Module 3 - CaseStudy_Threadless

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Threadless

Marketing in a Digital World by Prof. Aric Rindfleisch

Front page of Threadless, image captured in https://www.threadless.com/, authorized by Threadless.

Purpose:

founded it has sold its products almost exclusively via

The purpose of this case study is to examine the

its website (which is the same site in which designs are

relationship between online vs. in-store retailing and to

solicited and voted on). Through this approach, it has

better understand how the retail landscape is changing.

experienced phenomenal growth. In recent years, Threadless has received substantial interest from several

Background:

large retailers such as Target and is also considering the

Threadless is an innovative clothing manufacturer

possibility of opening its own retail stores.

located in Chicago. Specifically, this company specializes in making and selling unique t-shirts. The

Core Issue:

company was founded in 2000 by Jake Nickell and uses

During its first decade of operation, Threadless has

customer co-creation to design their shirts. It uses a

been very successful selling its shirts online. The core

submission approach similar to what Local Motors uses.

issue is if and how should Threadless expand its

The difference here is that in addition to using this

distribution capacity.

process to solicit designs, it also uses it to help select which of these submitted designs to produce. This is a very selective process; only 1% of all submitted designs are selected for printing. These shirts are made in the USA and usually sell for $25 each. Since Threadless was

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Case Study

Questions: 1. Should Threadless move into physical retail distribution? 2. 2. If so, how? Should it open its own store or sell through an existing retailer? 3. 3. What should be the relationship between its online vs. physical distribution? Typical Student Reaction: When I teach this case, most students react very negatively about the idea of Threadless partnering with

“365-2011-026: Threadless Visit” posted by Jason Gessner, under Creative Commons license, retrieved from http://www.flickr.com/.

an existing retailer. This negative reaction is based on their belief that this type of partnership would hurt the

interest is establishing a physical retail presence is also a

Threadless brand by diluting its image and reducing

testament to the power of physical retail stores.

their control. In addition, they don’t believe that

Although big box retail stores are declining in influence,

Threadless has the capability to launch their own retail

most retail shopping is still done in physical stores.

operation. A few students suggest that Threadless do a

These traditional stores are especially important for

limited physical distribution through a retail partner

products like clothing in which consumers like to touch

that would allow them to carefully control their brand.

or try out an item before making a purchase decision.

Thus, the majority of students feel that Threadless

Thus, physical stores account for over 80% of clothing

should stick with their current online distribution and

sales in the US. In these types of categories, retail sites

believe that this selective distribution strategy is a

are more likely to be used for information rather than

strength rather than a weakness.

for purchase. Threadless appears to have recognized this fact and is trying to appeal to the needs and preferences

Concept Application:

of this broader market.

This case is an excellent example of the changing nature

Recent Developments:

of retail and the challenges involved in trying to adopt a

Threadless continues to sell the vast majority of its

multi-channel strategy. What is most interesting about

products online via its website. In recent years, it has

this case is that Threadless is an online distributor

formed a partnership with the Gap, a large clothing

interested in moving into physical distribution.

store chain that focuses on causal clothes for younger

Usually, multi-channel strategies are in the other

people. In addition to stocking its t-shirts in Gap stores,

direction—from physical to online. Threadless’

it also conducts special online design challenges for tshirts that will be specifically sold in Gap stores. 4

Case study

Thus, it is nicely blending its online and offline

Lesson Learned:

distribution strategies. It has also formed similar

1. Placement decisions are closely related to the other

partnerships with a number of other well-known

elements of a firm’s marketing mix. For example, in

brands and retailers, including Dell, Thermos, and

Threadless’ case, a key factor in its physical

Redbox. In 2007, Threadless opened its own retail

distribution strategy was its unique brand image as

store in Chicago. This store looked very similar to an

this authentic, hip, co-created t-shirt firm in which

Apple store, with a very open feel and limited product

the designs of its products came from outside of the

displays. In the words of Jake Nickell, “Instead of

firm. It initially had a hard time trying to align this

setting up the everyday shop, we essentially re-created

brand image with the more mass-marketed image of

our digital experience in-store.” Threadless had hopes

traditional big-box retailers. This is one of the

of opening more of these types of stores in other

reasons why it initially rejected Target’s offer.

locations. However, sales were disappointing and this store ended up closing in January 2014. At this time,

2. Many online retailers seek (and often need) physical

Threadless also laid of 25% of its workforce.

retail distribution. In addition to Threadless, we

Reflecting on this experience, Threadless CEO Jake

have seen this happen to other online companies

Nickell (2014) said, “While a tough decision, we felt it

such as Birchbox, Quirky, Warby Paker. Even

time to shut some doors (literally) and open others.

Amazon has floated the idea of opening a brick and

Namely, partnership and licensing opportunities,

mortar store. For specialized retailers, online

which is basically another pathway into bricks-and-

distribution still has limited growth opportunities, as

mortar without building the physical space yourself.”

the majority of shopping in many product categories

Thus, at this point in time, Threadless is looking to

is sill via physical retailers. For example, when is the

rely more heavily on partnerships with established

last time that you bought a candy bar or a toothbrush

retailers to grow its business and has recently launched

online?

a new smartphone app that allows anyone to design their own t-shirt.

3. Physical distribution presents a lot of challenges compared to online retailing, such as a large capital investment, geographical limitations, and limited shelf space. Thus, digital retailers are likely to have trouble in terms of making the shift to a physical presence (and vice-versa). For example, Threadless found that its storefront was much too costly in

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Case Study

comparison to its online store. These added costs

mutually beneficial in terms of both reducing costs

suggest that online retailing will continue to increase

and taking advantage of potential synergies. A great

in the near future.

example of this is Threadless’ partnership with the Gap which provides the Gap with access to new

4. You don’t have to go it alone. Partnerships present a

designs and provides Threadless with low cost

possible means of gaining the benefits of physical (or

distribution to a customer segment that would

digital) distribution. These partnerships can be

probably not purchase its products online.

Resources: • • •

“How Jake Nickell Built his Threadless Empire” (http://www.chicagomag.com/Chicago-Magazine/July2012/How-Jake-Nickell-Built-His-Threadless-Empire/) “Jake Nickell--Threadless” (https://www.youtube.com/watch?v=uy9ieb87CFs) www.threadless.com

Reference: • Nickell, J. (July 21, 2014). What one web retailer learned from operating a bricks-and-mortar shop. Retrieved from https://www.internetretailer.com/commentary/2014/07/21/what-one-web-retailer-learned-bricks-andmortar-test

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