Carol chen miss san francisco

Business Models and Fashion Models: Covetella Plans for Growth

C arol Chen looked at herself in the mirror and carefully applied another layer of lipstick before walking into the ballroom in a simple low-cut gown, a notable departure from her signature ultra-glamorous style. She was there on this cloudy October evening as a nominee for the 2016 ASEAN Marketing Events Awards, one of the most prestigious marketing awards in Southeast Asia. Chen was proud that her company was among the few nominated startups, but she did not anticipate winning anything that night. As she tapped her perfectly manicured nails against her wine glass waiting to get back to work, she heard a voice call her name to the stage. They had won first place.

As Chen accepted her award and stood on stage for photos, she recalled the prior year’s events with a smile. Her nascent company, Covetella, had hosted several promotional events in a 72-hour span during the Singapore Grand Prix, a Formula 1 automobile race which was the centerpiece of a star-studded weekend in Singapore for the international elite. Many people at the F1 events and across Singapore assumed that Covetella, a dress rental company born out of Chen’s own closet, was a highly successful company with tens of thousands of regular customers because of its impressive event affiliations and pervasive branding. In reality, Chen had a skeleton staff and no outside funding. The 2015 F1 events had occurred only four months after Covetella registered as a formal business.

During the F1 weekend, Covetella assembled a pop-up shop in the lobby of the renowned Ritz- Carlton Millenia, a prime location with significant foot traffic. Simultaneously, Chen hosted a fashion show inside the Singapore Media Suite at the racetrack and another at the Podium Lounge—the premier Grand Prix after-party—for 3,000 guests across three consecutive nights. Chen recalled the 19- hour work days and felt proud that her small company was able to make such a big splash.

Snapping back into the present moment, Chen was thrilled to have been recognized for her efforts. But the discrepancy between public belief and her company’s reality continued to affect her. As she took her seat at the table, fellow nominees asked what was next for Covetella. She wondered how her company’s size and revenue could catch up to its brand, and whether she should pursue international expansion. She saw tremendous opportunity across Southeast Asia and beyond, but a large part of her company’s success was a result of circumstances unique to Singapore, so she had been thinking about the various elements of her business model. Chen left the ballroom with a trophy in her hand but her mind on the future of her business.

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Setting the Stage Chen had always been inspired by her parents, who had immigrated to the United States from

Taiwan in 1980 with very little cash in their pockets, eventually making a home in Texas. “I saw firsthand the ups and downs of entrepreneurship as I watched my parents work hard on their businesses, but I also saw the flexibility and freedom they enjoyed. I wanted a life like that, and was driven to create value and make an impact in the community,” Chen recalled.

As a college student at Barnard College of Columbia University, Chen was unsure what she wanted to pursue as a career. “I eventually decided to study Psychology and Economics, because I knew I wanted to do business, which meant I needed to understand how people and money work,” she said. After graduation, she did some soul searching. “All of my friends were becoming investment bankers and consultants, but it wasn’t for me. I was accepted to a summer business program at Stanford, where I remembered a childhood dream I’d forgotten about. I had always wanted to be a fashion designer and was dying to do something creative.” Chen decided to apply to art school and was accepted to the Fashion Institute of Design & Merchandising in San Francisco. Chen achieved multiple awards for fashion design and was acclaimed as one of San Francisco’s “Rising Stars.”

During her studies, Chen also participated in pageants, winning the national Miss Chinatown USA pageant. She was also the first Asian-American to win “Miss San Francisco” in the pageant’s 60-year history. At Miss California USA, she won “Best Evening Gown” with a dress she had sewn herself.

Chen then spent a few years working in the fashion industry in San Francisco and Los Angeles. “I love couture, but I realized it’s not very scalable. The clientele is extremely narrow, and it takes several weeks just to make one dress. I knew I wouldn’t be able to build an empire just doing couture,” Chen recalled. Her first contemporary womenswear line, however, was retailed in over 300 stores before the brand went bankrupt following the economic recession of 2008-09. Chen shared, “Fashion is such a tough industry. Just because you’re hot one year doesn’t mean you’ll survive the next.”

Around the same time, a family friend from Texas approached Chen for help starting a business producing cheerleading uniforms in China. As of 2011, no US company had successfully made custom cheerleading uniforms overseas because of the highly complicated, custom-fit design, according to Chen. Remembering her own cheerleading days, Chen understood the business opportunity: each uniform could cost up to $400, and each cheerleader typically required a new uniform every year or two. Chen quickly moved to Dongguan, China and lived in factory dorms while she played a key role in building the business from the ground up. “Living in a factory was a surreal experience; I don’t think I could’ve survived without a good sense of humor. I slept under a mosquito net and there were rats around the office. Dongguan is one of the more dangerous cities in China, but it was exciting to be in such a novel environment and to overcome such a great challenge,” Chen shared.

Case Fellow Jacqueline Orr prepared this case under the supervision of Professor Jeremy Dann, Lecturer in Entrepreneurship and Director of the Case Study Program at the USC Marshall School of Business. The development of this case was supported by a grant from USC Marshall’s International Business Education and Research Program (IBEAR). The authors would like to thank Joshua McCollister (USC IBEAR MBA 2018) for his assistance with this project. This case was developed from field research and published sources. Cases are developed solely as the basis for class discussion and are not intended to serve as endorsements, sources of primary data or illustrations of effective or ineffective management.

Copyright © 2018 Lloyd Greif Center for Entrepreneurial Studies, Marshall School of Business, University of Southern California. For information about Greif Center cases, please contact us at greifcases@marshall.usc.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted or transmitted without the permission of The Lloyd Greif Center for Entrepreneurial Studies.

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Her hard work paid off. Within a year, the company landed major accounts with professional NFL teams and began to turn away orders because they couldn’t keep up with demand. By 2013, the company reached $4 million in sales.

Within two years, Chen decided to leave China for personal reasons. She sold her shares of the company back to her business partner and replaced herself with a local manager.

She later spent significant time traveling and helped build an MMA (mixed martial arts) brand based in Hong Kong. Eventually, she sold her shares in that company as well, and found herself looking for work. During her travels, she had fallen in love with Singapore and wanted to stay, but she needed a visa. Chen recalled:

I tried to find a stable corporate job, but the competition for jobs that could sponsor visas was steep, and nobody wanted me. I consulted for an e-commerce fashion company for six months, but that didn’t work out either. So I realized I had to start my own company again if I wanted to have a visa and stay in Singapore. The consulting gig allowed me to discover that I love e-commerce and technology, so that was the space I started to explore.

The First Stitch: Covetella’s Origin During a short break from job hunting, Chen visited her parents in Texas for the holidays. While she

was back in her childhood home, her mother said she wanted to get rid of Chen’s old pageant dresses. Chen had accumulated nearly 100 designer dresses, and they were taking up significant storage space. Chen assumed that it would be easy to sell them, since they were worth hundreds of dollars each. She posted them on auction and consignment websites but was surprised that very few dresses sold.

When it was time to leave the United States, she took her dresses with her to Singapore. Chen explained:

A lot of expats [expatriates: former residents of the U.S. and other countries] go shopping back home and then bring clothes back to Singapore. It’s really hard to find quality dresses in Singapore, and clothes there are really expensive. Typically, everything is 30% more expensive than it would be in the U.S. A nice dress to wear to a friend’s wedding will cost you $600-800 USD. Your options are either to pay that price or go the “fast fashion” route [by purchasing low-quality, fad-based items].

In March 2015, Chen created a simple website for $100 USD on Shopify, an e-commerce platform. Her premise was to allow women in Singapore to select dresses online, which were then mailed to them for a predetermined rental time. Chen included 60 of her own dresses and built up her inventory by going door-to-door to local designers and posting her friends’ items in return for a portion of the profit from rentals. By the time she launched her website a month later, she had over 250 items available to rent (see Exhibit 1 for a screenshot of Covetella’s website).

Interest in Chen’s idea was limited at first, but she was convinced that the demand would eventually grow. “In Asian culture, most people view second-hand clothing as dirty, but I knew that mentality was going to evolve,” she said. Rent the Runway, an online designer dress rental service founded in 2009, was popular in the U.S. (with 2016 revenues of around $100 million, an estimated 100,000 rental items, and a reported valuation of $600 million1), but there was nothing similar in Southeast Asia. With no

1 Clare O’Connor, “Rent the Runway To Hit $100 million in 2016 Revenues Thanks to Unlimited Service,” Women@Forbes, June 15, 2016.

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luck in her job search, Chen formalized her dress rental business, incorporating it in June 2015 with the name Covetella. “Covet means desire, and ‘-ella’ refers to a woman, so the name Covetella came from our mission to help women feel desirable and provide the modern Cinderella experience,” Chen explained. It was the first online business to bring the rental concept for designer evening wear to Singapore. “I created a business that I thought would work in Singapore, because I wanted to stay there. I already had inventory for Covetella, and the business model was already proven in other countries,” Chen shared.

Entrepreneurship in Singapore Businesspeople in Singapore were in a unique and advantageous position. In the 2010s, Singapore

was seen as the gateway to Southeast Asia, with good infrastructure and an impressive talent pool. Several multi-national companies placed regional headquarters there, including finance companies, pharmaceuticals, social media giants, entertainment companies, technology companies, and others.

As an entrepreneur, Chen represented an important part of this business landscape. The Singaporean government took an active interest in fostering entrepreneurship, with specific tax incentives and a $1 billion Technopreneurship Investment Fund. In 2016, the World Bank ranked Singapore the easiest country in the world in which to do business, and the tenth easiest country in which to start a business (for reference, the United States ranked seventh and forty-ninth, respectively).2 In 2015, Compass ranked Singapore the tenth best startup ecosystem in the world, with 3,600 startups across myriad fields. The same report ranked Singapore ninth in market reach, but noted that issues sometimes arose when companies tried to expand outside of Singapore because of regulations in other countries.

Ready for the Next Size Up As Chen’s business grew, she began to realize she was running out of space and time. She needed to

move Covetella out of her living room and into an office. She pooled $100,000 USD from personal and familial investment. This money was meant to last for a year, and primarily went toward renting space and purchasing dresses for the business, both significant expenditures in Singapore. Covetella’s first office was 1,200 square feet and cost $3,000 USD per month. After these expenses, Chen did not have much cash left to hire employees, which she desperately needed. Chen recognized that she needed to find other attractive means of recruitment. She reflected, “I recruited primarily with my passion for the business. I leveraged interns and low-cost labor where I could. A friend of mine once said that my best skill is getting people to buy into my vision.”

For more critical roles, she offered low-pay arrangements with the agreement that salaries would increase as business improved. “The thing about Singapore is that there are a lot of expat wives and locals who live with their parents. These people have a financial safety net and they’re more concerned about doing something they enjoy or getting experience than earning a big salary,” Chen said. Covetella’s first official hire was Valerie Lim, a model and 2011’s Miss Singapore. Lim was well- connected in Singapore and had event-planning expertise in high fashion. She also served as the model for photo shoots of Covetella’s products, which otherwise would have cost the company a significant amount of money.

Covetella’s target market was professional women in their late 20s and 30s with disposable income. “We appeal to women who are social, practical, and savvy,” Chen said. “The vision I originally had was to create a peer-to-peer platform in which we’d never have to take possession of the dress, like an Airbnb for fashion. The idea was that customers would meet up to exchange the dress, and we wouldn’t have

2 World Bank. 2016. Doing Business 2016: Measuring Regulatory Quality and Efficiency. Washington, DC: World Bank. DOI: 10.1596/978-1-4648-0667-4. License: Creative Commons Attribution CC BY 3.0 IGO

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to even store it. This is important because rental space in Singapore is very expensive. I just wanted to build a marketplace and take a cut of the rental fee,” Chen described. Covetella offered two models:

• 60/40 Revenue Share in Favor of Covetella: for dresses which Covetella provided full service for dress owners, including storage, delivery, and cleaning. Payment to the dress owner amounted to approximately 50% of the profits after incidentals such as cleaning fees were deducted.

• 70/30 Revenue Share in Favor of Dress Owner: used for items of which dress owners took responsibility for logistical tasks, such as storage, delivery, and cleaning.

In March 2016, Chen hired 27-year-old Anastasia Vanderfilt, whom Chen described as her “right hand.” Vanderfilt, a native Estonian, had extensive experience in the hospitality industry. While she was working in Brussels, Belgium, a few years prior, Vanderfilt came to Singapore for a short vacation. Like Chen, she immediately fell in love with the island and decided that she wanted to move there. “I went to Singapore during a time when the government was restricting company visas and work passes. I hadn’t really done proper research on this and it was very difficult to find work,” Vanderfilt related. She decided to pass the time by pursuing an MBA, which she completed in one year. At the end of the program, she continued to struggle to find work. “My goal was to work for a start-up. I wanted to get out of hospitality and into less structured work. I wanted to learn a lot of new things and wear many different hats,” she said. A mutual friend introduced Vanderfilt and Chen because he knew that both of them were interested in fashion and had competed in pageants. “Covetella seemed really interesting to me. I had never heard of dress rental outside of the United States, so I was excited to meet Carol,” Vanderfilt explained. To Vanderfilt’s delight, Chen offered her a job which qualified for a work visa.

Covetella’s Service: Creating the Cinderella Experience Almost all of Covetella’s customers wanted to try on dresses before committing to a specific rental.

Residents of the island city-state could travel by car to most other places in Singapore within 15 minutes, and Covetella’s office was centrally located. “It turns out, shopping online isn’t a huge differentiator in terms of convenience. When it comes to formalwear, the customers want to know it fits properly,” Chen remarked.

After a year of utilizing makeshift dressing rooms in their office, Chen and Vanderfilt decided to move to a proper showroom by March 2017, just in time for Covetella’s second anniversary. The new space, which would be located in an industrial warehouse complex, was almost 3,000 square feet, double the size of the original office but the same monthly price. “It will just be an empty box when we move in, so we will have to install everything from electricity to water. It’ll be set up like a retail store, not a warehouse. Women will walk in and flip out because it’s like they’ve discovered a secret dream closet,” Chen beamed. Even with the larger footprint, Chen believed the new showroom would quickly reach capacity after the March move, filled with nearly 1,000 items for rent.

Vanderfilt managed the showroom experience, taking appointments to help each woman find the perfect dress and accessories to suit the occasion and her personality. “We spend a lot of time on appointments to enhance the customer experience. Anastasia’s job is to be customers’ personal stylist and the Fairy Godmother they always wanted,” Chen declared. A first-time customer could expect to spend an hour with Vanderfilt and would typically depend on her to make recommendations. Some customers wanted to see a selection of hand-picked dresses upon arrival. Then, Vanderfilt would pay careful attention to customer preferences and fit and would patiently select additional dresses for the client to try until they found the best choice, typically spending about an hour with a customer during each visit. Vanderfilt captured customer preferences, height, and dress size in a database to better serve repeat customers, most of whom would still want to spend almost an hour with Vanderfilt during subsequent in-person appointments. Once a dress was selected, Vanderfilt would switch her focus to

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identifying the perfect accessories to complement the attire. The showroom stocked jewelry, hats, shoes, and purses for rent, and specialty undergarments for purchase. Covetella also provided dress alterations at a minimal cost. “We’re the full package and a one-stop shop,” Vanderfilt remarked.

A large part of Vanderfilt’s job in managing the showroom included maintaining personal relationships with customers. In addition to tracking style preferences, Vanderfilt remembered customers’ children’s names, personal life events, and gossip. Vanderfilt shared, “I always push people to come in [to try on dresses in the showroom]. I think human connection is important and it’s better than interaction from behind a computer. So even with remote customers, I’ll call them instead of using email.”

Chen and Vanderfilt estimated that 95% of their customers came to the showroom to try on dresses as opposed to ordering directly online. Of Covetella’s 1,000+ customers, most preferred to come into the showroom for subsequent rentals. Most business came from repeat customers, some of whom shopped monthly and some of whom visited annually, with the average being two times per year. Chen added, “We don’t charge for the personalized service; maybe we’ll consider it when there’s more demand than supply. But we’ve realized that we make more money when customers come to the showroom because we can upsell with accessories, which have a higher margin for us than dresses. Plus, the increased word of mouth marketing after a personalized experience makes the extra time we spend with each client worth it.” Most customers added at least one or two accessories to their rental, which ranged from $10-30 USD each.

Shifting to White Glove Service Chen took inventory and realized that Covetella owned approximately 70% of the dresses it rented,

and the remaining 30% belonged to women who rented the items out through Covetella, most of which were housed in the showroom. The company owned almost all of their accessory items.

Our first goal was to be a platform to facilitate peer-to-peer dress exchange. The customer would store the dress, mail it, and launder it. In this original model, there were no costs to store the dress. We’d pay for shipping but would never have to touch the dress. We set it up so that this could happen, but it never did. Dress lenders did not want to deal with the hassle themselves. When I realized that this wasn’t where the demand was, I started buying dresses and taking other women’s dresses on consignment to hold in the showroom.

The forces that pushed this shift were two-fold:

1. Customers wanted to try on dresses and have an in-person showroom experience.

2. Dress owners wanted to rent their dresses through Covetella, but did not want to manage the logistics of shipping and laundering.

“We discovered that people preferred to have Covetella handling everything for the dress owners and just getting a bank transfer when an item was rented. At the same time, customers wanted to visit the showroom before renting a dress. So if the lenders didn’t store their dresses with us, their items weren’t likely to be rented,” Chen expounded. Covetella, which had originally been designed to be as low-touch as possible, increased its prices and began to differentiate itself through high-touch customer service.

With the majority of Vanderfilt’s time spent managing client relationships, Chen focused her attention on business strategy, operations, and marketing. “It’s a chaotic working environment, but a good chaos,” Vanderfilt said. “We don’t see a lot of each other because Carol’s always in meetings and

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outside of the office. I’m always in the office. The work is nonstop but it’s fun. I’d be bored doing anything else.”

Chen reflected on Covetella’s transition to basing its business on an in-person experience:

You can’t force customer behavior to go the way you want it. Originally we were hoping for a purely online experience, but if women want to pay a premium to come in and have a true Cinderella experience, we’ll do that instead. We accepted that this was our fate. A good business is about making money and making customers happy.

Making the Cut: Events and Branding Covetella was well known in Singapore, with a disproportionately large brand for its size (see

Exhibit 2 for marketing photos). The company took a multi-faceted approach to building this brand. A large component of their strategy was hosting and cross-promoting events. Chen estimated that there was at least one major formal event in Singapore each week, including charity galas, corporate parties, and weddings. Realizing this opportunity, she made an events page on the Covetella website to create a single place for customers to both rent dresses and discover events to attend, thereby increasing demand for dresses. Covetella partnered with event organizers to offer discounts on dress rentals in exchange for promotion. The company also hosted fashion shows highlighting dresses from its collection. Through partnerships with other organizations and events, Chen built her follower base to over 10,000 people. “Partnerships are great because they don’t cost any money. But of course, these relationships require a significant amount of time,” Chen related. She added, “Only about 5-10 people per 300 guests at a partnered event typically rent from us. It was a smaller fraction than we expected.”

Chen also made herself known in the local social scene. “Singapore is really small. It’s relatively easier to be a big fish in a small pond and have access to key influencers and decision-makers,” she remarked. Further establishing herself in Singapore, Chen appeared on season four of START-UP, a competition reality show on Channel NewsAsia:

I originally tried out for the pitch competition just because I didn’t want to pay for a ticket to Slush [a technology conference in Singapore]. There were over 770 startups that applied, and I had never pitched in front of an audience before. So I couldn’t believe it when we won one of eight coveted spots to be on the show. Even more incredible was winning the first challenge and then eventually making it to the final four of the season.

Covetella began to win awards for its marketing efforts, including a regional marketing award for which the start-up beat out established multi-national companies. But despite the positive media attention, Chen began to think about her marketing strategy. “The branding is so premium, that people sometimes think I’m selling expensive gowns or that Covetella is an events company. It’s great awareness, but it’s not accurate and it may not be relatable to our real target audience,” she said.

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Competition Covetella had the advantage of brand recognition, but it was far from the only player in the local

dress rental market. Four other similar companies launched within months of Covetella. Chen recalled, “We were all trying to be the next Rent the Runway.” Brief profiles of competing companies follow below.

• Rent A Dress: Malaysian company which expanded to Singapore. The company offered designer dress rental (four- or eight-day period) with shipping and dry cleaning included.

• Style Lease: Singaporean company which offered designer dresses and accessories, along with two backup dresses for a four-day rental, with dry cleaning and shipping included. The company started with online ordering and later opened a showroom.

• Rent the Label: Singaporean company founded by a model and TV host. The company offered online rental of designer dresses for a period of four or eight days, and included a backup dress, insurance, and dry cleaning.

• Style Theory: Singaporean company which offered a subscription model with three designer pieces per month for a flat fee, with shipping and dry cleaning included.

“Competitors are there, but they don’t feel like direct competitors because we have something they don’t have: amazing customer service,” Vanderfilt said proudly. Chen expounded, “Now some of our competitors have opened showrooms with fitting appointments since we started offering it. But I think we offer better value because of our curation and service. We have the widest range of inventory for ‘occasionwear’ and exclusive styles that you can’t find anywhere else.”

Competition also came from “blog shops.” In these businesses, bloggers would purchase fashionable dresses at wholesale prices and then sell them to customers for two or three times the original cost, which was typically still an inexpensive final price. Some blog shops, such as Love Bonito, had grown into major companies. “These are the types of clothes that are just ‘good enough’. The customer will probably only wear it a couple of times. There’s not much of a mid market between luxury high-end dresses and fast fashion. This affordable mid-market was the opportunity I saw for Covetella,” Chen explained.

Although Chen and Vanderfilt believed that they differentiated themselves well from competitors and offered a better value for customers, Chen began to think about the market in which they operated. “Singapore is very small. We’re all trying to target the same 250,000 women who might use our service. This is not exciting for investors, so it’s a major struggle for us,” she reflected. “As a serial entrepreneur, I think a lot of investors believe in my potential and capability as a founder, but they don’t see Covetella being a home run in such a limited market. I’ve also been hesitant to take external funds because I’m not sure which direction I want to take the company. Once you have shareholders, it’s not about you anymore,” Chen stated.

Seeking a Bigger Stage Chen was pleased with Covetella’s reputation and renown, but when she paused to reflect she felt

confused about which way to proceed. She believed that the core business model of renting high-end dresses and accessories had tremendous potential in Singapore and also in other parts of Southeast Asia. But beyond that, Chen and Vanderfilt had made many quick decisions as they were establishing the business, service upgrade and website features that had now faced the critical eye of customers. Chen considered some of these variables that may need to be changed as Covetella became more established.

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Covetella rented dresses at 10-20% of their retail value, and the rental price included shipping fees and an average rental time of four days. The typical dress was rented two or three times in 18 months, although some dresses had never been rented and others had been rented more than 15 times. The dresses that Covetella owned were carefully curated, with retail values typically ranging from $500-800 USD, although Covetella’s cost could be as low as $100-400 USD. Dresses on consignment ranged in retail value from $400-8,000 USD, with the median retail value around $800 USD.

Chen knew that in the future she wanted to break even on Covetella’s cost of a dress in one or two rentals. From an efficiency standpoint, she was fond of the idea of customers using a website to place their orders, but she also knew that Covetella had differentiated itself with customer service and an in- person showroom experience.

While Chen’s marketing efforts had been successful in building a brand, she knew that they had delivered less impressive results in converting followers into customers. She felt confident that her team could overcome this if they could dedicate additional time and effort in this area, but staff time was already stretched and funds to hire additional staff were limited. Chen wondered whether to double down on the Singapore market, or whether her efforts would be better spent expanding the company beyond Singapore.

Expanding in Singapore Chen and Vanderfilt saw many opportunities to grow their business within Singapore. “Covetella is

doing great and there is a lot of room for growth. Carol is a hustler,” Vanderfilt shared.

Chen knew that as Covetella’s customer base grew, the company would need a larger inventory of dresses to rent. Covetella’s showroom space had limited capacity, so this type of growth would require more storage space. Given the high cost of rent in Singapore, expanding the space to hold more inventory would be extremely expensive. “In the future, the more we can rent online with consignments booked directly from other customers, the better we’ll be able to scale,” Chen noted.

Covetella was narrowly focused on attire for special occasions, but Chen contemplated a subscription model with more casual offerings. Chen suspected that a subscription model would create more business, but with lower margins and questionable longevity. “There’s a competitor in Singapore who does casual subscriptions. Our models are different, but they’re one of our biggest competitors in terms of market share. If we were to do this, we’d need a lot more inventory and we’d basically have become a capital-intensive logistics company. This would likely mean that we’d have to sacrifice the premium service,” Chen considered.

Chen thought about expansion of rental items into different target markets, such as menswear. Chen also thought creatively. For instance, she observed a need for seasonal items. “Singapore doesn’t have cold weather. So people generally only have clothes for warm weather. When you travel, you need to buy clothes that will suit the weather in the place you’re visiting if it’s cold,” Chen explained. She suspected that clothes made for different climates would fill a market need. Chen also thought about categories of clothing that were typically only worn for a short period of time, such as children’s clothing and maternity wear. She saw a market gap for each of these various categories, but knew that she could not pursue all of them simultaneously.

Expanding Beyond Singapore Chen was excited about the possibility of growing Covetella within Southeast Asia. She viewed

Singapore as a potential launching point into ASEAN (the Association of Southeast Asian Nations), a

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region made up of ten countries: Thailand, Vietnam, Indonesia, Malaysia, Philippines, Singapore, Myanmar (Burma), Cambodia, Laos, and Brunei.3

This opportunity was even more appealing in light of the fact that many of the emerging middle class and affluent people in these nations would be Millennials (those ranging in age from 18-34 years old at the time of this case), who would bring the sensibilities and comfort with technology typical of young people. It was estimated that by 2020, the aggregated net worth of Millennials would be $19-24 trillion USD globally.4 Furthermore, by 2020, 60% of the world’s Millennials were expected to live in Asia, comprising nearly half of Asia Pacific’s population. 5 A 2016 report from Accenture noted that “[c]onsumers are increasingly embracing digital technology and services…Asia accounts for the largest number of smartphone users globally at over 50 percent.”6 The same report found that in 2016, 40% of Millennials had shopped on their mobile phones and 60% of Millennials (as opposed to 47% of consumers overall) were comfortable giving retailers access to their information in exchange for more personalized experiences.7

Expansion in ASEAN was appealing to Chen for several reasons. Collectively, ASEAN represented a group of high-potential emerging nations with populations increasingly able to contribute to economic development and support additional businesses. It was estimated that by 2030, two-thirds of the global middle class would be residents of the Asia Pacific (which includes ASEAN nations), most of whom would be in the higher end of the income bracket.8

She thought carefully about the unique characteristics of each country within ASEAN (see Exhibit 3 for economic statistics), and created a checklist of considerations for any potential new market:

• Market size: “Market size is important because we need to have enough customers to make it worthwhile. For instance, Indonesia, Vietnam, Philippines, and Thailand are 20 to 50 times larger in population than Singapore,” Chen shared.

• Local culture: “Relatively speaking, Singapore is very casual, especially since it’s so hot year-round. In other countries, people dress up in their finest attire for every occasion, which would be very good for us,” Chen explained. She gave an example, “In Myanmar, every birthday is like a ball. Women wear full gowns to a friend’s birthday party.” Chen offered a caveat, “The culture of second-hand clothes is not a very comfortable idea in most of Southeast Asia. It’s less taboo in Singapore because it’s more progressive.”

• Investor interest: “We need money to grow, so we need to choose a market that is interesting to investors,” Chen stated. Chen noted that investor interest was tied to several factors, especially market size.

• Personal network: “It’s critical that we have connections and a local partner in a new country; the more connections we have the better. Wherever we go, we need to hit the

3 ASEAN is also an inter-government organization of the ten countries, founded in 1967. Part of the organization’s goals include accelerating economic growth and collaboration in the region. For more information, visit http://asean.org. 4 “Millennials and Wealth Management,” Report by Deloitte. June 2015. Accessed online 5 “Retailers and Consumer Packaged Goods Companies Must Enhance Their Understanding of Millennial Consumers to Capture Share of $6 Trillion Wallet in Asia, Accenture warns,” Accenture LLP. September 6, 2016. 6 Retailers and Consumer Packaged Goods Companies Must Enhance Their Understanding of Millennial Consumers to Capture Share of $6 Trillion Wallet in Asia, Accenture warns,” Accenture LLP. September 6, 2016. 7 Retailers and Consumer Packaged Goods Companies Must Enhance Their Understanding of Millennial Consumers to Capture Share of $6 Trillion Wallet in Asia, Accenture warns,” Accenture LLP. September 6, 2016. 8 “Hitting the Sweet Spot,” Report by Ernst & Young. 2013. Accessed online

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ground running and have people who understand the language and culture,” Chen emphasized.

• Local income levels: “We need a customer base with disposable income. But at the same time, there is some wiggle room as long as the demand is there. We want to be a premium brand, but we also have to appeal to a larger market share and capture people with a smaller budget. So we can diversify in the products that we carry,” Chen discussed.

• Local language: “It would be a challenge to have a business site operating in a native language that I don’t speak,” Chen said.

• Legal context and crime: “In Singapore, very few people break the law. We’re not concerned about people stealing and not returning dresses. But in other countries that’s a bigger concern and we would need a lot more insurance in place,” Chen remarked.

• Logistics and Infrastructure: “We need to get moving fast, so we need to go somewhere that we can be supported. For instance, we’re not going into a place like Cambodia because there’s no infrastructure. On top of that, we need a place where logistics won’t be impossible. We need to consider things like shipping and courier services, internet usage, payment methods, the number of people who have regular access to laptops and mobile devices, et cetera,” Chen shared. She continued, “Vietnam has a higher internet usage rate than many nearby countries and Ho Chi Minh [formerly Saigon] is an up-and-coming start-up ecosystem for tech entrepreneurs. But most people access the internet on their mobile devices, which would require us to develop a mobile application or a mobile-first web design.”

Chen’s mind swirled with thoughts of the possibilities and challenges. “If we want to be in any of these countries, all of them need to be penetrated with in the next two years for us. People are already interested in this idea and coming up with similar businesses,” Chen stressed. “But Southeast Asia is by far the most difficult region in the world to crack, because there’s not a unified market. It’s a bunch of very different countries with very different languages and cultures that just happen to be close to one another. To say that it is fragmented would be an understatement,” she added.

A Jump to Jakarta? Chen knew that Indonesia was the largest market in the region, and that consequently investors

were excited about funding business in the area. However, credit card usage was less than 5%, only 36% of the adult population had a bank account, and a widespread fear of fraud made people skeptical of online payments.9 These factors would present a hurdle for Covetella as an online business. Chen assumed that expanding into Indonesia would require Covetella to deal in cash for many more transactions.

Additionally, the average income level in Jakarta, Indonesia’s capital, was much lower than in Singapore. Looking at the numbers, Chen estimated that the average cost of a rental in Indonesia would need to be less than $100 USD, which represented a 20-50% decrease from the average Covetella rental price in Singapore. She thought about her desire to retain premium branding, and balanced it against the opportunity of capturing a large market in Indonesia. “We could consider carrying designer brands that are a little less luxe [luxurious], or renting out different types of clothing. For instance, there’s a business in India that rents out more casual items like jeans and sweaters for about $20 USD,” Chen shared.

9 “Retail payments in Indonesia: Who will drive the cashless revolution?” Report by KPMG Siddharta Advisory. January 2017. Accessed online:

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SCG-541 Business Models and Fashion Models: Covetella Plans for Growth

Chen thought back to her original concept for Covetella: a business in which she could facilitate peer exchange and earn money on clothes she never had to touch. While the concept changed in Singapore to be focused on a physical showroom, the circumstances in Indonesia were different. “It’s interesting because in Jakarta there is a lot of traffic, and basically no public transport. It can take an hour to drive a mile. So, people there order everything, from groceries to massages. In some ways, it would be the exact opposite problem from Singapore. We’d need to do much more direct delivery, and the peer-to- peer model might work better there,” Chen said.

Sketching out the Future The New Year served as a time for resolutions and reflection for many—including Covetella’s CEO.

As Chen thought about the future, she envisioned a thriving Covetella brand. She saw millions of customers with increased options and self-confidence as a result of her company’s efforts. Those customers had access to a “closet” of clothing with a quality, variety, and brand cachet that would otherwise have been out of reach. She imagined a large cadre of employees who hustled to improve the business and delight clients. Chen envisioned having a more targeted branding and marketing approach that drove legions of new customers to Covetella each week.

She considered her options to move forward. She was excited about the possibility of expanding her company into new countries, but knew it would be difficult to establish a completely new entity tailored to each individual market. Perhaps she should focus on stabilizing Covetella as a cash cow business in Singapore—capitalizing on the new showroom—and later explore a different, more scalable venture.

While Chen repaired the delicate beadwork on a dress that had just been returned with minor damages (likely a byproduct of New Year’s Eve 2017 revelry), she thought back to her time when she first learned how to sew in San Francisco. She realized how far she had come, and how much farther she still wanted to go.

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Business Models and Fashion Models: Covetella Plans for Growth SCG-541

Exhibit 1: Covetella’s Website

Source: Covetella

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SCG-541 Business Models and Fashion Models: Covetella Plans for Growth

Exhibit 2: Covetella Marketing Photos

Models wearing Covetella gowns, with Carol Chen pictured center

Carol Chen in Covetella’s Singapore showroom

Covetella’s Singapore showroom Models wearing Covetella gowns, with Carol Chen pictured center

Source: Covetella

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Business Models and Fashion Models: Covetella Plans for Growth SCG-541

Exhibit 3: Economic Statistics of Southeast Asian Countries Brunei Cambodia Indonesia Malaysia

Population (Thousand) 423 15,762 261,115 31,187 GDP (Current USD) 11,400 20,016 932,259 296,535 Internet Usage (% Population) 75 26 25 79 Mobile Cellular Subscriptions (Thousand) 523 19,915 385,573 43,912 Cost to Enforce Contract (% of claim) 36.6 103.4 115.7 37.3 Cost to Start Business (% of income per capita)

1.6 57.2 19.4 6.2

Credit-Strength of Legal Rights Index (0=Weak; 10=Strong)

5 11 6 7

Ease of Doing Business Index (1=easiest; 185=most difficult)

72 131 91 23

Procedures to Start a Business (number) 7 9 11.2 8 Time Required to Start a Business (Days) 14 99 24.9 18 Total Tax Rate (% of Profit) 8.7 21 30.6 40

Philippines Singapore Thailand Vietnam

Population (Thousand) 103,320 5,607 68,863 92,701 GDP (Current USD) 304,905 296,975 407,026 205,276 Internet Usage (% Population) 56 81 48 47 Mobile Cellular Subscriptions (Thousand) 113,000 8,399 116,606 120,600 Cost to Enforce Contract (% of claim) 31 25.8 19.5 29 Cost to Start Business (% of income per capita)

15.8 0.6 6.6 4.6

Credit-Strength of Legal Rights Index (0=Weak; 10=Strong)

3 8 3 7

Ease of Doing Business Index (1=easiest; 185=most difficult)

99 2 46 82

Procedures to Start a Business (number) 16 3 5 9 Time Required to Start a Business (Days) 28 2.5 25.5 24 Total Tax Rate (% of Profit) 42.9 19.1 32.6 39.4

Source: 2016 World Bank Open Data

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Structure Bookmarks
Business Models and Fashion Models: Covetella Plans for Growth
Setting the Stage
The First Stitch: Covetella’s Origin
Entrepreneurship in Singapore
Ready for the Next Size Up
Covetella’s Service: Creating the Cinderella Experience
Shifting to White Glove Service
Making the Cut: Events and Branding
Competition
Seeking a Bigger Stage
Expanding in Singapore
Expanding Beyond Singapore
A Jump to Jakarta?
Sketching out the Future
Exhibit1:Covetella’sWebsite
Exhibit2: CovetellaMarketingPhotos
Exhibit3: EconomicStatisticsof SoutheastAsianCountries