-
1
Purpose:
The purpose of this case study is to examine the
relationship between online vs. in-store retailing and to
better understand how the retail landscape is changing.
Background:
Threadless is an innovative clothing manufacturer
located in Chicago. Specifically, this company
specializes in making and selling unique t-shirts. The
company was founded in 2000 by Jake Nickell and uses
customer co-creation to design their shirts. It uses a
submission approach similar to what Local Motors uses.
The difference here is that in addition to using this
process to solicit designs, it also uses it to help select
which of these submitted designs to produce. This is a
very selective process; only 1% of all submitted designs
are selected for printing. These shirts are made in the
USA and usually sell for $25 each. Since Threadless was
2
founded it has sold its products almost exclusively via
its website (which is the same site in which designs are
solicited and voted on). Through this approach, it has
experienced phenomenal growth. In recent years,
Threadless has received substantial interest from several
large retailers such as Target and is also considering the
possibility of opening its own retail stores.
Core Issue:
During its first decade of operation, Threadless has
been very successful selling its shirts online. The core
issue is if and how should Threadless expand its
distribution capacity.
Threadless
Front page of Threadless, image captured in
https://www.threadless.com/, authorized by Threadless.
Marketing in a Digital World
by Prof. Aric Rindfleisch
-
Case Study
4
1
Questions:
1. Should Threadless move into physical retail
distribution?
2. 2. If so, how? Should it open its own store or
sell through an existing retailer?
3. 3. What should be the relationship between its
online vs. physical distribution?
Typical Student Reaction:
When I teach this case, most students react very
negatively about the idea of Threadless partnering with
an existing retailer. This negative reaction is based on
their belief that this type of partnership would hurt the
Threadless brand by diluting its image and reducing
their control. In addition, they dont believe that
Threadless has the capability to launch their own retail
operation. A few students suggest that Threadless do a
limited physical distribution through a retail partner
that would allow them to carefully control their brand.
Thus, the majority of students feel that Threadless
should stick with their current online distribution and
believe that this selective distribution strategy is a
strength rather than a weakness.
Concept Application:
This case is an excellent example of the changing nature
of retail and the challenges involved in trying to adopt a
multi-channel strategy. What is most interesting about
this case is that Threadless is an online distributor
interested in moving into physical distribution.
Usually, multi-channel strategies are in the other
directionfrom physical to online. Threadless
2
interest is establishing a physical retail presence is also
a
testament to the power of physical retail stores.
Although big box retail stores are declining in influence,
most retail shopping is still done in physical stores.
These traditional stores are especially important for
products like clothing in which consumers like to touch
or try out an item before making a purchase decision.
Thus, physical stores account for over 80% of clothing
sales in the US. In these types of categories, retail sites
are more likely to be used for information rather than
for purchase. Threadless appears to have recognized this
fact and is trying to appeal to the needs and preferences
of this broader market.
Recent Developments:
Threadless continues to sell the vast majority of its
products online via its website. In recent years, it has
formed a partnership with the Gap, a large clothing
store chain that focuses on causal clothes for younger
people. In addition to stocking its t-shirts in Gap stores,
it also conducts special online design challenges for t-
shirts that will be specifically sold in Gap stores.
365-2011-026: Threadless Visit posted by Jason Gessner, under
Creative Commons license, retrieved from
http://www.flickr.com/.
-
Case study
3
Thus, it is nicely blending its online and offline
distribution strategies. It has also formed similar
partnerships with a number of other well-known
brands and retailers, including Dell, Thermos, and
Redbox. In 2007, Threadless opened its own retail
store in Chicago. This store looked very similar to an
Apple store, with a very open feel and limited product
displays. In the words of Jake Nickell, Instead of
setting up the everyday shop, we essentially re-created
our digital experience in-store. Threadless had hopes
of opening more of these types of stores in other
locations. However, sales were disappointing and this
store ended up closing in January 2014. At this time,
Threadless also laid of 25% of its workforce.
Reflecting on this experience, Threadless CEO Jake
Nickell (2014) said, While a tough decision, we felt it
time to shut some doors (literally) and open others.
Namely, partnership and licensing opportunities,
which is basically another pathway into bricks-and-
mortar without building the physical space yourself.
Thus, at this point in time, Threadless is looking to
rely more heavily on partnerships with established
retailers to grow its business and has recently launched
a new smartphone app that allows anyone to design
their own t-shirt.
Lesson Learned:
1. Placement decisions are closely related to the other
elements of a firms marketing mix. For example, in
Threadless case, a key factor in its physical
distribution strategy was its unique brand image as
this authentic, hip, co-created t-shirt firm in which
the designs of its products came from outside of the
firm. It initially had a hard time trying to align this
brand image with the more mass-marketed image of
traditional big-box retailers. This is one of the
reasons why it initially rejected Targets offer.
2. Many online retailers seek (and often need) physical
retail distribution. In addition to Threadless, we
have seen this happen to other online companies
such as Birchbox, Quirky, Warby Paker. Even
Amazon has floated the idea of opening a brick and
mortar store. For specialized retailers, online
distribution still has limited growth opportunities, as
the majority of shopping in many product categories
is sill via physical retailers. For example, when is the
last time that you bought a candy bar or a toothbrush
online?
3. Physical distribution presents a lot of challenges
compared to online retailing, such as a large capital
investment, geographical limitations, and limited
shelf space. Thus, digital retailers are likely to have
trouble in terms of making the shift to a physical
presence (and vice-versa). For example, Threadless
found that its storefront was much too costly in
-
Case Study
4
Resources:
How Jake Nickell Built his Threadless Empire
(http://www.chicagomag.com/Chicago-Magazine/July-2012/How-Jake-Nickell-Built-His-Threadless-Empire/)
Jake Nickell--Threadless
(https://www.youtube.com/watch?v=uy9ieb87CFs)
www.threadless.com
Reference: Nickell, J. (July 21, 2014). What one web retailer
learned from operating a bricks-and-mortar shop. Retrieved from
https://www.internetretailer.com/commentary/2014/07/21/what-one-web-retailer-learned-bricks-and-mortar-test
comparison to its online store. These added costs
suggest that online retailing will continue to increase
in the near future.
4. You dont have to go it alone. Partnerships present a
possible means of gaining the benefits of physical (or
digital) distribution. These partnerships can be
mutually beneficial in terms of both reducing costs
and taking advantage of potential synergies. A great
example of this is Threadless partnership with the
Gap which provides the Gap with access to new
designs and provides Threadless with low cost
distribution to a customer segment that would
probably not purchase its products online.
