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A Nasty Ending for Nasty Gal

In 2006, Sophia Amoruso was a 22-year-old hitchhiking, dumpster-diving community college dropout with a lot of time on her hands. After reading a book called Starting an eBay Business for Dummies, she launched an eBay store called Nasty Gal Vintage, named after a song and 1975 album by the jazz singer Betty Davis, second wife of the legendary Miles Davis.

Nasty Gal’s styling was edgy and fresh—a little bit rock and roll, a little bit disco, modern, but never hyper-trendy. Eight years after its founding, Nasty Gal had sold more than $100 million in new and vintage clothing and accessories, employed more than 350 people, had more than a million fans on Facebook and Instagram, and was a global brand. It looked like a genuine e-commerce success story. Or was it?

When Amoruso began her business, she did everything herself out of her tiny San Francisco apartment—merchandising, photographing, copywriting, and shipping. She got up at the crack of dawn to make 6 a.m. estate sales, haggled with thrift stores, spent hours photoshopping the images she styled and shot photos herself using models she recruited herself, and ensured that packaging was high quality.

She would inspect items to make sure they were in good enough shape to sell. She zipped zippers, buttoned buttons, connected hooks, folded each garment, and slid it into a clear plastic bag that was sealed with a sticker. Then she boxed the item and affixed a shipping label on it. She had to assume that her customers were as particular and as concerned with aesthetics as she was.

Amoruso had taken photography classes at a community college, where she learned to understand the importance of silhouette and composition. She bought vintage pieces with dramatic silhouettes—a coat with a big funnel collar, a ’50s dress with a flared skirt, or a Victorian jacket with puffy sleeves. Exaggerating everything about the silhouette through the angle from which it was photographed helped Amoruso produce tiny thumbnails for eBay that attracted serious bidders. She was able to take an object, distill what was best about it, and then exaggerate those qualities so they were visible even in its tiniest representation. When the thumbnail was enlarged, it looked amazing.

Amoruso has been a heavy user of social tools to promote her business. When she first started out, she used MySpace, where she attracted a cult following of more than 60,000 fans. The company gained traction on social media with Nasty Gal’s aesthetic that could be both high and low, edgy and glossy.

Amoruso took customer feedback very seriously and believed customers were at the center of everything Nasty Gal did. When she sold on eBay, she learned to respond to every customer comment to help her understand precisely who was buying her goods and what they wanted. Amoruso said that the content Nasty Gal customers created has always been a huge part of the Nasty Gal brand. It was very important to see how customers wore Nasty Gal’s pieces and the types of photographs they took. They were inspiring.

Social media is built on sharing, and Nasty Gal gave its followers compelling images, words, and content to share and talk about each day. They could be a crazy vintage piece, a quote, or a behind-the-scenes photo. At most companies the person manning the Twitter and Facebook accounts is far removed from senior management. Amoruso did not always author every Nasty Gal tweet, but she still read every comment. If the customers were unhappy about something, she wanted to hear about it right away. At other businesses, it might take months for customer feedback to filter up to the CEO. When Nasty Gal first joined Snapchat, Amoruso tested the water with a few Snaps, and Nasty Gal followers responded in force.

In June 2008, Amoruso moved Nasty Gal Vintage off eBay and onto its own destination website, www.nastygal.com. In 2012, Nasty Gal began selling clothes under its own brand label and also invested $18 million in a 527,000-square-foot national distribution center in Shepherdsville, Kentucky, to handle its own shipping and logistics. Venture capitalists Index Ventures provided at least $40 million in funding. Nasty Gal opened a brick-and-mortar store in Los Angeles in 2014 and another in Santa Monica in 2015.

With growing direct-to-consumer demand and higher inventory replenishment requirements driven by new store openings, Nasty Gal invested in a new warehouse management system. The warehouse management system investment was designed to increase warehouse productivity and shorten order cycle times so that Nasty Gal’s supply chain could better service its mushrooming sales. (Order cycle time refers to the time period between placing of one order and the next order.) The company selected HighJump’s Warehouse Management System (WMS) with the goal of increasing visibility and overall productivity while keeping fill rates above 99 percent. (The fill rate is the percentage of orders satisfied from stock at hand.)

Key considerations were scalability and capabilities for handling retail replenishment in addition to direct-to-consumer orders. HighJump’s implementation team customized the WMS software to optimize the business processes that worked best for an e-commerce retailer that ships most of its items straight to the customer, with a small subset going to retail stores. The WMS software was also configured to support processes that would scale with future growth. Picking efficiency and fill rates shot up, with fill rates above 99 percent, even though order volume climbed.

Nasty Gal experienced tremendous growth in its early years, being named INC Magazine’s fastest-growing retailer in 2012 and earning a number one ranking in Internet Retailer’s Top 500 Guide in 2016. By 2011, annual sales hit $24 million and then nearly $100 million in 2012. However, sales started dropping to $85 million in 2014 and then $77 million in 2015. Nasty Gal’s rapid expansion had been fueled by heavy spending in advertising and marketing. This is a strategy used by many start-ups, but it only pays off in the long run if one-time buyers become loyal shoppers. Otherwise, too much money is spent on online marketing like banner ads and paying for influencers. If a company pays $70 on marketing to acquire a customer and that customer only buys once from it, the company won’t make money. A company that spends $200 million to make $100 million in revenue is not a sustainable business. Nasty Gal had a “leaky bucket” situation: Once it burned through its fundraising capital and cut down on marketing, sales continued to drop.

Nasty Gal couldn’t hold onto customers. Some were dissatisfied with product quality, but many were more attracted to fast-fashion retailers such as Zara and H&M, which both deliver a wider array of trendy clothes through online and bricks-and-mortar stores at lower prices and are constantly changing their merchandise. The actual market for the Nasty Gal brand was quickly saturated. There was a limit to the number of women Nasty Gal appealed to: Nasty Gal had a California cool, young girl look, and it was unclear how attractive it was in other parts of the United States and around the world.

Nasty Gal also wasted money on things that didn’t warrant large expenditures. The company quintupled the size of its headquarters by moving into a 50,300-square-foot location in downtown Los Angeles in 2013—far more space than the company needed, according to industry experts. The company had also opened a 500,000-square-foot fulfillment center in Kentucky to handle its own distribution and logistics as well as two bricks-and-mortar stores in Los Angeles and Santa Monica. Even in the hyper-trendy fashion business, companies have to closely monitor production, distribution, and expenses for operations to move products at a scale big enough to make a profit. Nasty Gal’s mostly young staff focused too much on the creative side of the business.

While it was growing, Nasty Gal built its management team, hiring sizzling junior talent from retail outlets such as Urban Outfitters. But their traditional retail backgrounds clashed with the start-up mentality. As Nasty Gal expanded, Amoruso’s own fame also grew, and she was sidetracked by other projects. She wrote two books. The first, titled #Girlboss, described the founding of Nasty Gal and Amoruso’s business philosophy and was adapted by Netflix into a show with Amoruso as executive producer. (The series was cancelled in June 2017 after just one season.) Employees complained about Amoruso’s management style and lack of focus.

Amoruso resigned as chief executive in 2015 but remained on Nasty Gal’s board of directors until the company filed for Chapter 11 bankruptcy on November 9, 2016. Between 2015 and 2016, Nasty Gal had raised an additional $24 million in equity and debt financing from venture-focused Stamos Capital Partners LP and Hercules Technology Growth Capital Inc. Even though the funding helped Nasty Gal stay afloat, the company still had trouble paying for new inventory, rent, and other operating expenses.

Within weeks of filing for Chapter 11 protection, Nasty Gal sold its brand name and other intellectual property on February 28, 2017, for $20 million to a rival online fashion site, the United Kingdom’s Boohoo.com. Boohoo is operating Nasty Gal as a standalone website, but Nasty Gal’s stores are closing. Boohoo believes Nasty Gal’s arresting style and loyal customer base will complement Boohoo and expand global opportunities for growth. Many customers have complained about the quality of fabric and customer service.

Amoruso subsequently turned to developing Girlboss—a media company that hosts a website, a podcast, and two annual conferences, called the Girlboss Rally. She also launched the Girlboss Foundation, which has given out $130,000 to women-owned small businesses.

Sources: Cady Drell, “Sophia Amoruso on the Strange and Difficult Upside of Making Big Mistakes.” Elle, July 24, 2018; Aundrea Cline-Thomas, “How Girlboss’s Sophia Amoruso Continues to Chart Her Career Course,” www.nbcnews.com, July 26, 2018; Sarah Chaney, “How Nasty Gal Went from an $85 Million Company to Bankruptcy,” Wall Street Journal, February 24, 2017; Shan Li, “Nasty Gal, Once a Fashion World Darling, Went Bankrupt: What Went Wrong?,” Los Angeles Times, February 24, 2017; “Case Study Nasty Gal,” HighJump, 2016; and Yelena Shuster, “NastyGal Founder Sophia Amoruso on How to Become a #GirlBoss,” Elle, May 15, 2014.