was he chained to apparel retailers’ traditional method of operation — pulling information from a plethora of systems and trying to make sense of it all. Foy’s application factored in all aspects of the business, from planning to customer service to feedback and surveys, and generated reports that provide a picture of the entire operation in real time. That enabled him to react to business demands almost instantly, an essential capability for his operation.

“We’re in the business of very quick-turning merchandise,” he says. “Every two weeks every one of my clients sends product that’s digitized, it’s photographed, it’s live in 48 hours. Every two weeks, it’s ‘OK, here it comes again!’”

Foy needs that swift turnaround because he stocks very small quantities of merchandise. EFS maintains, on average, nine items per SKU; during the back-to-school and holiday seasons, that number goes up to 15-30. (By comparison, Land’s End may carry 3,000-4,000 parts per SKU.) The roughly $25 million that EFS earns in annual sales has to come from those minuscule SKU quantities — and the only way to achieve that is to keep the inventory moving at breakneck speed.

Speed, of course, is something that fashion apparel businesses live or die by, but conventional retail distribution networks are hardly the place to find it. Combining industry knowledge with technical savvy, Foy set out to build a channel that would accelerate and streamline apparel makers’ online distribution while increasing their profit margins. Using his network, he says, manufacturers make 20% to 30% more than they do with their traditional retail and wholesale relationships: “We say, ‘We can send this order to your warehouse, but you can’t handle it. You can’t ship an individual package. You can go to another third party, and they’re going to charge you 20% of a transaction to do that. Or you can send it to me, and I’ll provide you, from Web site design, digital photography, content management, planning and analytics, to remote reporting, a whole package, down to fulfillment and reverse logistics, for 40%.’”

This business model is unique, Foy believes. “At the end of the day, there really are no competitors for what we do.” He has just completed a technical integration project with Amazon.com whereby EFS’s clients display their in-stock Web merchandise on Amazon’s site; all orders placed through that site are automatically sent to EFS, which ships the order to the customer. EFS is negotiating with several specialty store retailers to handle their online business. “Every retailer has proven they can’t make money online,” Foy says. “So we’ve built the technical infrastructure that as product is displayed on our clients’ Web sites, it’s also displayed on the retailers.’ You promote it on your bags, put it on your postcards to the customer, and now instead of a T-stand of Rockawear, you have the entire line of Rockawear. We’re going to give you 10%-15% of every order that comes through your Web site. You paid nothing for inventory. You have zero reps, zero cost, right to the bottom line.”

Retailers’ response to this initiative, he says, has been “overwhelming, amazing. It blew us out of the water.” Merchants are now promoting his services to manufacturers, Foy says, whereas previously the brands had been reluctant to go direct-to-consumer because they feared upsetting their retail partners.

Another reason for EFS’s success is that the manufacturers who are the company’s clients know exactly what to expect, thanks to a proprietary matrix that analyzes a brand’s online potential. The program dissects how well the brand is performing at wholesale, retail, and all its sales channels; whether there is a reason for one channel performing better than another; and how the results stack up against the brand’s advertising budget. Based on this information, EFS can predict the brand’s online performance with a high degree of accuracy. Foy believes manufacturers and retailers are finally beginning to understand the limitations as well as the upside of Web selling. In an assertion quite unexpected from a former dot-commer, he says it’s crazy for a retailer to expect to generate huge profits on the Web. “To go online and think you’re going to do a hundred million? That’s just insane. Sure, go ahead and invest $50 million and do that. When you’re doing $5 million a year, give me a call and I’ll take it over for you.”

Rama Ramaswami is editorial director of O+F.

‘Every Single Grommet Is Scanned’

eFashion Solutions LLC brings to distribution a level of meticulousness that would have been impossible without the Web. A typical transaction with a brand manufacturer proceeds as follows:

Based on the brand’s traffic and sales history, buyers and planners from EFS develop a plan for what the manufacturer should ship them in the next six months. The order enters the EFS system and is transmitted to the brand electronically. Once the items are ready to ship, the manufacturer sends an advance ship notice to EFS. When the orders show up at EFS’s facility, they undergo rigorous inspection. “We break out every single order that comes to us, and we scan every single tag out of that box,” says CEO Ed Foy. “We go through every single thing, we break it down, we stage it, every single grommet is scanned.” The EFS system searches for bar code inaccuracies and sends misreads off to a re-work staging area. An electronically generated, bar-coded picking ticket enables pickers to scan items, create a UPS label, weigh the package, and select the right carton. Although the process is labor-intensive at the receiving end, it allows for efficient inventory movement. Orders that come in by 3 p.m. are shipped the same day.

EFS uses both UPS and the U.S. Postal Service as carriers. Foy says the USPS offered a more cost-effective deal for parcels going overseas. “We really saw international as an opportunity,” he says. “So we initiated a relationship with the USPS for international packages, built a system around it, and launched it on July 1, 2004. Our international orders were 1%-10% of our business; they’ve been 20% of our business since we launched the system.” Previously, all documentation had to be done manually, but the new program automatically prints the country of origin, the bill of lading, and other information on the packing slip.
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Unique Warehouse Design

EFS head Ed Foy picked Progressive Handling Systems to design his facility because, he says, PHS president Jim Santore was “the only one in the state of New Jersey that understood what we do.”

Santore isn’t quite as dramatic about his role, but he concedes that Foy’s requirements posed a distinctive challenge. “What’s unique about his business is that he has many customers, a small number of SKUs, and a large number of orders with a small quantity of pieces,” Santore says. “We had to give him a system with the flexibility to handle that type of business.” PHS’s solution was a combination of slick rail for hanging garments and selective shelving and flow rack for flat goods and accessories, all connected to an order-picking conveyor system.

PHS specializes in quick projects that its engineers “design and build on the fly,” Santore says. He estimates that it took PHS just a couple of months to design the facility and six to eight weeks to install the equipment.

Two phases of the EFS project are complete; when the final phase is finished next spring, the DC will sport 2,000 ft. of conveyor, 500 units of shelving, 3,000 ft. of slick rail, and a host of scanners, computers, and controls.
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SUPPLIERS

Forklifts

ABCO Systems, Carlstadt, NJ, www.abcosystems.net

International Mail Services

Johnson & Hayward, Clifton, NJ, www.jhinc.com

Mailing Services

SmartMail (DHL), Clearwater, FL, www.smartmailservices.com

Material Handling

Progressive Handling Systems, Rockaway, NJ, www.phs-inc.com

Packaging

Absolute Packaging, Paterson, NJ, www.absolutepackaging.com

Packaging Supplies and Systems

Hughes Enterprises, Trenton, NJ, www.hughesent.com