Fashion e-tailers borrowing to stay afloat

Online fashion companies across the board are losing money and relying on funds from investors to build brands.

With the exception of a few, such as Asos and Zulily, fashion e-commerce companies are looking for funding in order to attract new customers, reported Women's Wear Daily.

Borrowing money or spending to fund new projects is not quite the same as making money, and models that follow the same strategy are perhaps doomed to failure. Amazon (NASDAQ:AMAZN) has set a counterexample for retailers looking for higher roads to follow: emphasize exposure over profits early on. Amazon reported $127 million in losses for the second quarter, although net sales were $19.34 billion, up 23 percent from the same quarter in 2013.

"There are not a lot of examples of successful brands that have been blockbusters using that strategy," Sucharita Mulpuru, VP and principal analyst at Forrester Research, told Women's Wear. "That's where I'm baffled by investors continuing to pour money into this—[they] have naive perspectives that they can be the ones to pour $50 million [into a company] and create a brand that's going to kill its market." Mulpuru named fashion sites Bonobos, Warby Parker and BaubleBar as examples of online retailers who have adhered to such strategies.

Just last month, Bonobos raised $55 million in venture capital funding, for a total of $128 million, as part of a plan to expand from 10 to 40 brick-and-mortar stores by 2016. Around the same time, BaubleBar announced $10 million in venture capital funding to fuel its own in-store growth.

Scott Friend, a managing director at Capital Ventures, said digital brands are not necessarily cheaper to build than brick-and-mortar brands, adding that physical presence can mean accidental customer encounters, a phenomenon that finds less prevalence on the Web. However, Friend did say that given the capital, online retailers can create one massive store with a national customer base behind it as a potentially lucrative alternative.

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