Numerous e-commerce startups have recently launched utilizing a business model derived from the offline personal shopping experience provided by high-end retailers. These startups are using e-commerce tools to build an entire retail business around personal shopping. Under this model, consumers no longer have to shop; curated outfits are delivered to customers based on their style preferences, leaving customers free to spend their time doing something other than hunting for things to buy (i.e. shopping). In essence, these companies are building service businesses based on the traditional retail model, which is why I call them Retail As A Service (RAAS) companies.  Trunk Club is the clear front runner in the men’s RAAS category. Other companies utilizing this business model include: UnScruffBombfell, GentlemanSquare, and CakeStyle (for women). Below is a brief summary of Trunk Club’s history and a review of their current service offering.

Trunk Club was founded in 2009 as a personal shopping service for men who don’t have the time or desire to shop. Originally, the company used a remote network of personal stylist to make product recommendations via Skype calls. These remote stylist were then paid a commission based on the product sales they generated. Purchased products were then drop shipped from the manufactures or distributors to the customers.

In 2011, Trunk Club hired Brian Spaly, one of the co-founders of Bonobos, as their CEO. Spaly quickly moved to make changes to the company’s business model. His overarching change was to adopt a retail business model rather than a product recommendation model. The retail business model that he choose is exactly what I am calling Retail As A Service. The change in business model required numerous changes to Trunk Club’s key activities. These changes included: purchasing and storing inventory rather than having it drop shipped, locating all stylist (personal shoppers) at the company’s headquarters rather than remotely throughout the U.S., having stylist work with customers through email and phone calls rather than Skype, and – most importantly – sending customers curated boxes (“trunks”) of ~10 clothing items rather than making individual online product recommendations. Learn more: TechCrunch, TechCrunch, RedEye, and Forbes.

I recently sampled Trunk Club’s current service (photos below). Overall, it was a very enjoyable experience. The online style survey, which is used to make recommendations, was engaging and quick. My personal stylist (shopper) called me soon after I completed the survey to discuss my style preferences. She then completed my trunk of ten items and had it shipped to me via second day air. They did not charge for shipping in either direction, this is consistent across most RAAS companies, and my trunk of 10 items arrived within 2 days.

The average MSRP of the items in the trunk was $160.40 (range: $36-$348). Most notably, all items were sold at MSRP. This is especially important as consumers (incl. me) have gotten used to discounts over the past 3 years. Based on Trunk Club’s business model, they are clearly banking on customers purchasing enough merchandise per trunk to recover the cost of shipping, fulfillment (it is a NICE box), and the inventory holding cost while customers make decisions. To give you some perspective, each trunk contains roughly $1,000-$1,500 in “value”, and if you assume that shipping, fulfillment, insurance, and other costs amount to roughly $50 per box, then based on an assumed gross margin of 40% (e.g. Nordstrom’s GM is ~40%), the company’s contribution margin breaks even if the average customer keeps one average priced item. It should also be noted that if the average customer keeps 2.5 average priced items then the contribution margin from each box is roughly $110 (GM*Q-S&H = $64*2.5-50). Please note, these numbers are completely speculation.

As noted above, this model creates a substantially high LTV, especially if the average customer keeps 1-3 items, and remains comfortable paying MSRP. I would add that this model is much more scalable than the traditional retail shopping model. As one example, a RAAS company doesn’t have to maintain a broad selection that can be shopped.

My biggest concern for Trunk Club, and the RAAS business model, is that men’s shopping habits are changing due to e-commerce tools. Affluent males (Trunk Club’s target market) are using the efficiencies of e-commerce to shop smarter and more often. In fact this very trend is at the heart of this blog’s focus (see post).

In order to fight this trend, Trunk Club should provide an online price guarantee. I understand the need for the company to keep its margin’s high and to differentiate based on service not price. That said, the one item I liked the most in my trunk was a blazer from Bonobos, and when I price matched it online it was $90 cheaper on I quickly chose to buy it from Bonobos instead. To be fair, I didn’t ask them to match the price, so there is a chance the may have. Regardless, it should be something that is advertised in the box, because at the minimum it reinforces that they aren’t gouging you from a pricing standpoint.