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 TMOTHY ARCHIBALD

Next Billion-Dollar Startup: Entrepreneurs Create $750M Bra Business By Exposing Victoria's Weakness

TMOTHY ARCHIBALD

I

n December 2011, Heidi Zak was shopping for a bra to go with her dress for the holiday party at Google, where she worked at the time. She wound up at Victoria’s Secret, the lingerie retailer that has long dominated the $12 billion industry, and bought an ill-fitting bra. “I took the pink bag and shoved it in my black backpack because I was embarrassed to carry it,” recalls Zak, a diminutive five-foot-four woman who is now 39.

Zak wanted something that fit her body better than angel brassieres, and she believed millions of other women would, too. So instead of returning the hated bra, the determined triathlete decided to pursue an idea she’d begun mulling for some time and make her own bras, using data to create a better fit. “I thought, ‘Why is it that bras are so uncomfortable and haven’t changed at all?’” she says.

From that basic idea, Zak and her cofounder husband, David Spector, have built five-year-old San Francisco-based ThirdLove into an online-only bra powerhouse with $160 million in expected sales this year, Forbes estimates. Zak isn’t the only one who sensed opportunity as Victoria’s Secret, with 29% market share, has been ailing, and younger women have shifted their buying online. ThirdLove’s big difference from the other upstarts, including True & Co., also based in San Francisco, and Adore Me, based in New York City, is its use of voluminous amounts of data—600 million data points such as breast shape, cup fit and band tightness from over 11 million women that it has culled from an online questionnaire—to create better-fitting bras, especially by pioneering the use of half-sizes. With $30 million in venture capital from investors that include L Catterton and New Enterprise Associates and an estimated valuation that sources peg at $750 million, ThirdLove earned a spot on Forbes’ annual Next Billion-Dollar Startups list. Zak and Spector combined are the largest shareholders in the business.

“They [are] going after a customer that Victoria’s Secret wasn’t,” says Lori Greeley, the former CEO of Victoria’s Secret who is now a ThirdLove investor and board member. “As Victoria’s Secret continued to put so much of their focus on the teenage college student, you could see that there were women who were looking for somewhere to graduate to.” 

Zak and Spector met in a karaoke bar in 2005 while they were both pursuing M.B.A.s at MIT’s Sloan School of Management. After graduation they moved to New York City, where Zak served as a director of international business for the retailer Aeropostale and Spector worked on Google Checkout, an early online payment-processing service. When Spector was hired by top VC firm Sequoia Capital, the pair relocated to San Francisco and Zak took a job at Google, where she worked in B2B marketing.

Over Thanksgiving weekend in 2011, the ultra-fit couple hiked to Mt. Everest's base camp, a ten-day journey. Climbing for eight hours a day, they talked about bras and a possible business they might build around them. The fateful visit to Victoria’s Secret a month later, Zak says, was “the straw that broke the camel’s back.” With one study showing women own 16 bras at any one time and buy four a year, they knew there was an opportunity if they could get the fit and brand right. They would price their offerings at an average of $68 to appeal to professional women who were turned off by Victoria’s Secret, despite its lower, $40-to-$60 price point, yet were unwilling to shell out $200 for a high-end brand like La Perla. That pricing is similar to that of brands sold at department stores, such as Natori or Chantelle.

In June 2012 they quit their jobs and invested $50,000 of their savings, launching the company in 2013, working as co-CEOs. Zak was expecting her first child that August, but she didn’t slow down, taking just took two weeks off after an emergency C-section. While she was in labor, a journalist from ABC’s Good Morning America called, wanting to feature the startup. When the segment ran, the rush of traffic crashed ThirdLove’s website. “It was bad,” Zak says of those harried weeks. But the brand got the public attention that every consumer products startup desires.

In order to collect the data they needed, Zak and Spector had acquired Indi Custom, an app that made custom jeans by taking measurements, in 2013, even before launching the first product. They tweaked Indi’s technology to focus on bra fit and created the ThirdLove app, which took two photos of users in their underwear or in form-fitting clothing to calculate body size and churn out a bra size recommendation. The process was similar to how high-tech makers of custom suits and 3-D-printed shoes work their magic, but it turned out to be a problem for bras, which is a lower-margin, higher-volume business. Every ThirdLove bra has up to 35 components that are unique to each size, yet unlike with custom-made suits, women don’t have the option to go to a showroom to be custom-fitted for their bras.

So Zak and Spector hit on the next best thing: half sizes. Shoemakers have long offered half sizes, but bra companies have historically expected women to figure out which band and cup fits them best. Many women struggle to find the right size, trying different brands and styles in an effort to get one that neither pinches or sags. When ThirdLove launched half sizes, the first lingerie company to do so, Zak herself discovered that a half-size bra fit her better than the one she’d worn for years. Rather than rely on premade molds from so-called fit models, Zak and Spector decided to make their own molds based on the data.

Manufacturing the bras proved to be difficult at first. They found a factory in Mexico to produce them, thinking they could minimize inventory by making bras on demand. That decision almost tanked the company, as quality suffered and the cost of importing fabrics and lace increased capital costs unsustainably. To save the company, they ditched Mexico for China, losing $400,000 of their investors’ seed funding in the process. “We lost hundreds of thousands of dollars by leaving Mexico, leaving partially complete goods and having to get rid of product that didn't fit as well as we wanted it to,” Zak says. Their investors stuck with them, largely because of their foray into half sizes.

One big problem remained, however: By 2015, after two years in business, they still weren’t reaching enough customers. With money running out, they desperately needed more people to buy their bras—and fast. “We sat down and said, ‘How do we get women to try the bra on? If we don’t do this, we will die within the next year,’” Zak says. 

They discovered a solution in a try-before-you-buy program, launched that March. For the cost of shipping, ThirdLove sends customers a bra they can take the tags off of and wear for 30 days. If a customer doesn’t like it, she can send it back for free. The ploy worked. In 2016, over 75% of ThirdLove’s new customers come from the program. Today that’s down to 10%, yet the company’s return rate hovers in the low double digits, far better than the typical e-commerce return rate of some 30%.

To score more customers, they simplified the app. “We came to the realization that if we wanted to scale to millions of women, we needed to develop something else,” Zak says. So they used the data to create a questionnaire that could fit women without requiring photos. The quiz, called Fit Finder, asks intimate questions not only about band and cup size but also about breast shape and the fit of a woman’s current bra.

Today the company sells 24 bra styles in 74 sizes. Customer data determines future designs. A case in point is extended sizing for larger women, going up as far as a band size of 48 inches and a cup size of H. When extended-size bras launched in June, 1.3 million women were on the waiting list. ThirdLove says those sizes generated $1 million in revenue in the first five days and sold out in three weeks. The company’s sales jumped from $1.5 million in 2015 to more than 10 times that in 2016 to nearly $80 million last year, Forbes estimates. It turned profitable in January.

ThirdLove’s success shows in its estimated valuation of $750 million, 26 times the $28.5 million that retail giant PVH, which owns brands that include Calvin Klein and Warner, paid for True & Co. last year. But clawing market share away from the big players will require expanding its international sales, which account for a fraction of ThirdLove’s revenue. And the market is becoming increasingly competitive. Other internet retailers, including True & Co., now have similar online fit questionnaires. And there’s nothing to stop women from using ThirdLove’s questionnaire to find a better fit and then shopping elsewhere for a similar bra that costs less than $68. In the end, success will come not just by chipping away at Victoria’s Secret’s sliding market share but by competing with the full array of bra retailers and brands. This includes going up against Amazon, which has launched its own bra brands, and Walmart, which recently agreed to acquire leading online intimates retailer Bare Necessities, which sells more than 160 different brands, for an undisclosed sum.

Zak believes that even as the competition gets stiffer, ThirdLove’s data will continue to set it apart. “You can’t replicate the data,” she says. “If you use it in every part of your business, you just get smarter faster, and it makes it so much harder for other people to catch up.”

Reach Natalie Robehmed at nrobehmed@forbes.com. Cover image by Timothy Archibald for Forbes.

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