INSIDE THE MULTIMILLION DOLLAR BUSINESS YOU’VE NEVER HEARD OF

I had the pleasure of meeting the two founders of contemporary menswear subscription service Five Four Club, Dee Murthy and Andres Izquieta, while on my most recent trip to Las Vegas during market week in February. I was so impressed with their story that I chatted with them again recently about how they got started in menswear and how they managed to evolve into a $50 million business after being heavily affected by the recession in 2008.

How did you all get started in the business?

Murthy: We were students at USC in Los Angeles. In one of our classes, we were asked to write a business plan. We chose the clothing industry, and we developed the business plan for a men’s lifestyle brand called Five Four. A lot of it came from a trip we took together to New York while we were in school. It was there that we visited the first-ever H&M in America and we were totally blown away that fashion could be accessible to everyone in this one store. So we took elements of that and wrote our business plan. We actually launched the company after that in 2002.

How did you build the brand?

Izquieta: When we started, we were told we had to do the MAGIC trade show. So we built our booth build-out in Dee’s mom’s backyard and went for our first show. It was terrible! We continued to have terrible shows until 2005 when we found a partner oversees that could produce more sportswear for us. That’s when our wholesale business picked up.. By 2008, we were in Macy’s, Nordstrom and key specialty stores. But, when the recession hit, we were forced to take back merchandise and handle chargebacks all through a short 30-day time span. The whole industry changed during the recession. We realized the current business model we were operating under wasn’t going to be around much longer.

What happened next?

Murthy: In 2009, we opened our first retail store in Southern California and subsequently opened up three more within a span of 18 months. But we quickly realized that it is really hard to run a men’s only store. Malls were super-promotional during this time period as well. We would only have good days when the store was 50% off.

How did you address these issues?

Murthy: In the summer of 2012 we decided to launch our subscription service model. This concept came from addressing three challenges we were facing in our business: guys didn’t want to spend money on clothes; they don’t know what they want usually; and they don’t like the current experience of shopping. So with this in mind, we developed eight questions that got us to realize what products are right for the customer. So for $60 a month, a man now gets two-to-three great items to build his wardrobe. Just by the luck of the draw, we signed up 1,000 people in the first day.

So what happened to your wholesale business and your stores?

Murthy: Needless to say wholesale was dead to us. We were at a point where the system was going to beat us, so we needed to beat the system by creating our own business model. In December of 2013 we shut down our wholesale, ecommerce service and stores to become a full-time subscription service brand. By February 2014 we were at 8,000 members, and we are at almost 70,000 members as of today. We’ve had tremendous growth. Interestingly, 1.2 million males in American took our quiz this last year. It’s clear that guys like our services.

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What’s working well for you guys?

Izquieta: The key to our success is that we’ve listened to our customers. We are our customers. We’ve also been in the business for over 10 years. A lot of founders and CEOs of tech fashion companies that work on a subscription service model don’t understand retail and fashion. They leave their Wall Street job to “disrupt” the industry, and they don’t know how to communicate with their customers. We also understand that the world is changing. People are going online to buy their goods and services. They want curation and an easy to use interface. We deliver all of that. Our focus is to be a men’s fast fashion seller to the world. Last year we brought in over $50 million in revenue. This year we are on par to become the biggest male-only fast fashion brand in the world.

What can Five Four improve on?

Murthy: The real opportunity for us is being able to understand all of the data that we have been gathering from our subscribers. We are investing time and money in understanding the data so we can help customers fill their closets. Part of our job is to educate the consumer about fashion and improving how guys shop and dress. We ship directly to our customers and we select what they wear. Analyzing and understanding our customers’ data is the key to our growth.

What drives you to collaborate with designers like Mark McNairy and Robert Geller on exclusive product?

Izquieta: We like to partner with designers that we look up to and that we think align well with the Five Four customer. With McNairy, it was a random proposition we made to him at a trade show. He loved what we were doing and agreed to do a collection for us last summer. We actually hired him full time in September to be our designer. It’s all about discovery. We launched a collection with Robert Geller this month. 70,000 people will know who Geller is after the launch. We want to bring people together whether it’s a member or a designer.

Who would you love to collaborate with that you haven’t approached?

Murthy: We would love to work with Kanye West. He is the most influential person in menswear right now. A lot of guys would love to get their hands on affordable merchandise from Kanye. He is really doing a disservice to his fans with the high prices he is charging on his Yeezy collection with Adidas.

How will the brand look five years from now?

Izquieta: We would love to see Five Four become the millennial generation’s Gap or J. Crew. We are a strong representation of this generation and the brand has a platform that millennials can relate to.

What’s next for Five Four?

Murthy: Starting on April 1, we will be launching our ecommerce site. Subscribers will now be able to shop the full collection online and have access to every piece of that month’s selection. Right now, subscribers can only shop selected items from that month’s collection. We are launching a footwear brand with McNairy that will act as a stand-alone, direct-to-consumer ecommerce site. This will be a brand extension for us, but it won’t be directly linked to the Five Four site. Members will have a free preview and free shipping upon the launch. We are also going to launch a separate formalwear brand by fall and an athleisure brand by the end of the year. The idea is to create an ecosystem of brands that can live together but have their own identity. That’s what is going to propel us into the future.