EastShow Project Overview

Rentao Pan Rentao.Pan@gmail.com

Project Overview

Business Model Chinese Apparel Market Overview Peer Analysis Key Strategies Start-up Location Selection Start-up Plan First-Stage Funding Estimation Business Risks Founder Profile

What Model?

Business Model
Our business model can connect all the parties in Chinas segmented independent designer clothing market

Independent Designers

Clothing Factories

EastShow

Apparel Companies

Consumers
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Business Model
We aim to be China's Styletrek, but a more powerful one! We will turn independent designs into mass production; Think it as Styletrek + Modcloth!

Procedures
Independent Designers

Clothing Factories

EastShow

Apparel Companies

Consumers

1.Fashion designers submit works to EastShow 2.First round selection by EastShow 3.Post selected works on EastShows website 4.Consumers vote to select final [n] pieces of designs 5. Post final selections online for sale 6. Consumers pre-order clothing products 7. When the number of orders reaches a minimum, place orders to factories 8. Coordinate communication between designers and factories in order to maintain the authenticity of designs 9. Collect finished products from factories, pack and label products 10. Send products to consumers 11. Give a certain percentage of revenue to designers
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Why China?

Overview: China's Apparel Market Huge market size & Rapid growth potential

> China is the world's second-largest apparel market. Its market size reaches US$110 bn in 2009* > Spending on apparel will grow at 30% per year in China and its market size could reach US$200 bn by 2014. By comparison, U.S. apparel sales in 2009 were US$287 bn, but its growth rate is only about 2%*

Increasing demand for medium-high end apparel products

> A large portion of the population in China is becoming middle class, who want to have a higher living quality and can afford medium-high end products > Foreign apparel brands such as H&M and Zara have gained significant popularity in China. The country has also become the fastest-growing market for luxury brands, such as LV and Prada

Growing importance of e-commerce in Chinas apparel industry

> Chinese consumers living in 1st and 2nd tier cities have increasingly relied on the internet to purchase apparel products in their daily lives > Apparel e-commerce firms are expanding rapidly in China. In 2010, M16, a leading women apparel company has become the first Chinese e-commerce company listed in the U.S. Other online women apparel companies such as Moonbasa and La Miu, both of which were established within the last five years, also plan to launch IPOs in the near future

Independent designer clothing is an underdeveloped market

> More and more people especially in 1st & 2nd cities are becoming interested in high-quality designs from independent designers besides traditional brands with high recognition > Independent designers lacks capital and channels to present their designs and gain recognition from mainstream consumers > There is no single popular e-commerce website for independent designer clothing in China so far
* Source: Mckinsey Qquarterly

Problems in China's Independent Designer apparel market

While there are both strong demand & supply in China's independent designer apparel market, there is no single efficient marketplace that can connect the whole industry value chain in China Consumers > The rapid-growing middle class in China want to have a higher quality of living. While they have been used to purchase medium-high end international apparel brands, more and more consumers are becoming interested in apparels from independent designers > However, consumers in China do not have channels to find information about those designers Apparel Companies > China's local apparel companies are much behind their foreign competitors in terms of designing capability. There is an increasing demand for highquality designers in China > With a high-growth domestic market, Chinese apparel firms are eager to increase designing capability in order to appeal to domestic consumers > There is hardly any independent designer brand in China, because apparel companies are reluctant to invest in unknown designers due to its high advertising costs and the uncertainty about the market reaction to those designers 4 Designers > The average salary for an entry-level designer position in China is only about US$600-1000/year > More and more young people are entering fashion design industry. Ambiguous young designers are eager to establish their own brands > Young designers in China do not have sufficient capital to set-up workshops and to invest in marketing and advertising for their own brands Clothing Manufacturers > China has the world's largest apparel production industry, known for its low cost and high efficiency > After China joined the WTO in 2001, many international apparel firms came to China to look for OEM partners, which helped the country build-up its manufacturing facilities. As a result, most of clothing manufacturers in China were export-oriented > Clothing manufacturers were severely hit by the 2008-2009 financial crisis due to the large export reduction. They are eager to partner with more domestic apparel firms in order to make use of their excess production capability

Review Our Business Model

Our business model can connect all the parties and solve all the existing problems in this segmented market

Independent Designers

Clothing Factories

EastShow

Apparel Companies

Consumers
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What Strategy Then?

Peer Analysis (1)

This group of companies represents designers to sell their clothing products and they charge a commission from each sale
Company Brand Descriptions & Comments
Founded in Feb.2010, Styletrek is a New York-based crowdsourced e-commerce firm which showcases independent fashion designers . It provides designers a platform to reach customers and sell their products. The Company is said to take 25% of sales proceeds from designers* The Company raised US1.5 m seed funding and it has expanded into fashion designer network in four continents A New York-based online clothing company founded in early 2010 with backing from Ycombinator. It sells clothing from independent designers Fabricly will select qualified designers and it currently cooperates with 14 designers as shown on its website Designers take control of retail prices; Fabricly receives a 30% commission of retail prices for marketing and e-tail services it provides The Company raised US$400,000 from Atomico Ventures in Nov. 2011 Launched in 2008, Not Just a Label was founded as a London-based online platform for independent fashion designers It sells fashion clothing, accessories from independent designers around the world The site now represents over 9,000 fashion designers from around the world who create a total 50,000 design objects a season

Styletrek

Fabricly

Not Just a Label

Couturesociety

A Germany-based online high-end clothing company founded in 2011 It sells very high-end women apparel through pre-order model, and it plans to expand into mens apparel market in the near future All products are tailored made by respective designers; customers will be expected to receive products after average production time of 10-18 weeks

* Source: company websites; news reports

Peer Analysis (2)

This group of companies does not only represent designers to sell their designs but they are also engaged in clothing production process
Company Brand Description & Comments
A London-based online designer platform founded in 2010, initially called Garmz with angel funding in the a low six figure digit It rebranded as Lookk with a new round of seed investment in Aug.2011 Lookk allows designers upload designs, which are then voted on by consumers. Winning designs are produced and distributed by Lookk A California-based online clothing company set up by two college students in 2002, and became a serious business in 2006 after their graduation The Company mainly sells vintage style clothing. It allows users to vote on items to select those for production; It mainly cooperated with indie fashion designers in California The Company had half million dollar sales in 2006, its revenue reached US$19 m in 2009 after two rounds of financing; It further raised US$19.8m in Jun. 2010 An U.S online t-shirt company founded in 2000, pioneering the idea of crowdsourcing It allows users to submit graphic designs and asks visitors rate each works to decide which one to be put on t-shirts for sale It currently has more than 10k graphic designers and 3m-4m monthly visitors Based in Copenhagen, Muuse is an online independent designer clothing provider It selects designers exclusively from top fashion schools in Europe and the U.S It has a studio with in-house tailors who sew selected clothing It offers consumers three purchase options: Pre-order, Ready to Wear and Tailor-Made A Vienna-based online clothing companies founded in 2011 with a retail store in Vienna The Company organized design contest online, allow visitors to upload clothing design works and select most popular designs for production

Lookk

Modcloth

Threadless

Muuse

Useabrand
* Source: company websites; news reports

Implication of Peer Analysis & Our Key Strategies

Based on peer analysis, our business model will improve upon the existing models from the following four aspects
User Experience We will focus on improving user experience by making interface simple and clear for both consumers and designers (Good example: styletrek) We will make it easier for visitors to vote, comment and purchase; the procedures for uploading sample pictures by designers will be much easier to follow (Good example: Threadless) Consumer-driven/focused Model * We will focus on developing a consumer-driven model. We enable consumers to vote on designs so that we can control our expectation of sales * We will at least at early stage eliminate inventories by pre-order model so that we do not need to purchase inventories. Our cash flow will be much stronger ( Good example:Threadless) * We provide consumers with the detailed information about designers and their design inspiration behind each work. Also we will allow consumers to comment and interact with designers. 8 Consumer Targeting/Pricing * Specializing in high-end or custom-made clothing from independent designers will prevent companies from accumulating a large client base and restrict sales ( Example: Couture-society) * We will target medium-level products or a specific style which will create a large client base and allow mass production (Good example: modcloth) Industry Value Chain Integration * We do not only help designers sell their products, but we also help them turn their designs into mass production, which means a larger revenue scale and a higher profit margin for us (Good Example: Lookk) * Our understanding of the Chinese market and our connection within clothing manufacturing industry can help us get access to the established network of clothing manufacturers in China * The high efficiency and low cost of clothing production in China mean less delay in delivery and a higher profit margin

How to Make it Happen?

Start-up Location Selection

Both as fashion & commercial centers in China, Shanghai has geographic advantages over Beijing due to its easy access to clothing production network Market conditions
Beijing & Shanghai are two largest fashion/commercial centers in Mainland China; They have the largest bases of fashion-lovers and two cities lead fashion trends in the country

Beijing

Presence of fashion designers

Both cities have top fashion design schools and a large base of fashion designers Shanghai Yangtze River Delta Region Pearl River Delta Region Yangtze River Delta & Pearl River Delta: * They are the two largest clothing manufacturing bases in China; Yangtze River Delta region is the home to 7 out of 10 largest apparel companies by revenue in 2010*

Availability of IT professionals
There are sufficient supplies of experienced high-quality IT professionals in both cities

Accessibility of clothing manufacturers

Shanghai, as the center of Yangtze River Delta, has geographical advantages over Beijing due to its easy access to the clothing manufacturing network in the Yangtze River Delta region
* Source: News reports

Start-up Plan
Initial Steps
1. 2. 3. 4. Create a website and hire Web Development Engineers and Graphic Designers Collect initial designer works from friends in fashion design industry Contact/negotiate with apparel factories owned by friends Test the website / Conduct clothing production simulation based on initially selected designs

2nd Stage

5. Hire a Fashion / Product Director to build-up designer network and to decide our designer product focus (style / price / consumer targeting) 6. Hire a Clothing Production Director to develop detailed instruction and mechanism for coordinating communication between designers and factories 7. Expand clothing production network and form partnerships with certain qualified manufacturers 8. Develop solutions for product delivery 9. Develop consumer service solutions 10. Website and operation testing & adjustment Marketing: increase spending on marketing and advertising to improve the visibility and recognition of our website from both designers and consumers Customer Service: hire a customer service team to improve service quality Logistics: Improve logistics quality and reduce the time of product delivery Brand management: Develop branding/pricing/ packing & labeling solutions
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Expan -sion Stage

How Much Do I Need? US$ 150K~200K

First-stage Funding Estimation

The listed costs are based on average levels in Shanghai During the first few months, we will focus website development, platform and network building and product testing before officially launching the website. Therefore, we expect limited revenue during this period Six-month total cost: ~ US$125,200 But considering other factors such as - Advertisement - Additional hiring - Potential office relocation The total funding needed will be: US$ 150K~200K
Intitial Costs Company Regisration $4,000 Trademark Registation Website Domain Purchase Initial Office Equipment Purhcase Monthly Operation Costs Office Rental (100~150m2) $1,700 Legal, Transportation, Internet, etc $2,500 Total Operation Cost $4,200 Monthly Staff Costs Total Key Staff Costs $11,000 -Founder $2,000 -Technology Director $3,000 -Fashion/Product Director $3,000 -Production Director $3,000 Costs of ~5 supporting staffs $5,000 (UI/VI/back-end/Testing/Marketing/editing,etc) -Average Cost for supporting Staff $1,000 Total Monthly Staff Cost $16,000 Total Monthly Cost $20,200 Six-Month Total Cost $125,200

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Business Risks
Apart from those common risks all e-commerce websites face with, this project also has following potential risks

Consumer Targeting Risk

Although this project is based on a consumer-driven model, in which consumers take a big role in deciding which items to produce, it is still not easy to target a proper group of consumers who are interested in independent designs Setting design standard / product price too high or too low will make the website lose visitors and affect its further business growth Solution: 1) Get advices from clothing product experts; 2) Quickly adjust product prices and styles according to consumer responses

Production Risk
The project may potentially fail in coordinating communication between designers and factories, which will end up with producing products which does not maintain the authenticity of designs Solution: Develop effective mechanism and hire clothing production experts to coordinate communication between designers and factories Production capacity will be challenged once the volume of pre-order significantly exceed expectation, resulting in product delivery delay Solution: Establish partnership with multiple qualified manufacturers to enhance total production capacity

Product Delivery Delay Risk

Due to the pre-order model, it may take a very long time to produce and deliver certain products, which will make the business less attractive to consumers Solution: 1) Facilitate communication between designers & manufactures and 2)Improve logistics capability 12

Why Me?

Founder Profile
Background Age 23 Grew up in Mainland China; came to the U.S for his undergraduate and
studied at Wheaton college in MA Studied in the U.K. for a year at the London School of Economics

Working Experience Worked for Barclays Capitals Investment Banking Division last summer,
mainly covering Consumer Retail M&A in Asia Pacific ex-Japan region; worked on an IPO transaction for a leading online apparel company in China Interned with Xinhua Finance, a boutique private placement advisory and venture capital firm in China, assisting executing equity financing transactions for early stage e-commerce company in mainland China

Leadership, Project Development & Start-up Experience Highly involved in student government and leadership activities during both
his high school and college career One of the three students in his college who received the highest leadership award for underclassmen Team Leader: Barclays Capital M&A Case Study Competition winner out of 26 teams in UK First project development experience: high school musical Director/Producer First start-up experience (unsuccessful): Luxstyle: a high-end online travel company registered in Hong Kong in 2011 13