innovation

LOS ANGELES – The central innovation behind what has become one of the fastest-growing technology companies on earth was provoked by a pair of shoes – specifically, a pair of black-studded stilettos crafted by the Italian designer Cesare Paciotti. Brian Lee eyeballed the shoes, purchased by his wife at an exclusive local boutique, and could not get past the price tag: $1,200. “I was just floored,” he says. Why couldn’t she simply go to one of the big-box retailers that specialise in shoes at more modest prices? Her response generated a business plan. “She said, ‘It’s not the same feeling,’ Lee recalls. ‘”The lady at this boutique knows me. She knows my style. I feel pampered.” Three years after that exchange, Lee, 40, is the chief executive of ShoeDazzle, an online purveyor of women’s shoes that has managed to amass three million registered customers in the United States by combining the personalisation of the boutique with the low prices of the Web, while generating buzz through strategic associations with celebrities — not least, the company’s public face, Kim Kardashian. ShoeDazzle is on track to log $70 million in revenues this year, according to the company, nearly tripling the $25 million it harvested last year – its first full year in existence. Next month, ShoeDazzle plans to launch here in the UK, with a series of promotional events headlined by the company’s public face and in-house stylist, Kim Kardashian, as well as a slate of British celebrities, as yet undisclosed. The company aims to use London as a jumping off point for forays into France and Germany. Later this year, it plans to launch in South Korea, and then expand across Asia. ShoeDazzle has made itself into a massive marketplace not by bombarding computer screens with a comprehensive array of product – the favoured strategy for most e-retailers – but by personalising the experience of online shopping, and injecting social engagement into the proceedings. It designs its own shoes, and sells them exclusively, tailoring its offerings to the individual customer. Every month, ShoeDazzle invites its customers to enter their own online showroom, containing five new pairs of shoes – each selected by a virtual stylist, using an algorithm that tracks how they have responded to previous options. Women who connect to ShoeDazzle via Facebook (a major artery for customers) are able to enter the showrooms of their friends, and then chat in real time about what they see there – whether that pair of yellow ballet flats might go well with that dress they wore last weekend; whether those heels might be a good choice for a wedding. In short, ShoeDazzle has turned itself into a destination by using the modern tools of social media to render online shopping more like the shopping experience of yesterday, before the advent of the Internet. At the same time, it has harnessed the Internet to open the previously exclusive domain of the boutique to the masses, with personalised options tailored to the individual customer. And it has done this while making its products available for around £30 a pair, tapping factories in China to deliver the goods – strictly non-leather, and engineered for appearance above all else. In a time in which the American economy seems to have lost its mojo, innovation is frequently bandied about as the fix, yet the word typically conjures up images of biotechnology geniuses pursuing a cure for cancer, or robots producing nano-sized piece parts for electronics. ShoeDazzle is an example of how innovation can yield substantial benefits in more pedestrian areas of the economy. Much as Netflix in the US and LoveFilm, to some extent, in the UK have attracted millions of paying customers by creating an online layer that has tamed the dizzying process of selecting a film, and much as Pandora has gained adherents by helping people find music tailored to their tastes, ShoeDazzle has grown by simplifying and focusing the process by which women by shoes. Indeed, Lee and his partners have managed to craft a thriving business in precisely the sort of industry that is supposed to be a graveyard for entrants from the wealthy world, amid ceaseless hand-wringing over globalization and the spread of low-wage manufacturing to Asia, Latin America and Eastern Europe. ShoeDazzle is leaning on high-wage American design skills and marketing prowess to rack up sales in the very industry that is often cited as Exhibit A in the case that China is destined to take over everything. Headquartered in Santa Monica, in a glass-encased office building named for the high-profile spawn of Silicon Valley – the Yahoo Center – ShoeDazzle now employs about 160 people, most bringing home north of £75,000 a year, and many earning into six-figure salaries. They work between pink walls and beneath futuristic light fixtures, a young-looking crowd in designer jeans and trendy shirts. They design the product, refine the marketing pitch, tweak the Web interface, forming the lucrative brains of an enterprise that has raised some $63 million in venture capital finance – most recently a $40 million infusion led by Andreesen Horowitz , a major player in Silicon Valley. All this, from selling shoes . Not everyone is so impressed by the product, or the experience. “Many of these shoes have ‘leather-like’ and ‘man-made’ uppers,’” sniffs a review on The Budget Fashionista , another piece of the social media landscape that is not working in ShoeDazzle’s favour. “In other words, they’re constructed out of pleather. Cheap pleather simply doesn’t last long, often scruffs easily, and doesn’t conform to your feet with regular wear as leather does.” The review recommends that women take their £30 and deploy it at “the sales racks of affordable shoe stores such as Aldo and Nine West, where the majority of shoes are constructed of real leather.” (“They are very high quality, for what you’re paying,” says Lee, betraying irritation with the question.) Others come at the issue from the other end of the spectrum, dismissing ShoeDazzle as too inclusive to merit membership, with the low price of its products presenting the very reason not to buy them: These are not rare items, no archetypes of luxury, not the sort of purchase that will provoke jealousy once the details come out. These shoes are not made by artisans in Italy, using hand-cured calf leather worthy of a Milan boutique. They are made for anyone with £30. In a recent post on the fashion blog, “Searching for Style,” Alexandra Suhner Isenberg, who identifies herself as a former designer for Burberry, rejects ShoeDazzle out of hand precisely because of its affordability. “The scary thing is that everything on the site is $39.95,” she writes. “So you can imagine the level of quality we are dealing with here.” On one of the many Web sites that have sprouted up just to discuss the phenomenon of Lee’s company , one commenter snorted that Kim Kardashian “would never be caught dead in any of the cheap shoes she’s hawking on shoedazzle [sic].” (For the record, Kardashian says she does indeed wear the shoes, in this video interview .) Lee’s wife, Mira Lee, says the dissenters are looking at ShoeDazzle the wrong way, insisting that even women of means enjoy snagging a bargain. She still loves high-end boutiques, and she is still known to surrender handsome sums for hand-crafted shoes from famous designers, she says, but ShoeDazzle allows her to cultivate her desired look on a daily basis, without fear of wearing out a precious item. “I will spend the money on the classic, must-have shoe,” she says. “But for every day fashion, I’m always in in my ShoeDazzles.” Whatever the merits of the product, the ShoeDazzle model is worth exploring as a case study of modern-day innovation. More than a decade ago, Jeff Bezos built Amazon into an online retailing behemoth by selling the very product that everyone seemed to think was doomed in the digital age – the book. That story proved how innovation matters in the less-than-glamorous aspects of running a business: crafting ways to reliably deliver huge volumes of product, winning consumer loyalty through satisfying customer service, making the Web interface intuitive and engaging. ShoeDazzle portrays itself as the next stage of this evolution, the part where online retailers replace the facelessness of their sites with interaction, reviving the features eliminated from the shopping experience by the flattening wave of early stage e-commerce. Zappo’s now sells $1 billion worth of shoes online, Lee will tell you, but the experience of shopping there is the Web equivalent of combing through shelves without personal attention at a big box store like DSW or Shoe Pavillion. “It’s really a giant warehouse,” Lee says. “People want to be engaged. They go to a shop with their friends and they have lunch. They are chatting about the clothes, asking the sales person, ‘How do I look?’ You don’t go to a store and look at pictures of 30 pairs of shoes and pick one. Women wanted this. They wanted something more engaging.” THE UNLIKELY FASHIONISTA Lee seems an accidental trendsetter. Soft-spoken, exceedingly polite, and clean-shaven, he sports a blue button-down dress shirt and grey slacks on a recent afternoon, making him appear far removed from the loud, attitude-laden Milan-New York-Paris-Tokyo set. “I don’t consider myself a shoe person,” he says, over a salad and iced tea at the grill below his office where he lunches on most days. “I don’t consider myself a fashion person. I consider myself an Internet person.” A lawyer by training, Lee proved himself with his first company, LegalZoom.com Inc., an online document preparation service that sells itself as a cut-rate alternative to hiring an attorney to craft a will, file for bankruptcy or dissolve a marriage, among other delightful bureaucratic undertakings. Launched in 2001 with $50,000 that Lee and a partner borrowed from their respective parents, the company now claims more than a million customers, while employing some 500 people. The company recently secured a fresh $100 million in financing from the venture capital giant Kleiner Perkins, Lee confirms, in what many observers construe as preparations for an initial public offering . After the fateful conversation with his wife over the black-studded stilettos, Lee took $1 million of his own money and invested it in ShoeDazzle. They rented an 800-square-foot loft in Hollywood, and set up shop with only three employees. They had a plan, a Web interface, a branding strategy. They even had an arrangement with Kim Kardashian. But their new business lacked the one thing at the center of their enterprise: They had no shoes. Worse, they had little idea about how to get some – a proposition more complicated than it sounds. The Los Angeles area is a hub for middlemen shoe traders that represent factories in China, where some 85 percent of shoes are now made. For weeks, the Lees drove around in a U-haul truck, visiting these merchants and trying to buy shoes. Without a sense of what would sell on their site, they sought small quantities – a dozen or so samples of interesting designs – so they could experiment and see what would work best. But the dealers required minimum orders of 2,400 pairs upfront. Eventually, they gave a small equity stake to a representative who agreed to use his Chinese factory for small runs, and they were off, launching sales in the spring of 2009. They also gave equity to Kardashian, whose involvement has been crucial to the branding strategy. Her reality television show and constant media presence have elevated her to the status of fashion icon among a mass audience, imbuing her sartorial decisions with the power to shape trends. Unlike the rail thin models who tend to personify fashion, Kardashian projects as a real woman, (albeit a particularly glamorous one with enormous spending power, and an ever-changing wardrobe, not to mention an entourage), making her an ideal representative for a company aiming to sell itself as both aspirational and affordable. The company draws heavily on the middle ranks of the American economy, people earning around $60,000 a year, and trending more toward African American and Latino communities – particularly in more rural parts of the country, where shopping options can be lean. Kardashian is offered up the bridge between worlds, delivering a thrifty-priced slice of Hollywood to every American enclave. “Kim is a very relatable woman,” says Deborah Benton, ShoeDazzle’s chief operating officer. Kardashian has also played a central role in helping the design team settle on new models. (“She’ll come in and say, ‘I really don’t like this shoe,’” Lee says.) Her involvement has established a pattern that has allowed the company to both align itself with popular trends and gain word-of-mouth advertising on the cheap: ShoeDazzle has become something like the equivalent of the old design-your-own-ice cream sundae shop for Hollywood celebrities who like shoes, opening up its design space to the ideas of myriad famous personages, and branding its offerings through these associations. In addition to Kardashian, Jenny McCarthy and Kristin Chenoweth have designed shoes – facts they have prominently mentioned on their Facebook fan pages, platforms that spread the word to tens of millions of people. “It’s just being in LA, man,” Lee shrugs, when asked how he has managed to cultivate so many fruitful commercial relationships with famous people. “These are all friends, or friends of friends. Being in LA, this is the entertainment capital of the world.” Publicity-through-association is a trick ShoeDazzle now seeks to replicate in the United Kingdom as the company prepares for its launch. Next week, Lee is supposed to attend a Los Angeles gathering of a UK trade promotion agency. He is going for one reason alone, the anticipated visit from Prince William and his new bride, Kate Middleton, and with one agenda item on his mind: “How we can design shoes for Kate Middleton,” he says. “Shoes that she will wear with the Paparazzi trailing her around.” VIRAL GROWTH Budget-priced glamour combined with social engagement has proven to be rocket fuel. ShoeDazzle has been shipping about 150,000 pairs of shoes a month, as compared to perhaps 25,000 a year ago. They outgrew their Hollywood loft almost immediately, soon leasing space in an office building in Koreatown. Late last year, they expanded into the Yahoo Center in Santa Monica, where they just arranged to knock down the walls to double the floor space. The aftermath of the Great Recession has proven a fortuitous time to launch a business in the United States. Most of the customer service representatives answering the phones and monitoring ShoeDazzle’s Facebook fan page – people who generally start at $12 or $13 an hour – are college graduates, some with degrees from Stanford and U.C.L.A. Office and warehouse space have been cheap. Finding high-quality Web designers and marketing people has not been difficult. The company has grown so big that it no longer makes sense to rely on middlemen to deliver the product. ShoeDazzle has secured lines at five different factories in the southern Chinese factory of Guangdong, effectively tapping cheap Chinese migrant labour to undergird white-collar creative jobs in Los Angeles. But the key to the company’s growth has been making itself feel small, like a familiar boutique to its legions of customers – even as it has tapped online social networks with millions of participants to spread that feeling as broadly as possible. When customers first sign up for ShoeDazzle, agreeing to a $39.95 monthly subscription, they take a quiz that generates a profile used by the algorithm to come up with appropriate selections. (“Which is the heel that you’d most like the steal?” reads one, offering three different models to select. “Which is the shoe that your closet most calls for?”) Each month, the algorithm refines that profile based on new purchases and rejections. The word stylist is much bandied about inside ShoeDazzle, as if the staff is discussing a real person who intervenes in the transactions, the equivalent of the boutique sales clerk who selects items just for you . “You get your own stylist,” Kardashian says in the video interview. “Celebrities pay hundreds, or thousands of dollars for a stylist, and you’re getting the help of a professional to pick out a shoe for you.” But the stylist is mostly just a feature of automation, an unseen force behind the monthly showroom, the work of the algorithm, augmented by the celebrities and other professionals brought in as taste-makers. The company’s programmers considered putting an avatar in the show room, someone customers could speak to via chat or voice, but they rejected that concept as too hokey, the sort of feature that would underscore the unreality of the interaction in a virtual space, as opposed to what they are aiming to provide: real engagement, and genuine utility. Some would-be customers find the engagement inauthentic and the utility dubious, complaining that the selections wind up far off the mark, rendering the very concept of the stylist a cheap gimmick. Alexandra Suhner Isenberg, the fashion blogger, took the quiz and was amused to find that ShoeDazzle had settled on “whimsical” as part of her profile – ” the last word I would ever use to describe my style,” she writes. Then, she found herself waiting impatiently for the 24 hours required before ShoeDazzle could serve up the promised personalised selections. “I guess that is because they like you to think that the Hollywood stylists are actually figuring out what shoes you will love, rather than just using some generic algorithm to figure out which crappy shoes they can sell to you,” she concludes. The selections themselves only drew more of her derision: “Shoe Dazzle’s ‘team of Hollywood stylists’ has no idea what they are doing, and most of their shoes are very cheap and ugly.” ShoeDazzle’s overseers describe their business as an always-evolving destination. The programmers are constantly refining features, recently adding a feature that enables customers to post videos of themselves and their shoes on the site. Customers gather on the ShoeDazzle Facebook page, which counts more than a million fans, and has indeed fostered a sense of community, an online world for thrifty minded shoe aficionados. People with Facebook identities that include words like ShoeLover and ShoeAddict commiserate over their inability to contain themselves while waiting for the next pair to arrive. “People want to share,” Lee says. “They want to share good experiences and bad experiences. But they want people to know.” PERSONALISED SERVICE None of this online engagement goes without monitoring by a team of ShoeDazzle customer service representatives who occupy cubicles inside the office in Koreatown. They serve as stylists of the moment, counseling customers who call or e-mail on their choices, in addition to the more menial work of tending to orders that have gone awry and managing accounts. This is the classic sort of job that e-tailers have shipped overseas by the thousand, connecting American customers with English-speaking telephone operators in India, the Philippines and Eastern Europe – people who work cheaply. But this is the one area of the business that Lee and his partners swear is never leaving American shores. ShoeDazzle does not hide from the fact that all of its product is made in China (and maybe soon in Vietnam, if labour costs keep rising in Guangdong). But Lee is adamant that he will never send customer service abroad, because the labour force in Bangalore and Manila cannot be entrusted to get the cultural references straight or gain the affinity with the American customer that is required to produce the sense of connection that is at the center of ShoeDazzle’s mode. The company is building a call center in the United Kingdom to field calls from customers there. The people who answer the phone at ShoeDazzle are encouraged to strike up personal relationships and to give out their direct-dial extensions, so the customer has a go-to person to call the next time. Every customer service representative has access to all of the records of the transaction, and can fulfill orders so there is no chance of being put on hold and bounced from place to place, and so each call – a complaint, a tech question – can swiftly be turned into a sales opportunity. Sometimes, the relentless marketing machine backfires. On a recent afternoon, Mary Courson, a relentlessly cheerful 24-year-old customer service rep –“Have a dazzling day!” she greets every caller – tries to mollify the irritation of a woman who has only just discovered that she has signed up for a monthly subscription and now wants to cancel. Then she will miss out on all the attention, Courson tells her. “You can get those showrooms just for you,” she says. “No thanks,” says the caller. But the next caller, Casey in Kissimmee, Florida, is eager for some interaction. The weather proves worthy of discussion – muggy in Florida, sunny in southern California. Courson’s childhood in Oregon, and lack of experience with Florida is greeted with interest, as is a mutual assessment of the Tuesday still unfolding: so far so good. By the time they start talking shoes, Courson has cultivated what sounds like genuine mutual affection. Casey is calling because she has sent back a pair of brown alligator-skin style shoes that she loved, but were too large – allowing a toe to slide uncomfortably into a hole – and she is eager to know how soon a credit will appear on her account. Soon enough to take advantage of the next month’s showroom! This, Mary assures her, leading the conversation there. “Are you getting excited?” she asks. “We got a little preview of the shoes, and they are adorable! You’re going to love them!” The next time Casey is ready to buy shoes, call ahead and Courson will be happy to look into her account and see what she has bought in the past (“I see you have the Latitudes,” Courson says. “They’re adorable!”) She can go and locate a sample of the old shoe to compare to the new one to ensure that they size the same. But before Casey can reply, the line goes dead, with Casey’s mobile the apparent culprit. Courson looks up her number on the screen and dials her again, producing a sound that can only described as happy recognition. “Oh my gosh,” Casey says, “I’m so glad you called back. I’m so excited!”