Worlds Converging: Sustainable Fashion Meets e-Commerce

All figures in Canadian dollars unless otherwise noted.

It was a cool breezy evening in April 2021, when two entrepreneurs, Chris Yong and Adam Baodunnov, were dining at their favourite restaurant in Melbourne, Australia, discussing their dilemma regarding the viability of their plan to enter the e‑commerce marketplace with a focus on sustainable fashion. Despite their lengthy corporate experience, e‑commerce and sustainable fashion were two new domain areas for the entrepreneurial pair. There were many unknown elements. Yong had recently given up a high-paying, stable job in the corporate world in Malaysia to move to Australia with his family. Baodunnov had had many entrepreneurial endeavours, though some were much more successful than others. After much deliberation, Yong and Baodunnov made the decision to buy Local Threads, a Melbourne-based start-up aimed at providing a marketplace website for sustainable and ethical fashion, representing Australia’s independent brands in the sustainable fashion space.^[1] The duo saw an opportunity to expand the reach of this start-up, which aimed to contribute to sustainable fashion, and decided to employ their expertise: combining entrepreneurial start-up know-how with e‑commerce and marketing savvy. By the time they finished dessert, they had decided to pursue this new enterprise. They believed in the promise that driving a sustainable fashion business was a worthwhile mission, although they did not necessarily perceive themselves as paragons of the “sustainable leader.”

Why Local Threads? Since its inception in 2019, the company had expanded to a network of 150 brands that provided over 30,000 products to its customers. ^[2] It had grown rapidly within two years but hit a plateau. Baodunnov and Yong saw potential to scale up business operations and realize even more organic growth. In mid-2021, Local Threads was finally acquired by Baodunnov as primary shareholder together with Yong, and he had also convinced other Chinese capital investors to participate in this opportunity. These investors were very technically savvy and had an extensive background in e‑commerce businesses. However, these investors were not as familiar with the concept of sustainable business management. Conversely, the mostly Australian independent producers had fully embraced sustainability and were unfamiliar with e‑commerce and digital marketing technology. Motivated by this new vision, Baodunnov and Yong needed to decide on the best strategy for Local Threads to operate successfully in this transition to the e‑commerce environment that offered new opportunities while maintaining its existing customers and sustainable business management practices that the original company was founded upon. The entrepreneurial business partners needed to be sure that their sustainable fashion start-up would be proven as a viable digital marketplace website for sustainable fashion and ethical fashion. Local Threads also needed to be profitable to meet their stakeholder expectations within the first two years. Effectively, their new sustainable business idea had to be sustainable and they needed to develop a leadership strategy to meet this objective. Where should they start?

Background

Baodunnov and Yong had spent time in search of viable projects and potential business ventures after they met in 2020. They had heard about an enterprising student by the name of James Adcock, who built the Local Threads online business in early 2019 because he wanted to “do something positive for society.”^[3] At the time, Adcock was a student at the University of South Australia and had independently established an online business for sustainable fashion on a part-time basis. While Adcock was very enterprising, he was still a full-time university student with limited commercial skills and exposure to scale the business. Baodunnov thought that this was an interesting opportunity and together with Yong, met with Adcock to discuss possibilities. Yong and Baodunnov took over Local Threads from Adcock, who stayed on as a resource on a part-time basis.

In July 2021, Adam Baodunnov and Chris Yong formally re-launched Local Threads as an e‑commerce company with a mission to be “the largest marketplace for ethical fashion from Australia’s best independent brands.”^[4] Local Threads positioned itself as a digital marketing organization that partnered with sustainable fashion brands to provide its customers with clothing that represented the latest fashion trends and that also supported local Australian businesses with sustainable practices.

Overview of the Sustainable Fashion Industry

Sustainable fashion is one of the critical industries that has joined the sustainability management movement. Sustainable fashion is also referred to as “ethical fashion,” “eco-fashion,” “eco clothing,” or even “conscious clothing.”^[5] The “eco” prefix suggests a greater emphasis on the environmental aspects of sustainable fashion. However, sustainable fashion also addresses inequality and inequity caused by the notorious use of human exploitation in outsourced production in countries where labour is cheaper. Clothing manufacturers in these countries keep costs down but are rife with poor working conditions, meager wages, and even child labour. The fashion world itself has been the subject of interest among sustainability advocates and environmental economists because of the impact that mass consumption, ever-changing trends and tastes, and environmental pollution has on the world. Globalization has continually driven mass the production of clothing at increasingly lower prices. The production process is also one of the chief contributors to pollution. Constant changes in tastes in consumer buying behaviours have also rendered clothing a highly disposable commodity, where discarded clothing ends up in landfills.^[6]

Sustainable fashion was a way to address these systemic problems by advocating and fostering positive change in the fashion industry towards greater ecological integrity and human justice: How clothing was produced, who produced it, and how long the life span of a product was before it was disposed of. Sustainable fashion was also aimed at advocating and fostering change within consumer behaviour towards fashion products and the fashion system toward greater ecological integrity. Sustainable fashion was more than just addressing fashion as a heavily commoditized product. It was also about addressing the players within the sustainable fashion and ethical fashion space.

According to Yong, the sustainable fashion industry in Australia offered a glimmer of hope and the promise of opportunity. Australian consumer attitudes and buying behaviours had positively changed in recent years, and the country was ranked “fifth most-sustainable-fashion-conscious country”^[7] in the world, trailing the UK, Ireland, New Zealand, and Finland. In addition, while Australian consumers tended to support local businesses historically, due to largely industry protectionist policies that imposed import tariffs on apparel from other countries, change had also taken place. Australian clothing manufacturers were also increasingly competing on a more design-focused basis, repositioning and revitalizing the internal fashion industry as a much more creative one, supplanted by green consciousness.^[8] Yong remarked that he had confidence that the Australian local market provided enough viable and potential business conditions to make the Local Threads platform work. Based on growing patterns of online shopping behaviour in Australia, Local Threads would operate as a digital marketplace. Yong recalled that he and Baodunnov spent long days researching this space. They were convinced that one of the pivotal strategic reasons to build an online marketplace was that there was no need to manage physical inventory and operate a warehouse.

Co-Owners as Future Leaders?

Baodunnov and Yong seemingly had the necessary leadership traits and business credentials to lead this re-imagined start-up into new frontiers and to drive business growth. They had complementary strengths and brought rich experience to the table. Baodunnov had been described as a “serial entrepreneur,” and over the course of his illustrious entrepreneurial career, founded and led five different projects and successfully exited three of them. One of his projects was sold to the largest company in China before he migrated to Australia. He had expertise in data-driven business, product designing, fundraising, and data-driven performance marketing. Baodunnov also had considerable experience in branding. Adam was a graduate of Peking University and Chinese European International Business School.

Yong admitted that he had never managed an e‑commerce business before. However, prior to his move to Australia from his native Malaysia, Yong built a career spanning over 20 years in various global IT companies such as Microsoft, Oracle, and IBM, in various strategic marketing leadership roles. He also had practical experience driving retail businesses, having served as managing director and country director in large-scale retail organizations with a turnaround of 1500 staff in the electronics and furniture industries.^[9] A graduate of Monash University, Yong had earned a professional reputation as a commercial and marketing specialist as well as a seasoned business leader.

Initial Organizational Changes

After Baodunnov and Yong transitioned into their new roles as co-founders of Local Threads, they kept Adcock on as an advisor on a part-time basis. Adcock was still connected to the business he had built from scratch. The immediate challenge facing Yong and Baodunnov was transforming what was effectively a “one-man” e‑commerce platform into a scalable business. Yong and Baodunnov also needed to quickly learn how to run an e‑commerce and digital marketing business themselves. Yong admitted that his expertise was based on his considerable corporate experience managing a brick-and-mortar business. Together with his business partner, he had to accelerate his learning into how digitally savvy customers conduct research, compare products, make buying decisions, and perform online transactions on an e‑commerce platform.

From an internal point of view, the new team endeavoured to learn as much as they could about search engine optimization, user interface traffic, and data analytics. For example, click-through rate (CTR) was used to measure the success of an online advertising campaign for a particular website. CTR was defined as the ratio of users who click on a specific link to the number of total users who view a page, email, or advertisement.^[10] CTR became increasingly important in an e‑commerce business and was very different from how customers behaved in a retail store. The more the Local Threads website matured, the more brand recognition increased. And the more brand recognition increased, the more potential customers were likely to “click” on the website and browse. The more the Local Threads website matured, the more brand recognition increased. And the more brand recognition increased, the more potential customers were likely to “click” on the website and browse. The other challenge was managing return on ad spent (ROAS), which was the measurement of how effective and efficient a specific digital marketing campaign was.^[11] Local Threads was an online marketing platform that represented over a hundred and fifty brands throughout Australia. The new owners regarded these new and unique elements as a complex science, but one that was simply a re-perceiving of any marketing challenge.

While there were differences that were algorithm-based, customer behaviour was the same as in any business. The fundamentals of marketing still applied, except that they were not anchored in customer user interface and eCommerce constructs. Baodunnov already had a strong foundation in digital marketing, and coupled with Yong’s expertise in strategic marketing, they knew that they had a strong unique selling proposition to offer. Creating brand recognition was another obstacle to overcome. The enterprising co-founders referred to this initial stage as their “brand building phase.”^[12] Building on their corporate experience, Local Threads needed to put into place operational processes such as order fulfillment and pre- and post-sales customer service, taking from best practices in the corporate world. Baodunnov also built a dashboard to support the monitoring of a series of metrics that measured complex statistics such as daily customer traffic and sales conversion rates.

Both co-founders also adopted a comprehensive sustainable fashion brand rating system, the “IndeeFactor Rating System,” which assigned points in several categories—people, planet, animals, circularity, and economy—which are specifically linked to the UN Sustainable Development Goals (SDGs).^[13] The aim of the IndeeFactor Rating System was to ensure that all fashion brands demonstrated transparency and commitment toward sustainability business practices. This provided prospective customers with confidence that they were buying clothing from true sustainability-driven companies. Acceptance into the Local Threads marketplace meant all partner organizations went through this rigorous selection process to ensure that they provided value to their customers. The value proposition also included both an assurance that customers have access to latest fashion trends, as well as support of local businesses that espoused sustainable practices.

Baodunnov and Yong then proceeded to recruit six highly talented individuals within the Melbourne area to join the company, using funds from the investors. Each of these new hires were experienced digital marketing professionals but were new to the concept of sustainability and sustainable fashion. However, they quickly learned from Baodunnov and Yong, who both spent time in team meetings and one-on-one coaching sessions. Before long, the new hires were given various positions such as digital marketing analytics, customer interfacing, and order fulfillment, and they were involved in directly engaging with existing partner organizations and using the IndeeFactor Rating System as a tool to qualify prospective organizations. Both Yong and Baodunnov shared the responsibility of coaching, guiding, and teaching their team members about various business and management aspects of both a digital e‑commerce marketplace and sustainable fashion. The new hires expressed an appreciation for this form of empowering leadership, as Yong reflected. Local Threads was off to a good start.

Challenges Encountered

While some proven marketing strategies and tactics were applied to the new sustainable business venture, the entrepreneurs recognized unique needs in this space that required management attention. The process of building a brand and using marketing techniques for the Local Threads digital platform were similar to their experience, but the owners realized that many Local Threads customers were also price sensitive. One of the unique selling propositions of sustainable fashion was the commitment that customers are “buying” into a more sustainable world. The other commonly perceived notion was that buyer motivation was also based on the Australian consumer’s willingness to support local enterprises—after all, search engine optimization analytics suggested that “buy Australian,” “Australian sustainable fashion,” “Australian brand” were popular key words.^[14] Yong and Baodunnov had to develop other strategies to balance these dynamics. Australian customers were willing to support local brands and to “buy responsibly” but they also wanted a good deal. Discounts still mattered! Local Threads provided free shipping within Australia, so they needed to determine strategies to better manage their sales margins in the process.

On the supply side, competition in the fashion marketplace was fierce. One of the key tasks that the Local Threads team faced was approaching and convincing sustainable fashion brands to sign on to their e‑commerce platform. These fashion brand organizations varied in size: While many were small-to-medium start-ups, others were already established brands that sold their clothing through major retailers and even department stores. The challenges were presented on two extremes. On the one hand, the established larger brands required detailed justification to agree to join a relatively new e‑commerce platform that, in their eyes, was just another sales channel, and one that had not been in operation for a long period. One of the key tasks that the Local Threads team faced was approaching and convincing sustainable fashion brands to sign on to their e‑commerce platform. In addition, larger well-known brands had the added layer of having to seek higher management approval in any major decision. On the other hand, smaller start-ups sometimes lacked the business savvy to recognize that this was a viable way to scale up their sales and marketing efforts. These smaller start-ups also needed to understand that their product would not “sell itself” just because it was listed on a website. Baodunnov shared about his challenge to educate newcomers to Local Threads on the intricacies of operating through a digital platform. “We had to spend time with some of these smaller new companies who don’t really know how to run a business or scale up production and sales, especially through a digital platform,” he shared.^[15]

The sustainable fashion industry was also subject to the same exogenous elements that affected any clothing and apparel company. Fashion was a highly seasonally driven business, where holiday sales could drastically affect revenues. There were variability and fluctuations regarding the number of orders placed. Frequent price changes were another significant game changer, since consumers would typically make purchasing decisions on what they perceived to be a bargain. During the Christmas season, sustainable fashion labels typically had semi-exclusive deals with major department stores or large retailers.^[16] For example, one single product, such as a jacket, could receive an order of 300 items for one retailer. The retail selling price for the product might be AUD$220 per jacket. However, to be competitive, Local Threads would be required to sell the same item at AUD$200 plus offer free delivery, affecting margins and profitability. Local Threads adopted the drop ship model, in which it did not hold any inventory and the customer received the product directly from the supplier . In such cases, Local Threads was not able to enjoy the same semi-exclusive seasonal deals simply because it was perceived as a relatively smaller distribution channel than a large retailer or department store.

Local Threads was also supported by angel investors and capital investors representing Chinese entrepreneurs. These Chinese investors were very technically savvy and had an extensive background on how e‑commerce businesses operated. According to Baodunnov, they agreed to invest in this business model based on the opportunity to tap into the Australian market through an e‑commerce platform. However, these investors were not familiar with the concept of sustainability management and operated under a different paradigm for ethical business practices.^[17][18] To ensure their continued investment support, they required a positive return on investment. However, Baodunnov remarked that he wanted these Chinese investors to change the way that they perceived a sustainability-based business opportunity; he explained that it was not just based on financial gains but that it reflected a future way of doing responsible business through a much more “noble” pursuit. Conversely, many of the Australian independent brands within the Local Threads network had fully embraced sustainability but were unfamiliar with e‑commerce and digital marketing technology.

Coupled with language barriers and business cultural barriers, this ecosystem presented challenges as well as opportunities to bring the “best of both worlds together.” Yong and Baodunnov, together with their small team, had a unique opportunity to lead and drive the business by providing business acumen, inter-cultural sensitivity, and technical know-how. Yong was Chinese Malaysian by birth, and he had an Australian university degree, plus years of international work experience in the corporate sector. Malaysia was one of the countries in Southeast Asia that had a unique business culture, blending Eastern and Western ways of working. Baodunnov was ethnic Uyghur from China and had extensive international experience, having started and successfully exited several companies in China, Turkey, and Australia. Adam Baodunnov was multilingual and could conduct business discussions in English and Mandarin, navigating the subtle nuances of doing business the Chinese way. Baodunnov had built an extensive network among Chinese investors through his previous projects, and he was able to locate and convince them of the elegant simplicity of the Local Threads business model.

One other challenge Local Threads faced was how to effectively manage its workforce. In addition to the small team of six employees based in Australia, Local Threads had to make recruitment and onboarding decisions. The Australian-based employees focused on partner organization engagement but could not keep pace with order fulfillment, which was a laborious process. Baodunnov and Yong then proceeded to recruit a separate team of order fulfillment staff based offshore in the Philippines. This strategic recruitment decision was justified from a cost efficiency and cost management point of view. However, internet reliability and power outages were among the issues encountered that presented challenges in including these offshore staff members as part of the team, in addition to other remote management considerations. Yong and Baodunnov practiced people-centric management, and were able to coach, supervise, and interact with staff; however, the entrepreneurs explained that managing those who were geographically isolated from the parent company in Melbourne was not easy. They jokingly said that videoconferencing via Zoom at all hours of the day became the new normal for the team.

The Road Ahead

Yong and Baodunnov explained that the decision to buy and scale up a promising start-up was filled with a mix of apprehension and hope. They saw potential in Local Threads as a viable digital marketplace website for sustainable fashion and ethical fashion representing Australian brands, despite the initial challenges in managing a multitude of issues. The entrepreneurial pair was effectively juggling several elements simultaneously, facilitating different stakeholders and managing organizational matters while learning about the business. Given the challenges ahead, Yong and Baodunnov knew they needed to develop and execute the best leadership strategy for Local Threads to transition to the next phase of its growth aspirations. They were under pressure to deliver profitable business outcomes to meet investor expectations. They were also cognizant of the fact that start-ups could either fail or succeed within the first few years in the current economy. Baodunnov and Yong even expressed how they often contemplated whether they had made the right decision to embark on such an endeavour. They knew they needed to develop a leadership strategy tailored to the unique needs of this sustainable e‑commerce start-up to be successful. Where should they start? What is in store for the dynamic duo in the next chapter of their journey?

References

Ayeni, M. (2019). Local threads: steady journey to represent Australia as the largest sustainable fashion marketplace. IndeeFactor. https://indeefactor.com/2021/09/17/local-threads-steady-journey-to-represent-australia-as-the-largest-sustainable-fashion-marketplace/

BigCommerce. (n.d.). What is ROAS? Calculating return on ad spend. BigCommerce. https://www.bigcommerce.com/ecommerce-answers/what-is-roas-calculating-return-on-ad-spend/

Craik, J. (2015). Challenges for Australian fashion. Journal of Fashion Marketing and Management.

De La Pena, C. (2022). Chris Yong: Retail and marketing maverick breaks out in the Australian fashion e-commerce space! Disrupt. https://disruptmagazine.com/chris-yong-retail-and-marketing-maverick-breaks-out-in-the-australian-fashion-e-commerce-space/

IndeeFactor. (n.d.). Ranking system. https://indeefactor.com/ranking-system/

Local Threads (n.d.). About us. https://localthreads.com.au/pages/about-us

Mackey, M. (2021). What is click-through rate & why CTR is important. Search Engine Journal. https://www.searchenginejournal.com/ppc-guide/click-through-rate-ctr/

Pullar, J. (2022, July 12). In promising news, Australians are googling “second hand clothing” 50% more than last year. Elle Australia. https://www.elle.com.au/fashion/australia-sustainable-fashion-27326

Wilson, A. (2021, April 15). What is sustainable fashion? Eco Canada. https://eco.ca/blog/what-is-sustainable-fashion/

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How to cite this case: Siew, J. (2023). Worlds converging: Sustainable fashion meets e-commerce. Open Access Teaching Case Journal, 1(2). https://doi.org/10.58067/50cg-jv61

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