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American Apparel's Virtual Clothes
The outfit has opened a virtual store in Second Life's online universe. Though items cost only $1, the company hopes to bolster real life sales
Business Week
Reena Jana
June 27, 2006

You won't need a VIP invitation to attend the forthcoming grand opening party for the newest American Apparel store—you just need a virtual avatar. The Los Angeles-based maker of trendy T-shirts is currently organizing a late-July soiree at its latest location: a computer-generated boutique within the parallel online universe of Second Life.

Various gaming blogs and news Web sites generated buzz around the June 17 launch of American Apparel's outpost in Second Life, a thriving gaming world in which people create pixellated alter egos and pay real currency for digitally rendered goods.

American Apparel is the first major retailer to set up shop in Second Life, and since the store's debut the company has sold "about 2,000 items" for $1 or less, says Raz Schionning, the company's director of Web services. Purchasers can outfit their online avatars with digital renderings of slim-cut T's and dresses modeled after real-life merchandise.



BUILDING INTEREST.

Next month, American Apparel will start hiring virtual sales clerks from among Second Life's citizens. And he says the company will introduce 10 new merchandise items in July, beyond the 20 styles that are currently offered. The company is also planning to test-market its first line of jeans within its Second Life store this summer—two months before they hit physical stores in time for fall.

And in an effort to drive traffic to both the virtual and physical stores, anyone who buys clothes in Second Life after the grand opening party will receive a coupon for a 15% discount on merchandise bought in the real world.

But while buzz has been building, not all of it has been flattering. Not long after the virtual store opened, a group of Second Lifers staged a protest against the company's controversial use of sexually suggestive images of women in its real-world ads. Still, attention is attention, and, as some observers say, American Apparel's move might signal fresh marketing strategies for retailers and video game companies alike.

NO FREE LUNCH.

"The amount of money American Apparel has made so far on Second Life is probably not as much as they would make in a day at a single store," says Evan Wilson, a videogame analyst at Pacific Crest Securities. "But the idea meshes existing Korean online game models in which players can buy accessories for their avatars in micro-transactions, with the idea of the social Web—an online, virtual community. American Apparel's store suggests a new form of video gaming only starting to be explored in the U.S."



Customizing avatars is a popular practice. More than 7 million monthly unique visitors log onto Yahoo!'s (YHOO ) avatar site, where users create and customize likenesses for their instant messages. "We wanted to charge something for the clothes, so that they would have value," says American Apparel's Schionning. "We're not trying to make a profit. But we know there is a lot to be learned in this arena."

While the American Apparel store is the first major retail outlet in Second Life, it isn't the first online. Way back in 1999, Active Worlds, a Newburyport (Mass.) maker of software for constructing 3D virtual environments, launched an online mall called @mart. It featured stores by small businesses—arts and crafts vendors, for instance—as well as big-brand retailers like Banana Republic and J. Crew.

NOT COUTURE.

Visitors to the site could purchase some virtual products for avatar accessories, but could also navigate through the online stores and then engage in e-commerce to purchase real-world goods via linked Web sites. @mart is still accessible via the Active Worlds Web site.

"I laughed when I heard about the American Apparel store in Second Life, but of course I wish them the best," says Rick Noll, founder and chief executive of Active Worlds. Noll says his company turned its attentions away from @mart and concentrated instead on finding corporate clients because the virtual mall "wasn't good for making money" in terms of individual transactions.

Still, Noll says that when real-estate developers, schools, and a variety of other businesses saw @mart, they expressed interest in hiring the company to build online environments for them rather than drive traffic to the online mall. The virtual shopping center turned into a marketing vehicle for Active Worlds' software and services.

REAL PROFITS.

Noll says he can't disclose his current client list because of nondisclosure agreements, but it includes major movie studios and financial institutions. "While we didn't make money directly from @mart, it was certainly good for PR," says Noll.

It's too early to tell if American Apparel's foray into Second Life will reap significant revenues. The rapidly growing company—it plans on adding 70 additional stores to its current worldwide roster of 132 by the end of 2006—saw $250 million in sales in 2005. And it reached $1 million in sales from its e-commerce Web site alone. If the retailer can manage to maintain the attention of its online and physical customers, it just might prove popular in both Second Life and real life...with sales figures that are anything but virtual.
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