On the up · 4 December 2017

The London Sock Exchange discovers challenges of subscriptions market

The London Sock Exchange
Socks to make you smile: The London Sock Exchange was founded in 2013

Taking a leaf out of the Dollar Shave Club book, Dan Zell thinks The London Sock Exchange could disrupt a market no brand has ripped up and reinvented.

Underpaid, overworked and thinking “this is bollocks”, Dan Zell took an everyday product like socks, overlaid a subscription service, incorporated some funky designs and created the The London Sock Exchange.

Four years later and the business has refined its offering a little to cater for different types of buyers, but still seems to have kept its fun and cheeky nature.

“When we start out it was very lean,” Zell remembered. “I went to Gap and bought 25 pairs of socks I liked. Then I went on Moo.com to make some packaging – rewrapping them as our own – and got some flat pack boxes from Amazon for shipping.

TLSE_Group“I made a stamp with a logo on it and thought, if I can get 25 people signed up as a subscriber before Christmas then it’ll be a success I can scale up. Having built a crap-looking website on Squarespace, I put it on Facebook with no money behind it – and it went nuts.

“The timing [around Christmas] was spot on and the Evening Standard picked up on it. We ended up in the paper and got 250 people signed up.”

Capitalising on the fact that men like wearing nice socks but very rarely go out and buy them, let alone get rid of old ones, Zell and his founders thought this would be their buyer demographic. However, after four years of iterating, the The London Sock Exchange has settled on a dual subscription and gift pack offering.

“Social channels are a big way of getting new customers for us, particularly through Facebook and Instagram,” Zell told Business Advice. “The data that we get in real time is incredible.”

However, one of the biggest challenges the young business faced early on emanated from its market opportunity. With 25m pairs of socks gifted at Christmas in 2014, it’s a genuine opportunity but where does an entrepreneur start in an effort to carve off a slice of that?

“Facebook has given us such good feedback. We can start by targeting everyone and then narrow it down, revealing women who are in their 40s as our biggest market – not millennials,” he revealed.

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Making subscriptions work

Looking at the wider subscription market, which includes big brands such as Netflix, Harry’s, Hello Fresh and Beer Hawk, Zell had some interesting comments on what success looks like.

“The main learning is that for subscriptions to really work and be viable, you need to be selling something that consumers use and dispose of regularly, like razors and hygiene products. Socks, however, don’t fall into that category,” he added.”

For that reason, the best selling product on the The London Sock Exchange website is not the “signing up for life” option but the gift box. Buying someone a year’s worth of socks at Christmas is great for company cash flow, he said.

“Customer service with subscriptions is pretty difficult. It’s knotty, with lots of bits involved. ‘Socks-as-a-service’ is more involved and people have different expectations. Form a tech point of view, that’s demanding.

TLSE_Christmas_Group2The London Sock Exchange gets very few cancellations, but Zell believes people are signed up as much for the fun as the utility – quite different from offerings like Dollar Shave Club or Graze.

In its current state, London Sock Exchange remains a “very lean operation” with none of the founders working on it full time. However, this is an entirely intentional thing. “Our approach from day one has been to automate and outsource,” Zell said.

“Very early on, we brought in external partners to look after fulfilment. When you sign up online, no human will ‘touch that’. Shopify [an ecommerce platform] talks to the warehouse software which then tells a human in our warehouse in Nottingham to send the product out.”

This approach is mirrored with how the young company manages production at its factory in Turkey, with London Sock Exchange only having to worry about design – while materials selection, negotiating on raw materials costs and the physical making are looked after.

“This has given us great access to expertise. I oversee the design and have learnt lots about how to make a sock, but I’m not a highly technical designer or sock engineer,” Zell commented.

“From a cost point of view, they [the sock broker that manages production] are negotiating for us alongside John Lewis and Paul Smith – so we get a better rate.”

The London Sock Exchange future

TLSE_studio-1Having learnt from how consumers have responded to a subscription sock offering, Zell is excited about how The London Sock Exchange’s now gift offerings will open up the retail market. From there, he and the team can look to “clean up” the proposition for retailers. “We’ve started with small boutiques which we can deal with quickly, and will then begin speaking with bigger retailers next year.”

Focusing on a strong brand, quality of product and good service has allowed the business to attract a loyal base of customers. From there, Zell hopes his business can leverage the reach of retailers to find others in search of a new sock brand.

What will success ultimately look like? Well, Zell has a rather unusual target. “As business, we want Google to one day auto-correct ‘The London Stock Exchange’ to ‘The London Sock Exchange’.”

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ABOUT THE EXPERT

Hunter Ruthven is the editor of Business Advice. He is also the editor of Real Business, the UK's most-read website for entrepreneurs and business leaders at the helm of growing SMEs. Alongside this, he is part of the team that hosts the Growing Business Awards, First Women Awards and Future 50 initiative. Prior to his role at Real Business, he was editor at competitor website Growth Business and head reporter at M&A Deals. Throughout his career he has interviewed leading entrepreneurs including Alex Chesterman, Lopo Champalimaud, Sarah Wood, James Averdeick and Alex Saint.

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