Moda Operandi Raises $60 Million to Bring High-End Clothiers to Digital Shoppers

Moda Operandi co-founder Lauren Santo Domingo, left, and Chief Executive Deborah Nicodemus Moda Operandi

Access to high-end fashion is in vogue.

The traditional way to sell $1,800 designer shoes has been to limit distribution to physical retailers, a process that winnows potential customers to the ultrawealthy who are also within striking distance of a Neiman Marcus, Bergdorf Goodman or other luxury store.

But luxury fashion brands are shedding the concept that they must limit where their goods are sold to retain the waft of exclusivity, and startups are jumping at the chance to sell the wares through websites and mobile applications.

Moda Operandi is one in an elite group of startups that is melding high tech with high fashion to make luxury shopping more convenient for a younger, tech-savvy client base and an emerging jet set in markets world-wide where there are no high-end retailers.

The New York-based company has raised a $60 million round led by Fidelity Investments to begin what executives say will be a global expansion designed to disrupt the multibillion-dollar industry and begin courting customers for its couture.

“With this investment, we’ll actually be going after clients now,” said Moda Operandi Chief Executive Deborah Nicodemus.

Co-founded in 2010 by Lauren Santo Domingo, Moda struck early relationships with Alexander Wang and Valentino and has now joined with more than 250 high-end designers for both boutiques and trunk shows.

Once exclusive, in-person affairs, trunk shows enable buyers to preview then purchase items from a designer’s collection that would be on sale next season at physical retail stores. Moda put these trunk shows online and allowed the general public to shop.

Moda expanded from trunk shows in 2013 to create online boutiques. By using in-house stylists who melded data from those trunk show purchases and their own fashion savvy, Moda built online shops with shoes, handbags and other accessories to complete each look and make them available for immediate purchase.

Moda isn’t alone in using technology to give people access to high-end clothing. Other venture-backed startups including Rent the Runway Inc., which operates a rental service for luxury goods–a Kotur fringe clutch that retails for $895 can be rented for $125–and Vaunte, which operates a high-end online consignment store so fashionistas can buy a Valentino clutch for $1,280 instead of $4,000.

Nicodemus said her company’s model is different than traditional e-commerce sites. Moda makes the entire collection available for pre-purchase within one hour of the show. Customers put down a 50% deposit on items which they receive roughly five months later, around the same time the high-end retail stores receive their shipments.

Melding big data with high fashion has been successful for the company. With little marketing, Moda increased its revenue 70% to more than $50 million in 2014. It reports the average order is around $2,000.

Fidelity portfolio manager Ramin Arani said Moda’s profit margins, which are around 58%, are among the reasons the firm led the round.

“Most retailers have 10% to 15% of sales that come from online e-commerce. For luxury, it’s well below that and is somewhere around 1%,” Arani said.

He said that figuring out how to make the experience of purchasing luxury items online has been a tricky proposition because luxury brands differentiate themselves on small details–like the weight of a purse clasp or the silk lining of a pocket–that must be felt to fully appreciate.

“Luxury players are looking for partners who can help them with that and tap what has been heretofore been an untapped vein,” Arani said.

The opportunities and risks are large for Moda. Bain & Co. estimated the 2014 personal luxury good market at 223 billion euros in 2014.

Despite the opportunity to tap into that dynamic, Moda is trying to reach a market that comes with risks, said Barbara Wyckoff, managing director of specialty retail and apparel at CLSA Americas LLC. Agreeing to limited runs in specific sizes with expensive and often hard-to-source fabrics is tricky, especially given the potential losses incurred if items are returned, she said.

“Money, time, execution–the challenges are huge,” she said.

Nicodemus said Moda works to keep returns low by having its stylists help users find the correct size and have their expectations match the goods. Also, it strives to provide products that the customers have incentive to keep and have tailored, rather than return.

“I’d agree with that concern if the dress was $500, but these dresses are $5,000 and $10,000,” Nicodemus said of returns. “This is not about unit velocity, this is about one-of-a-kind brand luxury.”

For that experience, Moda will have to depend on partnerships with brands and continue to maintain and expand relationships. Nicodemus indicated the pipeline for adding new brands is strong, but she declined to provide further details.
Along with courting customers and honing its strategy to expand its base, Moda will use the new funding to expand into more categories, continue to cement brand partnerships and expand to the physical world.

Moda opened a London showroom as an experiment last year. Moda expected it to do sales of $350,000 during the first quarter; sales exceeded $472,000 during the first week. Moda intends to open other showrooms in fashion hot spots around the world during the next three years.

Moda also will use the funds to overhaul its website and add richer content such as backstage interviews with designers and create a better mobile app for the iOS and Android operating systems. The startup will continue to invest in its technology and analytics so stylists can even better curate boutiques.

Investors in the Series E round valued Moda at $330 million–an 90% increase from its previous valuation just a year ago. Along with Fidelity, new investor Future Fund, Australia’s sovereign wealth fund, participated alongside existing investors including New Enterprise Associates. Moda previously raised $72 million.

“We are in the early part of what we believe is a big-data play and the ultimate direct-to-consumer model,” NEA General Partner Tony Florence said. “When you post 100 items on the Internet, you know immediately what they like and what they don’t like. It collapses what today is a very complicated supply chain and infuses it with rich data. It’s a multibillion-dollar opportunity.”