THE MALL: Investing Gets Fashionable

Dow Jones Investment Banker | 21 December 2010 13:08| By Peter Gallagher

NEW YORK (Dow Jones Investment Banker)--Think fashion and luxury retail, preening models and flashy display windows come to mind. But the first annual FashionInvest Conference in New York last week instead provided a glimpse at some intriguing investment opportunities involving hybrid businesses playing off fashion and technology.
What follows is a notebook of some of the more interesting companies present.

--Style & Fit--

Of course, the conference had its share of pure fashion firms strutting their stuff, including one standout, GoGo Gear by ScooterGirls Inc. Its slim fit cycle wear combines style with safety for the scooter set, complete with protective armor in the sleeves and abrasion-resistant fabric under a layer of fashion. Next up will be jackets for men and Kevlar jeans for women and men. The two-year-old company, which is looking for $500,000 of funding and up to an additional $500,000 for Asian expansion, already has a network of 24 dealers in the U.S. and Canada and a new distribution agreement in Italy. Revenue, which began coming in March, is projected to reach $185,000 this year.

Fashion is about fit as well as materials, and fit is a challenge for online retailers. It is a key reason that online clothing sales amount to only 7% of the market in the U.S. and return rates run over 40% for fitted fashion.

Fit.me, a product from Estonia's Massi Miliano Ltd., another presenter, employs biorobotics technology to help achieve the right fit. By providing a virtual fitting room via online shape-shifting mannequins, customers can see how clothes will fit on them before buying. In a trial with Quelle, Germany's second largest online retailer, sales tripled for items included in the test, while related returns fell 28%.

Having raised $3.4 million from the Estonian Development Fund, Massi Miliano CEO Heikki Haldre now plans to move the company headquarters to New York to expand its markets and attract venture investments. The company is also working on a webcam scanner it hopes can be a disruptive technology, diverting even more brick and mortar store traffic online.

--Authenticity & Aggregation--

Not only is it hard to know how something will fit, for buyers on the Web, there is always the risk that what you buy will be a fake.

Online retailer Portero Inc. has made that issue its selling point. Essentially a high-end eBay, it guarantees the authenticity of premium, pre-owned goods such as handbags, watches, jewelry and accessories from makers such as Chanel, Hermes and Rolex. The company collects a roughly 25% commission from individual consigners. It also accepts consignments from retailers who take in used goods as trade-ins, providing a discrete secondary market that so far has not brought objections from manufacturers. Portero has raised $22.2 million in three rounds since its founding in 2004.

MyNines represents another approach to online luxury retailing and the solution to what some consumers see as a problem: the proliferation of Internet flash sale sites, which offer a limited quantity of items at steep discount prices, typically for 24 to 72 hours.

MyNines is an online sample sale aggregator -- the fashion, jewelry and accessories analog to the travel deals aggregator Kayak.com (Steve Hafner, CEO of Kayak.com, is on MyNines' advisory board). MyNines, which has $525,000 of seed capital, now has more than 70 sample sales partners, including eBay's FashionVault and Net-A Porter's TheOutNet.

--Sustainability--

Back in pure fashion, The Uniform Project, another presenter, caters to consumers who want to send a message about sustainability and social conscience as well as a fashion statement. Sheena Matheiken, its founder, launched the business in 2009 as an online charity effort, pledging to wear just one little black dress for a year, altering her look daily with accessories. She raised more than $100,000 to support the Akanksha Foundation, which provides education to children in India's slums.

The Uniform Project now boasts three dress models, from organic cotton, silk and lycra, ranging from $120 to $140. It is now a for-profit venture but allows customers to make an optional 10% donation with their purchase.

--Delay And You're Out Of Luck--

Perhaps the only thing online more addictive than sample sales is games. ToVieFor LLC combines both. But think online gambling or a Dutch auction rather than Angry Birds or Doodle Jump.

In ToVieFor's case, customers pay upfront to play, and then bid on in-season handbags and accessories at discounts of 40% to 70%. Sales occur as items fall to a buyer's price point until the inventory is sold out. But unlucky participants lose their initial investment.

That could be a metaphor for investing in risky niches susceptible to consumer whims. But like the other companies at the conference, it showed that there is a lot of imagination at work in a segment that held up well through the crisis and recession. And lots of opportunities for investors who keep their eyes open.

(Peter Gallagher is a columnist with Dow Jones Investment Banker. Peter worked in research, sales and trading at Lehman Brothers and UBS as well as in corporate finance at Chase. He can be reached at +1 (212) 416-2553 or by email at Peter.Gallagher@dowjones.com.)

Peter Gallagher
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