1Mby1M Deal Radar 2010: ShopForBags.com

ShopForBags (SFB) is a women-owned apparel and handbags distributor that targets small-town salons, boutiques, and retail outlets. It also has its own private label, Katydid. The company sells handbags, messenger bags, laptop bags, belts and wallets, and apparel for women, men, and children.

Founder and president Katy Messersmith came from humble beginnings while growing up in Palestine, Texas. Living in a trailer home through high school after a house fire left her family nearly homeless made her determined to make something of herself. After graduating from Texas A&M University in 2000, Katy planned to put her community health major to use. But while volunteering at a women’s prenatal clinic in Africa, her life took a turn.

Her luggage never landed in Ghana, which left her with only the clothes on her back. She turned to local seamstresses to have new clothes made. Those first designs reflected the vibrant, local fabrics and foreshadowed the bold Katydid creations to come. Although the peasant skirts and hefty shoulder bags were definitely not catwalk-worthy, Messersmith says that the process lit a creative and entrepreneurial spark in her, and she founded SFB in 1999.

SFB targets small-town retailers by allowing them to order just what they need on a just-in-time basis, with a low ($100) minimum order and same-day shipping. SFB customers purchase with the confidence of knowing that they can quickly reorder whenever they need to without a large capital outlay. The company says that whether customers want to test how well their clients will respond to a new product or need to meet an unexpected demand, fast turnaround helps to put these retailers in control of their inventory and cash management. This has enabled SFB to serve over 10,000 small retailers nationwide. The company also has exclusive distribution rights to the Katydid brand.

The handbag business and the fashion industry in general is very competitive, and there are dozens of online distributors catering to small retailers. The company says that it is constantly being knocked off by competitors that manufacture overseas and do it well. It has to continually innovate and be correct in what the target market will wear to really get a grip on inventory control, continue to grow the brand, and stay ahead of the competition. SFB believes that constant additions to the stocks, one of the lowest order thresholds in the industry, and the Katydid brand differentiate it from competitors.

In the wholesale space, SFB was one of the first online distributors that catered to smaller retailers, which gave the company a first mover advantage to a certain extent. Much of SFB’s growth can be attributed to focusing on our customers and to growing categorically with innovative products and designs. Three years ago it didn’t offer apparel, and now this is its number one seller.

SFB’s TAM calculation is rooted in sharply adjusted census data modeled to the small retailer revenue. The four largest mass merchandisers, such as Wal-Mart and Target, account for 85% of the basic apparel products that are sold domestically. Other large retail chains account for the other 9%. With this in mind, SFB estimates the TAM for small retailers domestically to be approximately $1.3 billion per year, adjusting for larger department stores’ more high-fashion stock-keeping units (SKUs) and general merchandise sales. Globally, that number grows significantly, especially in Europe and larger more developed emerging markets. SFB says that data on small retailers is mixed at best, but the company should have a better handle on the global market in the near future when it begins to poll overseas customers who purchase from SFB.

SFB has over 1 million page views every month from over 55,000 unique visitors. One of the metrics it follows is how long retailers stay on the site browsing the company’s more than 1,500 products. At present, this metric is just under 5 minutes, which is high. The average customer order is approximately $240. The company also monitors the amount of orders in cities and states to understand how the local economies are doing and how the company might be more profitable in those places.

The company has been bootstrapped from the beginning and has zero debt. It often purchases inventory in cash to get an even greater discount, which improves margins on products it knows will sell out. Last year’s top line revenues were over $4.5 million last year. With a 134% CAGR over the past three years, SFB says it will make the Inc. 500 and the Dallas Business Journal’s Top 50 Women-owned Businesses this year.

The company is beginning to take the Katydid brand to larger department stores and is experimenting with the overseas market. It also knows there are many opportunities to expand the brand through more innovative online marketing and social media. SFB is also looking more at strategic partnerships with large retail chains that won’t erode its customer base in certain cities.

Messersmith says that the company turned down an offer from an investor because SFB wasn’t willing to give up the equity the investor wanted. But she does believe that in the next few years SFB will be bought out by a competitor or someone who wants the Katydid brand and/or penetration into SFB’s smaller markets. If someone were to make a “Godfather” offer, the company believes it would come from a competitor after the Katydid brand. If that’s the case, SFB may always keep the shopforbags.com site as Messersmith says it provides a lifestyle she never thought she would have back in Palestine.

Recommended Readings
Deal Radar 2010: Beyond the Rack
“Lessons from the Poor”: The Nigerian Clothing Design Industry
Deal Radar 2010: Black Helmet

This segment is a part in the series : 1Mby1M Deal Radar 2010