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Monday, May 6, 2013

Fits.Me : Unfit for Success?

Fits.Me : An Ill-Fitting Waste of Taxpayer Money

Fits.Me was in the news recently, after closing a 5.5 million euro round of Series A financing.

A recent article in the Business of Fashion blog, titled "Is There a Fashion-Tech Bubble?", drew our attention, and in particular this paragraph:

“Yes, too many companies don’t have a business model and don’t understand this industry,” Lawrence Lenihan, managing director of FirstMark Capital, an investor in Pinterest, Ahalife and Sneakpeeq, told BoF. “We have to stop backing stupid, business school whiteboard businesses that are ignorant of the industry and lack heart, soul and beauty. Moreover, companies that have gotten some degree of success have been so overcapitalised and their ultimate returns so overestimated that those investments will never create a return and will detract from the returns that founders and early shareholders should have gotten,” added Lenihan. (Emphasis ours)

Could this be the case with Fits.Me? Let's have a look.

The Product

Fits.Me calls themselves a "virtual fitting room." Their key product is a robot mannequin, and here's a picture from their website:

Basically, the mannequin can resize itself to mimic the size of a particular person. So what an online retailer can do is put a shirt of a particular size on this mannequin, punch a few buttons on a computer, and the mannequin will resize to all possible permutations of measurements (like varying neck size, chest size, etc.). They can take a photo of each variant, and then if a customer wants to see how that shirt will look on a person with a 33-inch waist, 28-inch chest, and 18-inch neck, the retailer can show the photo of the mannequin wearing each size (small, medium, large) of that shirt.

This sounds like a lot of photos and work, but apparently the photography part is mostly automated, so the entire process for one size of one shirt can be completed in a few minutes.

We think this robot mannequin is pretty cool. If this fashion retailer thing doesn't work out, maybe they can adapt it to be a sex doll and compete with Realdoll! (NSFW link)

The Business Case

We've written in the past about companies that were a solution in search of a problem. We don't think that's the case here. There is indeed a real problem they are trying to solve. For online retailers, returns are a costly part of doing business. It takes a lot of staff time to process returns, and it's costly in terms of shipping costs and restocking.

It's such a big problem that in our eyes, if someone came up with a solution to consistently reduce returns by 50%, we'd invest in them.

The big question here is: Does Fits.Me have the solution?

Their Solution

So far, the main mannequins from Fits.Me are of a man's torso. They probably chose to start with that because it's the easiest in terms of the simplicity of shapes. As any teenage boy can tell you after vast internet research, women have a lot of curves, and in all sorts of places. The variation in women's bodies is just much greater.

Fits.Me has indeed recently released a women's version, but as far as we can tell, it's barely (or not at all) used in a real environment by retailers.

We think that it's going to be tough to perfect the product for women. There is just too much variation in all places. Can they really manage to simulate a muffin top? How about a Jennifer Lopez booty? Pear-shaped vs. apple-shaped women? Octomom?

Who has more curves?

At best, they would need to ask a customer to take a large number of different measurements before trying the virtual fitting room. Suddenly the process gets a lot more complicated. We think this is one of the big weakness of their solution.

Why do we focus on women? They spend by far much more on clothing than men. Ever notice that when you walk into a department store, the women's section is at the entrance, and the men's section is in the basement, wedged between the bathrooms and the employee break room? Fashion retailers know where the money is.

Let's look at the actual process involved. Here's what TechCrunch had to say about it:

"And with 1,500 to 2,500 photographs required per garment — and a cost that’s in the “mid to low £100s” to capture all the data required for one garment in all its size permutations — it’s not cost effective for every type of garment or scalable for every fashion retailer." (emphasis ours)

So let's think about this. There is a cost involved to photograph each garment on the mannequin, and we presume it also takes time to get things set up, get it loaded into the Fits.Me tool, etc. Meanwhile, fashions change at least every season, or in some cases, every few weeks (like with Zara). This is especially the case with women's fashion, where a new style or color becomes popular every season (we're still waiting for leg warmers and football player-sized shoulder pads to come back into fashion).

This process seems like a lot of work and expense for a garment that may only be offered for sale for a month or two anyway.

So are fashion retailers interested in such a solution? Maybe not. In February, they announced a lower-market product called Fit Advisor:

"Fit Advisor uses a shopper’s measurements to generate and display intuitive graphical indicators showing how an item will fit, but – unlike the Fits.me Virtual Fitting Room – does not display a photograph of the item to show how it will fit."

So basically, you give it your measurements and they compare it to the dimensions on file for the garment you would like to buy, and they indicate if it will fit well or not.

Not much of a virtual fitting room any more, is it? What's worse, without all the fancy robot mannequins, what makes Fits.Me so special? How difficult is it for a competitor, or even just a fashion retailer, to do the same as Fits Advisor? It's not that difficult to figure out that if the customer has a 17-inch neck, and the shirt you want to try has a 16-inch neck, that it won't fit that well.

Let's go over this again. We have a flagship product (the mannequins) that is costly to retailers, has questionable accuracy for the largest part of the market (women), and is a lot of effort for products that go out of fashion in a short period of time. Then, we have their the secondary product (Fits Advisor) which is not very unique.

This doesn't sound very promising to us, but what do we know about fashion? Our idea of dressing up is a wifebeater and pair of Levi's 501's. What do fashion retailers think?

Customers - Don't Believe the Hype?

Many of the company's press releases tout all the big-name customers they have. Let's look at a press release from January. In it, they state they signed some new customers, and also who their existing customers are. Let's look at those existing customers specifically. We realize it can take a while for a customer to implement their solution, so by using their list of existing customers from January, those should surely be using it by now. From that press release:

"Its roster of clients includes Barbour By Mail, Boden, Ermenegildo Zegna, Gilt Group, Hawes & Curtis, Otto, Pretty Green and Thomas Pink."

Want a challenge? Go to their sites and try to find the virtual fitting room they claim to have. Where would you look? We figured it would be on the sizing guide, which helps us determine the best size for us. Here's our results:
  • Barbour By Mail - Didn't find it in the sizing guide.
  • Boden - Didn't find it, and instead found a link to an outfit maker from MixMatchMe, a competitor making online dressing rooms.
  • Zegna - Their site is difficult to navigate and didn't seem to have a sizing guide, but we clicked on the first men's shirt and found no virtual fitting room.
  • Gilt Group - We got frustrated with this one. Apparently you have to register and log in to even look at stuff for sale. Maybe we should write a post about them.
  • Hawes and Curtis - Didn't find it in the sizing guide.
  • Otto - We hit a wall on this one, because Otto is too common of a word. We couldn't find their online site, though we did find plenty of photos of babies named Otto.
  • Thomas Pink - Didn't find it in the sizing guide.
  • Pretty Green - Success! Sort of. We got discouraged with the above sites, so we really worked our way through Pretty Green's site (it was so pretty, we just couldn't resist!). We found this nice trendy Lennon jacket. Looks nice, huh? Click on the Try It On Size Guide to be taken to the Fits.Me fitting room. Notice one big issue? The jacket in the fitting room isn't a Lennon jacket at all!
Product Photo: Cool as Lennon

Fitting Room Photo : Cool as a chav in winter

So is this virtual fitting room really providing a benefit? You want to buy one jacket, and you are taken to an image of an entirely different style of jacket for fitting purposes.

Some may argue that this is fine, especially in cases when the goods are quite similar, like a man's button-down shirt of varying colors and cuff styles. We don't think this is fine, and the reason has to do with how the garment industry works. Have you ever gone to a store to try on a size Medium in a shirt, and then picked a different color of the same style and size of shirt, and it fits differently? The reason is that nearly all clothing is produced by subcontractors in many far-away countries and production is a labor-intensive process. Retailers are always looking for the lowest costs, so you may find that one color of the shirt was produced by a supplier in Pakistan, while the other color of the same shirt was produced in Bangladesh. Small variances in quality and sizing are sure to occur between different subcontractors, and even by the same subcontractor (there's not a lot of ISO9001 quality certifications in the industry).

It should be noted that we didn't spend a lot of time going through retailers' sites above in search of their virtual fitting room. We shouldn't have to. If this is such a great technology, then it should be prominently features and easily accessible. It wasn't. Why?


Seven Years of (Market) Solitude

Maybe the issue here is the company is really new, and so they haven't had time to really develop and market their product. We're just being too critical of this new company, right?

Wrong. Turns out they started business in June of 2006. Massi Miliano OÜ (that's the company name - Fits.Me is the trading name) with registration code 11259853, has been in business for 7 years!

We think this is an important indicator. What this means is the public has been aware of their technology for many years now. If it's so great, why haven't a bunch of smart Stanford engineering grads developed the same thing, then gotten funding from the VCs in the Silicon Valley? Even if there are patents in place, any engineer will tell you it's fairly easy to "engineer around" a patent.

Companies that have been around many years without big success are basically treading water. In the case of new technology, it's often an indicator that the product simply isn't right for the market. It appears Fits.Me management is aware of this, as their company history page refers to being "launched in 2010." While it may be technically true the brand Fits.Me was launched in the UK in 2010, the company and their technology has been around for seven years, and by using 2010 on their webpage, it gives us the impression they're trying to hide their many years of no success.

Taxpayers Weep

Now for the fun (or sad) part. The money.

As you probably guessed, they had a dip into the pockets of Enterprise Estonia (EAS):

It turns out they reached into the pockets of EAS on 6 different occasions, from July 2006 to October 2010. Total EAS money: 903,456 euros.

But wait, that's not all! SmartCap (Estonian Development Fund) put in 1 million euros! The information on Estonian Development Fund's site (which is slightly outdated) shows a slightly lower number, and their 2011 annual report shows that some of this was convertible debt, but our sources tell us that the number as of the latest round means that it's now an all-equity investment and the total is 1 million. SmartCap is a sovereign wealth fund owned 100% by the Estonian government/taxpayer.

So in total, they have received 1,903,456 euros in taxpayer money, over the course of seven years.

In fact, the number is a bit higher when it comes to government money, since their most recent round included an investment from Conor Ventures, and their Technology Fund II is funded from the EU money, but we'll leave that out of our calculations since we don't have the data.

A Future Fit for a King?

In summary, we have a company that has been around for many years with little success, a questionable product, and few customers. This doesn't seem like a recipe for success.

We could be wrong of course. Maybe a large retailer like Amazon will just buy them out. Maybe robot mannequins will take over the world, and form the new ruling class. The future is hard to predict.

It should be emphasized that we have no problems with private venture capitalists giving money to risky ventures. What we do have a problem with is taxpayer money being used on these ventures, especially when the numbers are so large, like over 1.9 million euros in this case.

Even worse, it seems like there is no limit to the amount of funding or the number of times companies can get this money. Not only is this unfair to the taxpayer, but it's also unfair to other companies, outside of Estonia, who compete in the same industry. They're forced to contend with the real world of venture capital and making a profit, instead of riding the free money gravy train of no-strings-attached taxpayer money that is available to Estonian companies. How does this promote the free market and fair competition?

June 13, 2013 Update


Since originally publishing this post, we uncovered another 1.8 million euros of taxpayer money that was given to the company. So the updated total of taxpayer money is now 3,773,456 euros.


  1. I tried out fits.me on Pretty Green where I was shown a plaid shirt instead of the paisley one I picked. Definitely not helpful. Meanwhile on Thomas Pink, I can't see much difference in the shirt look even if I had a foot to my height. I'd rather they just used a few different models so I could see how the shirt looks on someone roughly my size. This is fun but pointless technology and it's a shame Estonia is spending money on it.

  2. I'm the founder of Fits.me. Fits.me is far from being "ready-made", or fit for immediate exit. No, there are many ways we have to improve to be truly successful.

    However, I'd like to ask you - what is success?
    Amazon.com was "unsuccessful" for years, yet it had a stellar growth. In fact, Amazon had the same healthy number of skeptics like we do.

    Today we are the most commercially successful fitting tool solution with proven business metrics for our clients. I am glad that we know many things we can improve, to get us to the new heights, and grow the company value. But foremost of all, these improvements - many of them being executed right now - improve Fits.me's value both for the consumer and our retail clients.

    1. I don't think Amazon was funded by the US government.

      How do you guys sleep at night, after having robbed the taxpayer of millions? I can think of so many other people and projects in Estonia that need the money more than your company does.

      When you walk the streets of Tallinn and see pensioners struggling to get by on their meager government pension of a few hundred euros a month, do you just laugh at them?

      The measure of society is how they treat their weakest, not their strongest.

    2. Heikki, I met you a couple years ago when you were doing that netikuller company and also the Romanian real estate portal. I think it was called Amimo or something. You seemed like a nice enough guy and we had some good conversations.

      I'm sorry to say it, but after reading about Fits.me, my opinion of you has dropped considerably. I built up my company without any government help, and I pay my taxes just like the next guy.

      I'm stuck driving on crappy roads in Tallinn, and my son's school is falling apart. Why are you taking all this money -- my money -- for your pet projects? Why do the rest of us to suffer with crappy roads and poor schools, just so you can build a bunch of robots?

    3. To my knowledge most of the grant funds are specifically allocated by the EU for supporting growth companies. Therefore the complaints about crappy roads and broken schools make zero sense in this context.

    4. It looks like the money from the EAS side came from the European Regional Development Fund. Note the "ERDF" in the screenshot.

      Here is a description of that fund:

      From what I understand based on reading that, the money can also be used to improve transport infrastructure. So I guess they can't spend the money on schools, but they could improve the roads. Anyone who has driven from Tallinn to Tartu on a Friday afternoon would be thankful for that.

      As for the other money they got (Smartcap), I believe that this is funded directly from Estonia's money, not EU money.

      There are much better ways to spend this money.

    5. Drawing parallels between Fits.me and Amazon looks scary, to say the least. Referring to http://en.wikipedia.org/wiki/Amazon.com, within two months in business, Amazon's sales were around 20000 USD / week. At the age of Fits.me (7 years), Amazon's annual turnover were 1 billion USD - slightly on profit.

      So - Fits.me has burnt taxpayers' money for 7 years, product is barely ready for the market - and the founder compares the project with Amazon.

    6. I can't believe there are so many negative responses like from "Anonymous". Guys, grow up! Starting up companies is hard & risky. EAS & others who invest in know it. Some make returns & some may not make it. That's just life, you cannot predict the future. Fits.me had/has a vision & a great lead, EAS & Development Fund invested in them & for their believes/vision, and they believed it will succeed also. I cannot see a problem here. Of course we all want that our all investments succeed. For EAS & Development Fund, the final success rate is important. If that is negative, then fire the people who made wrong decisions to invest in.

    7. The problem is Fits.Me is using the taxpayer's money. I don't think anyone has a problem with private investors putting money into high-risk ventures, but should the government be doing it too?

  3. http://www.otto.com/en/e-commerce/first-mover-virtual-reality.php

    1. It could just be my bad German, but on their site, when I click the link to their virtual dressing room, it takes me to a Facebook page with a different company's product (augmented reality)??

  4. You guys should put a public visitor counter on here. Or publish stats.

    1. I actually don't understand the requests for publishing visitor stats or calls for writing the blog with own name(s). For me the content is more important. Where else can we learn about the other side of the coin - the part skipped by the traditional media in their e-Estonia frenzy? It looks like the companies/organizations covered can't ignore the blog, which makes the comments section interesting to read as well.

    2. In terms of stats, each post typically gets 1,000-2,000 views. Considering the number of people actually in the startup community in Estonia, that means we're read by nearly all of them.

      We've also heard we're read in a lot of the ministries and embassies, as well as in entrepreneurship courses in Estonia. The rumor is that EAS reads us too, which is not surprising.

      What's interesting is the only "marketing" we do is announcing our posts on Twitter, and we only have around 100 followers there. It appears that most people coming to our posts are getting it from other people, especially through people sharing them on Facebook.

    3. The blog is doing a good job in showing where the money is being wasted. It would be also good to shed light on who are the people/parties approving the spending within the government/parliament/ministries/etc. The overall tax rate in Estonia is not very low:


      True, most European countries collect even more taxes than Estonia - but we also know how well the European economy is doing nowadays. There are countries like Canada, Australia, Switzerland and the USA which collect less taxes than Estonia. In countries like China, Singapore, Thailand and Malaysia the taxes are significantly lower.

  5. Article was interesting as always but just remark from woman - this Lennon jacket is not the same model as in fitting room picture... Probably they are not from same price range also ;)

  6. It is really idiotic to suggest that Heikki is taking money that could be spent on roads or schools. This is EU money designed to stimulate enterprise. Other money is there to build roads (drive from Tallinn to St Petersburg, and see how nice and shiny the road is until it crosses into Russia).

    Whether the money invested results in a successful business or not, this sort of money helps stimulate an enterprise environment, trains entrepreneurs, leads to people being employed, raises the profile of the country as an investment destination, and even results in tax being paid (to fix roads, etc).

    The fact that the money may not be brilliantly invested is the fault of the people managing those funds, and of the EU that administers it pretty badly. But don't pick on the entrepreneurs...

    1. Actually as an earlier commenter noted, this money is coming from ERDF, which is also used to build roads. So they could be building roads instead of giving money to Heikki every year.

      Why do they need to give it to them over and over? Why not just give them some to start, then cut off future financing?

  7. The technology Fits.me is developing seems to work since they keep on promising and impact on returns. So, are they lying?

    Could it be that this technology is a very high-end technology and that unlike other start-ups that builds Apps or games or a service through a website, well then it just takes time to reach perfection and accuracy?

    You think you know the start-up world, so is Fits.me a standard start-up for you? Well not to me, it’s one of the very rare that I know that actually deals with IT AND with a real technology behind it. Usually with start-ups the biggest issues are law agreements or logistics, but it’s not the case for them.

    You can criticise, it's your right as a citizen mostly, bashing much less cool though, and it’s true many Estonians start-ups are jokes to me but like anywhere in the world. But do you really think Estonia - small as it is - would go anywhere if they were spending money on roads instead? And by the way saying you pay your taxes will not get you anywhere either since you don’t have much the choice anyway…

    And also to me, having followed what they do since many years, they seem to be going there and there will be a point where results will come. At least let’s hope so. To me you are bitter that your kid's school is falling apart and roads are bad, hell yes they are. Bitterness is fair but will you ever go anywhere with that?

    Plus you are obviously confusing the first batch of technology they put up live with their first customers with what they advertise on their website now. And you also mention some names but not the ones they seem to promote at the moment - like Adidas and Hugo Boss, and more.

    They don’t seem to be live yet yes, but I don't think they would commit the error of advertising such brands if they actually didn't really sign them. That would be like committing pure suicide.

    So in short this is what I think, I think you are bitter and very unaware of the VERY LITTLE possibility an Estonian company has to do and needs to have breakthrough in the world market. It’s easy to criticise small start-ups with small funding but it’s doesn’t mean it’s a bad one or bad technology. You want to talk about GroupOn? The money they collected and the major failure it is or will be very soon? In all fairness it’s hard for any small countries of Europe, much easier for Western companies and the US especially to find money.

    I'm guessing that your company, you finance on your own, must be a very local business with very low potential, unlike Fits.me that could be - if it ever works like expected - a multi-millions € company in the IT world that would place them #2 biggest ever created in Estonia or maybe even #1 - since Skype inventors where not Estonians only programmers were.

    So what do you I think you now? Well I think you are not a very good patriot but most of all you know nothing about what it takes to a build worldwide IT company when coming from Estonia. It works in IT and start-ups for almost 10 years, mostly foreigners, so if you think it’s simple, especially for Estonians with very little knowledge about how to sell, then let me tell you are wrong!

    You are quite right about one thing: What’s in it for Estonia in the end as investors. Will they see anything back to them (or the country so to say)? I have no idea? But I just hope they know what they did if it ever breaks-through, as well as I hope they will learn from their mistakes if it fails.

    You might regret this article and all the fuzz you make with it if Fits.me succeeds. And to be honest, their success it all what you should wish for them, yourself, and the country right now!

    But I wish you good luck your business too, and to myself with mine! :)

  8. There are plenty of similar schemes in the UK, mainly for giving free PR to a huddle of large clothing importers and london-based fashionistas who compete against clothing made in the rest of the UK. For example Terra Plana shoes who wrote that China is "arguably more democratic" than the UK showed Chinese shoes for two years at London Fashion week at UK taxpayers' expense. We also had to read about the things because journalists don't have the money to go-around looking for stories outside London.

    At the same time, a hundred-year old worker co-op called Equity Shoes of Leicester went into hurried receivership due to lack of publicity and orders for shoes made in democratic welfare states like the UK. Oh dear.


  9. Personally I feel that on abstract / ideological level, Fits.me has been a bold project. The concept clearly has “thinking outside the box” -qualities. But I have to add, it never felt like something that really could “fly”. Remote-controlled-super-expensive-robots in service of selling some clothing via Internet..? Yeah, right..

    Add the bitter taste in my mouth from all this wasted taxpayer money, and you get the picture -- I'm just another whining, greedy, narrow-minded Estonian worker-bee in tech field. A bit like the authors of this blog ;)

    At last, to the point. “Russia-based Suit Up virtual model gives consumers 360° view of mixed and matched fashions,” reports Springwise: http://bit.ly/13MUOPq And adds: “What’s impressive is that Suit Up has been online for around seven months, but according to reports has already in that time managed to strike deals with brands such as Nike, Gap, Levi’s…”

    So, there clearly seems to be market demand for virtual modeling products. Fits.me probably has shown us one dead end way to developing such a product.

  10. The main mistake fits.me makes, is that they consider themselves a SAAS solution. It surprises me that they still find investors, because it simply does not scale as a SAAS solution, due to the required operations.

    Also if you compare their potential with other ecommerce vendors, their potential is not huge. Although returns is an issue, in the best scenario they only solve it partly.

    Other ecommerce vendors aim at a far bigger market. For example, Demandware, Bazaarvoice, Adobe, all the payment providers, marketing Intelligence platforms, mailing, social intelligence and so on. They can serve all web shops, including electronics, games, jewellery, travel, finance, media, telecom and so on and on and on.

    Finally at most of Fitsme's clients, you do not see the product at the majority of the merchandise. So how do you believe they will really reduce returns significantly?