The NastyGal Bankruptcy & What We Can Learn From It

Julie Ishihara - 7 months ago

Nasty Gal – the online fashion empire – surprised the world when it unexpectedly filed for bankruptcy last November.

The e-commerce darling, established in 2006, became one of the fastest-growing startups in the world, capitalizing on a social-media-driven business strategy.

The company was founded by then 22-year-old Sophia Amoruso, who was dubbed as a retail game changer owing to her unconventional business attitude with choppy micro-bangs and extraordinary vision.

She went from solo founder in search of the perfect thumbnail to display its vintage wares on eBay, to CEO, author of the New York Times–bestselling book, #Girlboss, and one of Forbes’ Richest Self Made Women in 2015.

But it looks like her company’s fortunes have been on a downward spiral for some time now. Through all the champagne bottles popped along the way, Nasty Gal has seen a tumultuous couple of years, plagued by layoffs and lawsuits. Just recently, Amoruso has also reportedly stepped down as the chairman of the board.

The announcement has led to an avalanche of forlorn responses but the brand intends to fully fix the stitch and make an even stronger comeback. For aspiring start-up founders, there are so many lessons one can take to heart. Let’s look at three practical ways a brand can keep its place in the ever-shifting retail landscape and avoid a similar nasty pitfall.

Lesson #1: Don’t just fit in, stand out

In the technology space, your main goal is to create awareness, convert it to customer loyalty and not just gain quick hits. Just a few months ago, Nasty Gal was ranked as the #1 internet retailer with a 92.4% five-year compound annual growth rate. Today it’s bankrupt.

The company was born out of scavenging for vintage pieces and grew out of free online marketing through social media, yet as it got bigger, a hefty chunk of their investment went to paid e-commerce acquisition. While digital marketing is a surefire way to reach an audience, paid acquisition works best with optimized targeting.

Lesson #2: Never compromise quality

Regardless of whatever the public thinks or says, product quality is a competitive marker for brands. It affects purchasing decisions and profitability.

Nasty Gal capitalized on Amoruso’s taste – distinctively counterculture, hipster, feminine, and badass all rolled into one, but the perceived low quality and value of her products made it hard for the customers to keep rolling in. Nasty customer reviews gave the brand a bad rep, many found it disheartening that the company decided to let go of carrying bewitching vintage pieces and switching to low quality fast fashion pieces instead. Several mega fashion houses also put Nasty Gal on the hot seat with lawsuits on copyright infringement.

Lesson #3: Legal matters

We live in a society governed by law and legal procedure, where rights are protected by legal provisions. When legal disputes befall companies, outcomes can either make or break the business. Lawsuits can drain finances and lead to forced business closure and even insolvency. Although a day defending one’s rights in court may be far-fetched especially for young companies, it pays to be extra vigilant and secure the future of the company you’ve worked hard to build by investing in legal insurance.

Overall, it takes a whole lot of effort to sort out hundreds of thousands of dollars of unpaid bills to survive bankruptcy but Sophia Amoruso put it best herself, sometimes we win and sometimes we learn. Nasty Gal’s bankruptcy is not the end of its era. So like them, just keep moving forward.

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