The company also opened a 500,000-square-foot fulfillment center in Kentucky to handle its own distribution and logistics.
The offices - while a gorgeous showstopper visually - were far more space than the company needed, industry experts said. Nasty Gal quintupled the size of its headquarters by moving into a 50,300-square-foot location in downtown Los Angeles in 2013. Nasty Gal wasted money on things that didn’t warrant big expenditures. “Nasty Gal is a California cool, young girl thing,” Siegel said, “and it was very unclear how much it was attractive around the country and around the world.” There was also a ceiling to the number of women Nasty Gal appealed to the specificity of its brand helped the company grow - but only to a point.
Many others were simply more enticed by fast-fashion retailers such as Zara and H&M, which both delivery a wider array of trendy clothes to online and bricks-and-mortar stores with military precision. Some customers found the product quality to be lacking. Why couldn’t they the company hold on to shoppers?
“I can spend $200 million to make $100 million in revenue, but that” doesn’t make for a sustainable business. “When they turned that spending off, the growth vastly declined and revenue went down,” said Richie Siegel, founder of Loose Threads, a media company focused on fashion and technology. Once the company burned through its fundraising capital and slowed down on marketing, sales began falling in 2014 and continued to drop. In Nasty Gal’s case, the inability to hold on to customers led to what’s called “a leaky bucket” situation, analysts said. “If you spend $50 on marketing to get a customer to buy something and they only buy once from you, you are probably not making money.” “You end up spending money via marketing online like banner ads influencers,” said Ari Bloom, chief executive of Avametric, a fashion software company in San Francisco, and an investor in fashion start-ups. It’s a strategy that many start-ups use, but one that only pays off in the long-run if one-time buyers become loyal shoppers. Why did sales start to drop?Īnalysts said that Nasty Gal’s rapid growth was fueled by heavy spending in advertising and marketing. (In a stark example of appearance versus reality, Forbes magazine predicted that its 2015 sales would top $300 million). But it wasn’t long before sales started dropping - to $85 million in 2014, and then $77 million in 2015, according to bankruptcy documents.
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