Rothy's, the 3D-knit shoe start-up, achieved profitability soon after its seed funding round. Reformation recently became profitable and sold a majority stake to private equity firm Permira Partners in July to continue its expansion. That's not to say there haven't been success stories. Jessica Alba's Honest Company reached a reported $1.7 billion valuation in 2015, but took a down round two years later as sales lagged expectations. Birchbox raised nearly $90 million but wound up selling a majority stake to hedge fund Viking Global for $15 million. Nasty Gal filed for bankruptcy in 2016, and later sold to Boohoo for $20 million. Nasty Gal, Birchbox and the Honest Company, for instance, all generated nine-figure sales, racked up round after round of venture capital and plenty of glowing media reports. Failure to do so could mean selling at a steep discount or closing up shop entirely.įrom left: Warby Parker co-founders Neil Blumenthal and Dave Gilboa, Away co-founder Jen Rubio, Forerunner Ventures founder Kirsten Green | Collage by MC Nanda From left: Warby Parker co-founders Neil Blumenthal and Dave Gilboa, Away co-founder Jen Rubio, Forerunner Ventures founder Kirsten Green | Collage by MC Nandaįrom left: Warby Parker co-founders Neil Blumenthal and Dave Gilboa, Away co-founder Jen Rubio, Forerunner Ventures founder Kirsten Green | Collage by MC Nanda Success could now mean spending years improving the bottom line until healthy enough to be sold. It has contributed to the closure of thousands of stores and trained shoppers to expect free shipping, no-questions-asked returns and other expensive conveniences.īut unprofitable DTC companies face some tough choices, whether that means taking on more debt or accepting investors at a lower valuation. The DTC boom has had an irrevocable impact on the retail economy as well as consumer culture. this moment where they believe that they have a lot of value, but without any path for liquidity.”Īnd there’s no going back. It’s paper money and it’s not real,” said Alex Song, founder of Innovation Department, a digital brand creation platform, and a former private equity associate at Goldman Sachs. “All this unicorn status, it’s just inflated. In short, direct-to-consumer companies - and their investors - are trapped. Its efforts to replicate DTC brands’ success with in-house labels are off to a slow start. That hasn’t always panned out Walmart sold Modcloth in October, just two years after acquiring it, and has laid off staff at Bonobos, which it bought in 2017. Walmart and other large retailers went on a buying spree a few years ago, hoping digital start-ups could help modernise their operations from within. The high-profile failure of WeWork's botched IPO has cast fresh doubt on the ability of other money-losing start-ups to go public.Īcquisitions have also been few and far between. Neither path looks particularly promising at the moment.įashion's IPOs have largely flopped: online luxury marketplace Farfetch has seen its shares plunge more than 65 percent since their September 2018 debut, and even Revolve, which is profitable, is down 55 percent from where it closed on its first day of trading. Many of these companies are now at the point where investors expect an exit: either an initial public offering or an acquisition by a larger retailer. Much of that cash was funnelled toward marketing as it became harder to acquire new customers and Facebook and Google hiked advertising prices. It's paper money and it's not real.ĭirect-to-consumer brands raised round after round of capital at higher and higher valuations. As the Everlanes of the world stole market share from Gap and J.Crew, they forced these traditional retailers to improve online services and offer consumers livelier, more relevant products.Īll this unicorn status, it's just inflated. Their investors tolerated years of losses because the goal was scale: secure a big enough share of the market, steer clear of wholesale, drive down unit costs, and profits would follow.įor a while, it worked like a charm, and remade the fashion industry in the process. They cut out middleman retailers and undercut established competitors’ prices. Over the last decade, thousands of companies selling everything from shoes to T-shirts to toothpaste have followed the Silicon Valley playbook of aggressively raising capital and pursuing growth at all costs.
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