‘The era of the mega brand is over’: The Modern Citizen guide for the new consumer startup class

Modern Citizen, founded by Lee and her partner Lizzie Agnew in 2014, checks all the boxes of a buzzy new digitally native brand. The label was launched to offer luxury-quality goods at attainable prices; establish a minimalist wardrobe that promotes buying higher quality less often; and target working-class women — particularly those in male-dominated industries like the San Francisco tech scene, where Modern Citizen is based. It’s a vertically integrated brand that doesn’t plan to deal with the retail middlemen.

But Modern Citizen is part of the newest class of direct to consumer brands that were launched in more mature market of consumer startups. While it’s similar to all the brands that have come before it — Everlane, Bonobos, Warby Parker — Modern Citizen is rewriting the rulebook to set new expectations for this class of brands and set itself up for sustainable growth.

Here are the cardinal rules for the new direct-to-consumer class, according to Lee.

Don’t raise a lot of venture capital.
According to an October study by retail research firm Loose Threads, more than $1 billion VC dollars have been pumped into direct-to-consumer brands since 2008.

“There’s a correction coming,” said Loose Threads founder Richie Siegel. “Consumer brands have been flooded with money, and there are arguably egregious valuations on these companies. Money creates expectations. You combine high expectations with time, and investors want a return in five to eight years. It takes a minimum of 10 years to build a brand, so there are mismatches across the board.”

After watching brands like Bonobos and Nasty Gal get burned by their high valuations, Lee set about building her company on a different foundation. She didn’t want to prop her brand up on investor dollars and, as a result, expectations. So the brand didn’t raise any venture capital outside of a small friends and family round, a decision Lee said was “daunting,” considering the padded pockets her peers had.

“We wanted to figure ourselves out at our own pace. We could take our time to not come out in the market with guns blazing,” Lee said. “It’s a brick-by-brick growth, where customer is totally organic. From an internal perspective, it built discipline into how we operate. We’re focused on customer retention over acquisition.”

Lee said that her company isn’t spending $100 to acquire a customer who ends up only spending $100 with the brand. According to Siegel, too often new brands fall into a trap where they’re overspending on marketing, and not investing in product.

“If you actually look at what most of these digitally native brands are, they’re marketing companies. The product is fine. They’re not very deep product companies,” said Siegel. “You can tell by who they hire and the makeup of their teams. It makes sense because it’s the internet and its expensive to find customers and you have to be really good at doing that. But that’s not a longevity game.”

Build a foundation on data.
Modern Citizen uses customer data to inform everything from its designs to its merchandising strategies to its inventory buys and to its store network. To make sure it’s working on the most relevant customer data, the brand has established an internal structure that lets it make decisions on a month-to-month basis.

“At the end of the day we’re a traditional retailer in a lot of ways. What we put first isn’t technology, it’s brand and customer experience,” said Lee. “But we want to give a personalized experience, and that’s where data comes in, because we have to be working with real-time information.”

Modern Citizen tracks sales data each month to form its inventory buys for the following month, meaning that popular sizes and styles will more reliably be in stock, and culls the data to figure out what people are buying, or not buying, and why, to determine what new product categories to scale back on or launch into. As the brand looks to open more stores, it’s using its customer data pool to decide where those should be located, as well.

Borrow from the tech crowd.
Lee said that while Modern Citizen is a traditional consumer brand, she gets plenty of inspiration from Stitch Fix, the e-commerce company and styling service that just went public this fall.

From Stitch Fix, Lee is modeling Modern Citizen to rely on word-of-mouth marketing and other free services, so that it’s not burning money on customer acquisition. Stitch Fix, as noted in its S1 filing, had spent very little on marketing. She’s also building a company based on personalization.

“We love the approach making the shopping experience feel one-to-one, and we’re figuring out how to do that in our own way, which is unique to us and our customer,” said Lee. While Stitch Fix is targeting the customer that doesn’t like to shop, Modern Citizen is for the fashion crowd.

“Every brand has to figure out what personalization means to them, because it’s not AI for everyone, especially if your brand is specific. How does it apply to luxury? High-end clienteling is not something we advertise, but we have it built into the business, because it’s something a community could rally around.”

Find your community, then create a network.
Community is a modern retail buzzword: Every brand mistakenly thinks that a group of people who buy their product can be considered one. But new startup brands like Glossier as well as Modern Citizen have managed to find value in their community by giving their customers a voice in the process.

The brand is in the process of building a Slack channel where it will invite its VIP customers to come answer questions and swap fashion advice back and forth, which Lee said will become a valuable data sources for new product launches and other decisions. The brand is also using its store, which it opened in San Francisco this year, for ticketed and VIP events, including cocktail parties and networking.

“In this space, it’s not all doom and gloom. My main focus is on how you build these things in a way that lasts. There a lot of people trying to take shortcuts,” said Siegel. “A community is just customers who have something in common. A network exchanges value.”