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How Susan Koger Built ModCloth's $100 million Empire from Her College Dorm

These days, it seems like a gimmicky new e-commerce site appears about once a week. But this was not the case in 2002, when Susan Koger launched ModCloth--then a solution to her vintage shopping addiction. Now, ModCloth is practically synonymous with that sort of twee, retro, "indie" look we all know--a look that's beloved by lots of ladies, who all now have a go-to place to get it affordably. Thus, ModCloth is also a major e-commerce business with a massive online community of loyal customers. We caught up with Koger to talk about her recently launched plus-size line and how she launched the business from her dorm room.
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These days, it seems like a gimmicky new e-commerce site appears about once a week. But this was not the case in 2002, when Susan Koger launched ModCloth--then a solution to her vintage shopping addiction. Now, ModCloth is practically synonymous with that sort of twee, retro, "indie" look we all know--a look that's beloved by lots of ladies, who all now have a go-to place to get it affordably. Thus, ModCloth is also a major e-commerce business with a massive online community of loyal customers. It was ranked America's Fastest Growing Retailer by Inc. in 2010, its founders made Forbes's 30 Under 30 list twice (once for tech and once for art & style--and she's still under 30 at 28), and this year it was ranked number 19 in Fast Company's World’s 50 Most Innovative Companies. It also raised $25 million last year from Norwest Venture Partners. And just a couple of weeks ago, the company announced that it saw 40% year over year growth and over $100 million in annual revenue.

ModCloth's growth shows no signs of waning. It's recently launched an expansive (and super cute) plus-size line (see photos throughout this post) with a pop-up in NYC, that's already bringing in significant revenue and they have a rapidly growing mobile business.

We caught up with Koger--who is just as adorable as you'd imagine the founder of ModCloth to be--about those two big initiatives, ModCloth's community-centric focus, the development of its first full in-house line, starting a business in college with her high school sweetheart, and more. Read on.

Modcloth started as a vintage resale site. How did your interest in vintage develop? I’ve always loved vintage clothing; I’ve always loved thrifting--it’s something that I used to do growing up with my mom and my grandma. One of my first fashion memories was playing dress up in my grandmother's closet. She worked at a department store, so she had a lot of stuff. I remember wearing her leopard print coat from the '60s and doing a fashion show with my cousins in her basement.

When and how did you decide to turn that into a business? I started the company back in 2002 with Eric, my boyfriend who’s now my husband. We actually started the company when we were 17 and 18 in the summer between high school and college, we were actually high school sweethearts. We both grew up in South Florida and I went to Carnegie Mellon. In South Florida, I didn’t have a coat growing up, I didn’t really have sweaters. I think I saw snow once before I moved to Pittsburgh, and when I started looking for winterwear I realized that there was just so much great stuff in South Florida because all the retirees come down and they unload and it's changed a lot since then, but generally no one's really buying the winterwear, so I started finding this great stuff and I couldn’t pass it up. Seeing all this beautiful vintage clothing on the rack it just kind of hurt my heart. My closet got really big really fast. Eric had actually started his first business when he was 16, with two of his friends from high school--it was a web hosting/web development business. So he suggested that I start a website to try to sell some of the things that I was finding. I thought it sounded like a really fun project, and I just totally got bitten by the entrepreneurial bug. It was just such a fun process to source the products and then to create a story around it and photograph them and merchandise them and describe them. Selling that first item, it was just like, wow someone actually likes my style and my taste and it was just kind of addicting, so I ran the business part-time while I was a business major.

Why did you decide to expand it to include more than just vintage? This was such an interesting time and space. Facebook launched and MySpace was happening--there were all these things converging and I realized as I was going through school that we actually had an amazing business and an amazing opportunity on our hands and our customers weren’t just interested in our one-of-a-kind pieces, but they were also interested in being able to come to ModCloth to interact with the community and feel like they’re part of something that’s bigger than just a fashion retailer, so we’ve been extremely social and extremely community-centric from the beginning. We started carrying independent designers with a retro, vintage-inspired feel in 2005; I graduated from school in 2006 and went full-time into the business.

How big is the company now? We’ve since grown into over 430 full-time employees across three different sites. Our headquarters is in San Francisco; the buying office is based out of L.A.; and our distribution is based in Pennsylvania--customer care is there, merchandising and photography is there.

How do you find designers to buy from? We go to all the major tradeshows--we actually work with a lot of European designers as well, so we have a bunch of designers that we’ve introduced to the U.S. market for the first time. We go to Bread and Butter [Tradeshow] in Berlin, Who’s Next in Paris, Pure in London... the London fashion scene is so cool and there are so many great independent designers that are doing stuff that our customer loves. I think the British designers really get the cute, quirky, retro aesthetic that our customer really loves.

Does ModCloth have a large international customer base? I think about 20% of our traffic is international right now. We have customers all over the world.

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Where is most of your inventory produced? Do you do any of your own manufacturing? We’ve done quite a bit of domestic manufacturing and one of the next big stories for us is we’re launching our in-house private label line later this year. Make the Cut [a program through which customers can submit designs, which are then voted on and the winning designer gets their item produced as well as a cash prize] was kind of the very beginning of that with our community-inspired and community-driven designs. I think all of our Make the Cut production has been domestic, but we work with a variety of supply chains both domestic and international. It’s part of why our buying office is based in L.A. It’s because there’s so much amazing manufacturing going on in California right now; it’s really cool to see that industry come back.

What would you say has been your biggest challenge so far in growing your business? It's a challenge that every entrepreneur faces and that’s finding the right people. When you’re building a company, ideas and vision are important, but the execution is really what makes or breaks you and in order to execute you have to have the right team members, and we’ve built an amazing team. I think it’s been the biggest thing for me to learn as a first time entrepreneur, how do you find the right people and how do you structure a business to really set up your team to succeed?

Would you ever do a brick and mortar store? I think the brick and mortar stores aren’t in our near-term plans but could be as we look out into our future horizon. It really comes down to the fact that we’ve grown a lot but we’re still a small business. The fashion industry is a $300 billion industry in the U.S., and we’re still little guys, and as a growing company with limited resources, we have to choose what’s going to be the most valuable and create the most value for our business and we just feel like the online experience and in particular the mobile experience is so important. We are continuing to invest resources there rather than thinking about brick and mortar or a bigger pop up strategy at this point. Even since the beginning of the year, our mobile traffic has gone from 1/4 of our traffic to over 40% we’re literally tracking it week to week because it’s changing so much.

How big is your mobile business? We think about running our business from a customer lifetime value perspective, so we’re thinking about how many of our visitors convert to customers. When we think about the mobile experience, we’re really approaching it as part of her interaction with ModCloth and we don’t necessarily expect her to buy, though we are seeing a lot of increased revenue on mobile. We just think of it as another way for her to come interact and we’re okay that she’s not necessarily buying.

Do you have a lot of staff dedicated to social media? In a way, everyone on our buying/merchandising/marketing teams are on the social team. We think about every item that we’re launching on our site as a piece of content. We say a lot that we’re the fashion company that you’re friends with. And being a good friend means having relevant content and useful content on each platform. We have huge engagement numbers: On Pinterest we have 2.75 million followers; we're huge on Tumblr, Instagram, Twitter, Facebook. We think that the next wave of fashion companies that will really win will be companies that really get their customer and get their customers involved.

Can you tell us more about launching plus-size? How did that idea come about? It’s something we’ve heard from our community for a long time--the stats are pretty incredible 60-70% of American women are size 14 and above and it’s such an underserved market. We hired our first full-time plus-size buyer late last year, and we’ve really grown our assortment tremendously and seen a huge, incredible response thus far, but we feel like we have a long way to go. Our goals for our plus-size customer are the same as our goals for the ModCloth community at large, like they’re part of our community.

When you look at the market today, there are plus-size-only retailers; and people that are doing plus and right sizes [keep it] pretty separate--you have to go to the back of the store or it’s online only and when you go to the online-only experience, it’s different products or it’s a much smaller selection. At ModCloth, as I mentioned, we’re launching our first in-house private label brands later this year and a big part of why we’re starting to do private label is that in order to serve this [plus-size] customer, we realized we have to make it in-house because there’s such a lack of independent designers in the marketplace that are willing to or have the capability to create plus-sizes. We’re really committed to offering our customers the same great product in a full range of sizes, which is sadly kind of disruptive and really innovative in the industry because no one’s doing that and we think that we’re uniquely positioned to make it happen. We were saying, 'What other industry would totally ignore a huge portion of the population, a huge segment of customer base? It’s ridiculous how behind the majority of fashion retailers have been on this.'

Has there been a positive response to the news? It’s been incredibly heartwarming and rewarding to hear from our community members. When we’ve done user research surveys, there’s this sense of, thank you for listening; thank you for caring.

You can shop ModCloth's new plus-size range here.