Death By Overfunding: Nasty Gal

Over the past decade, online clothing sales have ballooned and Nasty Gal and its founder Sophia Amoruso had managed to build a big brand and fan following among millennials. However, the company filed for chapter 11 bankruptcy in November 2016.

Nasty Gal’s Beginnings

Los Angeles-based Nasty Gal was founded in 2006 when a community college dropout Sophia Amoruso started selling a highly curated selection of vintage clothing on an eBay page. Within five years of inception, it became one of the leading international sites for new and vintage clothing, shoes, and accessories.

The online store gained low-priced inventory by finding designer products from places such as Salvation Army stores. A Chanel jacket that she bought for $8 at one such store sold for $1000. She styled, photographed, captioned, and shipped the products herself for the goods she sold.

By 2015, Nasty Gal was estimated to have 2.3 million Instagram fans and 1.3 million Facebook fans. It had over 37,000 likes a day on its social media posts. According to Marketwatch, about 42% of its active social media following is in the 25 to 34-year-old category.

Nasty Gal’s Woes

After it gained popularity, Nasty Gal was not able to source all its inventory from low-priced stores and started sourcing its products from Los Angeles-based vendors who sell vintage-inspired products. It also started producing its own private label clothes. That was a wise strategy that offered much better margins, and given its knowledge of a large customer base, it could have managed design and inventory effectively, by producing collections and sizes to fit its audience.

However in 2014, in a highly debatable move, it opened two brick-and-mortar stores in Los Angeles. Soon, Nasty Gal was facing increased competition and higher costs. It had to lay off about 10% of its workforce of 280 people that year.

It was also plagued with lawsuits for copyright infringement and allegedly firing employees for being pregnant. In 2011, it was a co-defendant in a lawsuit filed by the Hells Angels for trademark infringement. In 2014, Jamies Spinello sued it for copying one of her necklace designs. In 2016, Pamela Love sued it for copying three jewelry designs.

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More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology.

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