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In 2006, Sophia Amoruso was a 22-year-old hitchhiking,dumpster-diving community college dropout with a lot of time on her hands

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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.

10-15 How was social media related to Nasty Gal's

business model? To what extent was Nasty

Gal a "social" business?

10-16 What management, organization, and technology

problems were responsible for Nasty

Gal's failure as a business?

10-17 Could Nasty Gal have avoided bankruptcy?

Explain your answer.