14 Oct 2010, Posted by admin in 20 Questions,Fashion, 1 Comments

20 Questions With Kembrel

As second-year MBA students at Wharton, Cherif Habib and Stephan Jacob identified an opportunity to deliver brands and products to students on a tight budget. Kembrel, a private shopping community for students, selling clothing, computer gadgets, and accessories at 40-75% off was born. Relying on social networks to drive consumption, with friends telling friends about hot products and brands, Kembrel has been able to create meaningful connections with its users. Innovative features include a Kembrel shop on Facebook, pop-up campus tours and a business model that leverages the work experience and creativity of real students. I recently spoke with co-founder and CEO Cherif Kembrel to discuss what metrics he uses to define success, how Kembrel stays ahead of the competition and why it may be less risky to be your own boss than to work for a large corporation in today’s economy.

Jennifer Sung: What is Kembrel? What are you offering that is new and different from what’s already out there in the online space?

Cherif Habib: Kembrel is a private shopping community for students. What we are doing differently is that we are targeting only students and the reason we are doing that is because we think that the current offerings [online] don’t cater to students as well as we do. So from a merchandising and assortment point of view, we think we are better. In terms of content and community, we are also doing something different. To give you some examples: every model on the site is a student, every photographer is a student, the content writers are students and the bloggers are students. This community driven [aspect] makes Kembrel unique. We also have the first private sales store running on Facebook–we are the first in the industry to have that–and that’s unique because our demographic is obviously spending most of its time online on Facebook and by bringing the store to [them], we are increasing the chances that they will find something they like and they can interact with us without ever leaving [Facebook].

JS: How big is the market opportunity for Kembrel?

CH: The total market is 17 million students and ever year, they spend over $300 billion. Now 2/3 of that $300 billion dollars [goes towards] school, housing, food and essentials, which we cannot touch. But there’s $100 billion dollars spent on apparel, shoes and accessories and that’s the market we’re going after. So our target is to get as much of that as possible. Obviously 20,000 customers out of 17 million is a drop in the bucket, but we just started and we want to increase that as much as we can.

JS: You are currently an MBA student at Wharton. Can you share your previous work and business school experience and how that might have played a role in your decision to launch Kembrel?

CH: [As an] undergrad, I studied computer science and in the last year of my degree, I started a company in Canada called Cesium Telecom and Cesium LD, which has now become the leader in mobile phone accessories and e-commerce. I ran the company for four years and the company was quite successful. I sold my equity in the company and I joined [management consulting firm] McKinsey & Company, where I did a lot of marketing, a lot of retail, a lot of business building projects before going to business school.

I think that the approach that we are [taking for Kembrel is] more of a quant approach than a creative approach. I think that’s really helped us because when we speak with the VP of Sales or the very senior executives of a brand, we can speak their language and understand their business problems. And that’s really set us apart from other people in the industry who sort of have conversations that are more qualitative.

JS: Once you came up with the idea, how or where did you even start?

CH: So, [my co-founder Stephan Jacob and I] came up with the idea because after graduating [from college] and spending a couple of years in the work force and getting used to a certain lifestyle, we went back to school and we realized that we couldn’t buy the things we liked on a student budget. So we set out to solve this problem that we figured a lot of other people [probably] have. We started talking to brands to see if this is something they would be interested in and the response was super positive.  We realized that every brand targeting the student market is a marketing initiative but [most] are not always able to grow on their own because a lot of these fashion brands are smaller and they don’t have the resources. So when we came in and asked them whether it was something they would be interested in, they jumped on it. Given that we didn’t come from a fashion background, we thought this would be a big challenge for us but it ended up being the easier part of the business.

JS: How do you decide which brands and designers to work with and what opportunities do you see for emerging fashion businesses that choose to partner with Kembrel?

CH: We have two full-time buyers–one for women’s and one for men’s.  The women’s buyer (Valerie Muvdi) is very young–she just graduated from college last year so she had a year of experience [before starting at Kembrel] but she is also very in tune with what students want. She has a really good eye and has been helping us a lot. And Romain Kapadia (Director of Business Development), who is our men’s buyer, used to be a fashion designer and [still] has his own line so he also has a really great eye.  Because we don’t have many sales running at the same time (we only have four sales a week), that means that we are at a point where we have to be very selective about who we carry. Some private sale sites can run ten sales a day, which [equates to] 50 brands a week, and they can pretty much take on everybody. But since we are only running four sales a week, we have to be very selective.

The advantage for emerging fashion businesses is that they are acquiring new customers that weren’t buying from them before. If you are a beverage company, you can stand on the corner of a campus and give [away] free drinks to everybody and that’s how you acquire customers–but you have a multi-million dollar marketing budget. If you are a smaller brand, then you likely don’t have the marketing budget and can’t give out free clothing to everybody so that means that the lead generation customer acquisition game is much more difficult. So when a brand decides which private sales site they are going to [partner] with, they kind of have to choose [only] one or two places because they don’t want to spread the brand too thin and have the brand on sale at the same time [on] all of these private sale sites. But on Kembrel, they are getting access to a whole new demographic that is not overlapping with the other private sale sites and the advantage is that they are getting a whole new customer without cannibalizing the existing customer base from other private sale sites.

JS: What do you think college students want? What brands or trends are they demanding?

CH: I think what’s really cool is that students are one of the few demographics that know the most about different brands but they are also the demographic that has the least amount of money to spend. So there is a disconnect between what you want and what you can afford. That disconnect is the reason why Kembrel exists. When we talk about students, there isn’t one stereotypical kind of student. There are 70 million students in the U.S. and their tastes are completely different and run the full spectrum from preppy to goth and [everything in between]. So our buyers are trying to cater to as many people as possible. We can have a sale for American Apparel, then we can have a sale for Laundry (which is more upscale), then we can have a sale for iPod gadgets or dorm essentials or MacBook sleeves. There are a lot of product categories we can touch but the idea is to get as much as possible of the expenses that students occur. So although right now, we have a heavier apparel slant, we want to buy more and more of other products and sell them to students.

JS: When you are approaching brands to feature on Kembrel, have any brands turned you down and if so, why?

CH: Of course, we have been turned down and some of the reasons for being turned down are that some brands don’t want to be one of the first ones to be featured on a new site–they want to see some sort of track record. And this is a problem that we are almost not having anymore because we have now done a number of sales so we can show that these ten companies have already run sales and they are happy.  And then some other companies just don’t deal with private sale sites and don’t have excess inventory–they’re just not interested in the business model at all. So apart from these two main reasons, everybody we speak to [has been] receptive.  They might say, ‘let’s do something in a couple of weeks’ but in general, the response has been positive.

JS: How does Kembrel generate revenue?

CH: We obviously make a margin off of every product we sell. The majority of our revenue comes from selling products but we also have other revenue streams. For example, we started a pop-up shop tour. We are planning to do one campus per week in the fall and brands can sponsor pop-up events and pay a certain amount to be at the center of the pop-up and be listed as the sponsor. For example, we had Vitaminwater for Philadelphia University and Rutgers, and then we have a couple more sponsors coming on board that we should be announcing soon. So that’s another way [we are getting revenue]. A third revenue stream we are currently discussing with some brands is to include information about them in the emails we send. So as we grow our email database, it obviously becomes a very valuable asset and if some brand would like to be featured in a certain way in the emails we send out or be placed in a [differentiated] position, they can pay us for that.

JS: What metrics do you use to define success in the day-to-day operations of your business?

CH: I think the bottom line for the business is how much money you make for the shareholder but that’s kind of the final metric. For day-to-day, there are other intermediate metrics that are very important. So the size of our database is one metric that we track very closely. The average basket size is another metric. And then we also look at all of the different conversions and funnel: How many people came to the website? How many people have registered? And from the people who have registered, how many are engaged? (We define engagement by how many people came to visit our site more than three times a month). And then from those who are engaged, how many place products in the cart? And the last step is how many people have checked out?

Some of the other metrics that we find interesting is how many people invite their friends to join the site? And we have seen that as more people are satisfied with our service, they will invite more and more of their friends. So during our summer beta period, for example, we were incentivizing people to invite their friends and now, because we have moved to a different platform and that feature is not ready yet, we are currently not incentivizing people to invite their friends and what we’ve seen is that the number of referrals has not gone down. It’s actually been slightly up even though we took out the incentive. Our hypothesis was that people did it for the money, but what we are actually finding is that people are genuinely interested to tell their friends about a great deal they found because they have been satisfied with the service. They want to help us out so that’s been very humbling.

JS: Kembrel recently launched the first private sales store for students that can be accessed entirely through Facebook, from browsing to checkout. Can you explain how Kembrel is leveraging college students’ unique relationship with brands and their powerful influence on marketing to their peers and their friends through social media tools like Facebook?

CH: Our overall goal is to be the premier channel for brands to reach students and vice versa and one way we do that is [through] e-commerce sites. When you go to a site, everything is one way from the site to you: you get information, you buy–it’s a one way transaction and now we’re trying to change that into a two-way conversation. So when you log into our site, you log in with your Facebook credentials, and whatever comments you post on Kembrel are posted on your Facebook wall, and then that shows up on your friends’ news feeds and they can comment on that. So the conversation that you started on Kembrel can also go to Facebook and go back and forth. That’s one way we are doing that.

We are going to start offering two brands the chance to have a “chat.” We are going to have a sale for LA-based jewelry designer Steven Shein. [He’s a designer that would] love to get some feedback from students, so [customers] are going to have the option to chat directly with Steve as they’re shopping his stuff and then he can interact with students and get ideas. It’s pretty exciting that you can chat with the creator of a line. That is just an example of something we are doing differently to integrate the social shopping idea.

JS: Kembrel’s summer beta period successfully attracted 20,000 registered student members and the site is currently drawing over 5,000 new members a week. This initial growth was mostly organic through word of mouth and little reliance on traditional marketing.  One of the biggest challenges that businesses face is growing their online user base. How were you able to convince people to start using your site?

CH: I think one of the big things that helped us is the community aspect that I mentioned earlier. When people realize that it’s a site for students by students and that everybody that is involved is a student, that’s really important for us because people feel that we are a grassroots [organization] and authentic–we’re not inaccessible the way other fashion sites are. Word of mouth has been super strong. Social media is a big buzz word for fashion these days and some people say that they do social media and then other people actually do it right. And I think we are starting to learn how to do it right. Our Facebook store, as I mentioned, is the first of its kind, so if you go on our Facebook page (INSERT LINKwww.facebook.com/kembrel), there is a ‘shop Kembrel’ tab, and that means you’re able to shop, add stuff to your cart, enter your credit card info, and check out without ever leaving Facebook. And what’s fantastic is you can add our shop as a tab on your own profile. That means we can potentially have 20,000 Facebook stores because people who like us can decide to add the shop as a tab on their profile. And what we’re working on now is incentivizing people to do that, so if you put the store on your profile, then you can get a small percentage of the sales that are made through your profile. That obviously can become very viral and help us grow exponentially.

We have other social commerce features where you can send money to a friend. You can send $5 or $10 to a friend, that’s like cash to them, which they can then apply to the site–there’s no minimum, there’s no fine print. And people have been using that feature a lot. After they make a sale, they send money to their friends and that increases the virality.

And the last thing that has been really successful for us is the pop-up shops.  When we go on campus and we meet people, there are a few hundred people that usually show up and obviously some of them buy, which is great, but even those who don’t buy get the chance to see us face to face and see that we’re a real company with real people and we are students like them. They can relate to us.

JS: One of the things that I found most striking about your business model is that you can keep your operating costs pretty low because you have students involved in all aspects of the site from modeling and contributing online content to serving as college campus representatives. Can you share some of the other creative ways you have been able to keep your costs down as a start-up business?

CH: One of the big ways is that we’re hosted at the Wharton Incubator, which means we don’t pay for an office. Then when you think of how much it costs for a private sale site to put a sale together–if you look at the whole value chain from the buying to the modeling to the photography to the studios to the lighting–all of that for us is free. And then we have people writing content for us–once again, that’s free. When people send out emails or write a blog post, that’s free. You can argue that it’s not the same quality but I think that we have a level of quality that’s relevant to students. They’ve created [the content] themselves so it’s the quality they think is the right level for them. And what I love about this is that it’s not that we’re taking advantage of students. What’s really amazing is how much they love doing this. Because if you’re a student–if you are interested in modeling or fashion or you’re a journalism major, it’s very difficult to get meaningful work experience and it’s very difficult to get internships and job opportunities. We provide that experience. So [in fact], we have more people wanting to contribute than we can actually manage in an efficient way. It’s very sad, but sometimes we have to turn people down because we don’t have enough work for everybody. It’s a great problem to have and it assures me that we are providing value both ways.

JS: What are some of the negative comments and feedback you are getting from users?

CH: When we first started, the quality of the content, the pictures, the styles, were maybe not up to par and the reason for that is because my partner and I were computer science guys with no fashion background who were trying to do it all ourselves. We never said we were fashion experts or misrepresented ourselves, and our customers were very patient and very understanding. As we’ve grown, we’ve hired team members to complement our skill set and I think that now, when you go to the site, it really shows the progression that we’ve made in the past four months from something that was held together by a string to something that’s become a very well-oiled machine.

JS: When the barriers to entry for your business are relatively low and require little capital, how do you stay ahead of your competitors?

CH: We are doing it in a very grassroots way and we’re on the campus with people on the ground. Obviously, it’s not impossible to do what we are doing, but I think we are doing it in a way that’s very unique. I think that’s how we are getting so many customers and so many sales–because we’re doing something different. Is it difficult to get into this? No. I think it’s just like how Google started with two PhD’s in a garage, it wasn’t difficult [for them] either. And same for other companies like Yahoo and Altavista. People said, “Are you crazy? Why are you doing another search engine?’ There were no barriers to entry and other people were doing it, but the fact is that they were able to do it better and that’s the same situation that we’re in. I think we’re doing it better for our demographic; we’re not pretending to be better in other demographics. We’re not saying we’re going to be the biggest private sales player in the world, but in [the student] demographic, we’re doing pretty well.

JS: With the surge of online sale sites that offer steep discounts, what do you think about their effect on the fashion industry?

CH: I think the fact that there are a lot of them goes back to what you alluded to earlier about barriers to entry. I think that a lot of people see the success of some of the leaders in the industry and think, ‘I can do this, and this is easy.’ But the fact is that it’s not an easy business at all and unless you’re creating a real value for your suppliers, you’re not going to last very long.

A lot of people in the business are in it with the assumption that there are inefficiencies in the supply chain and that there’s overstock that you can take and sell to customers. There are a couple of problems with that. First, as companies [tighten their] supply chain, there is less of this overstock. As we come out of the recession, fashion brands are [increasingly] less desperate to unload their stuff.

And obviously, like any consumer facing brand, you want to protect your brand and your margins. And that’s why while all these sites go to suppliers and say, ‘Let’s take your overstock,’ we don’t need to [have that conversation]. In fact, a lot of the inventory we have is not overstock–it’s [product from the] current season. And the reason is because we had a very different discussion with our suppliers about exposing them to different and new demographics. It’s about exposing them to tastemakers, it’s about exposing them to a group of people that are very upwardly mobile and will remember the brands that they wore when they were younger. So we don’t even talk about overstock, we talk about customer acquisition and exposure to students.

But I think as long as people have this notion of overstock, it’s a danger to the industry because the fashion and apparel industry is getting better with the supply chain and they don’t need to deal with 13 different sites. They will sell to one or two sites. They don’t need to sell to the 20 that are popping up every day unless you have something new to offer. Being a copycat just doesn’t cut it.

JS: What are the biggest near term challenges?

CH: In the very short term, one of the biggest challenges is that my partner Stephan and I are in school for the next year and that’s obviously a difficult balancing act. We are also raising a round of venture capital in the winter so depending on how much we raise or don’t raise, that could be a challenge. Although we don’t have the same big costs as our competitors, the scale of the business requires cash. And then over the longer term, it’s figuring out which industries and product categories do well and making sure that we defend our territory once people start smelling that it’s a unique opportunity.  We were here first and we need to defend [our business] vigorously.

JS: What do you do in your role as CEO?

CH: CEO is such a big word for a small company but my partner and I are very equal in our responsibilities and we split the tasks between us. A lot of it is general strategy. A lot of it is recruiting. When you work in such a small team, each new member is super important and can make a deep impact so it is [incredibly] important to choose the right people. I spend a lot of time thinking about the team, the culture I want to build, etc. I’ve also taken a lot of responsibility when it comes to customer acquisition and marketing and customer service. I have a personal obsession with good customer service so I’ve made it a personal priority to make sure that we are giving the best possible customer service. I respond to a lot of the customer support emails myself. When people come to chat on the website, I take a lot of those chats just because I’m so obsessive about that part of the business.

JS: Zappos is another online company with a very strong focus on customer service. What other businesses do you look at as examples of success and what is it about them that appeal to you most?

CH: I think that Zappos is an example that everybody kind of knows but there are other companies that I really admire and respect. Bonobos [insert link] is a company that I really like. I think they’ve done a great job. They’re probably inspired by the Zappos way but they have taken that and added a flavor that I find really unique. Just like us, they are targeting a very specific demographic. They know exactly who that customer is and they could be targeting a lot of other demographics, but they’re really focused on one and they’re catering to it super well.

Another company that I really like is Modcloth. Modcloth is another company that works with people–our demographics are very similar–they target a younger [consumer]. The way they’ve built their community is something that we really admire.

JS: What is the best piece of career advice you’ve ever received or given?

CH: I come from a family of entrepreneurs –all four of my grandparents were entrepreneurs, all my uncles are entrepreneurs, and from when I was very young, I always knew I was going to be an entrepreneur. And the best advice I received from my dad was that being an entrepreneur is actually less risky than getting a job because you’re in control of your own destiny. There are no layoffs. You can have thousands of customers and if a customer decides that they don’t want to be your customer anymore for whatever reason, it’s very sad but you’re not going to lose your job with it. When you have a [corporate] job, you can be at the whim of one person’s opinion [of you]. The idea that the entrepreneurship is more stable and less risky may seem very counterintuitive – [many people believe] that it’s huge risk to be an entrepreneur. People are always very surprised when I say that.

JS: Are you finding your father’s career advice to be true?

CH: When I was at McKinsey, I didn’t have the same freedom to do what I want. I’m not saying that I’m working less–I’m actually working the most I ever have in my life –but I’m working for myself and deciding what my destiny is.

–Jennifer Sung