Can A Subscription Fashion Retailer Be Worth $1 Billion?

Subscription fast-fashion retailer JustFab is now a billion-dollar business. The startup now reportedly has a $1 billion valuation after closing an $85 million funding round in late August, the Wall Street Journal reported.

The high valuation is unusual because JustFab is a subscription fashion retailer, a category where startups haven’t often done well., a JustFab competitor, was valued at $1.2 billion in 2013, but then announced layoffs of more than 20 percent of its staff late last year, along with the departure of Fab co-founder Bradford Shellhammer and COO Beth Ferreira. ShoeDazzle, an 18-million-subscriber startup focused on shoes, was acquired by JustFab in August 2013.

In JustFab’s case, the company has expanded a little more slowly than some high-flying competitors. Along with ShoeDazzle, JustFab has acquired Spanish ecommerce site The Fab Shoes and children’s web retailer Fabkids, and opened a single brick-and-mortar store in a Los Angeles-area shopping mall last year. JustFab has also kept a tighter focus on than some rivals, largely specializing in shoes and accessories.

But the $85 million Series D round it just closed will be used to expand into new areas, both geographically and in its product lines, the company said. The new funding will let the retailer increase the reach of its Fabletics athletic apparel line into western Europe, where it recently launched in Germany and the U.K., as well as opening a U.S. west-coast distribution center.

Passport Special Opportunity Fund, an arm of the Passport Capital hedge fund, led the Series D round. Existing investors Shining Capital, Matrix Partners and Technology Crossover Ventures also put in money in the round.

Hedge funds, mutual funds and other public-markets investors are increasingly looking to startups, especially those that are growing quickly. JustFab expects revenue of $400 million in 2014 and more than $500 million in 2015 revenue, according to co-founder Adam Goldenberg.

About 90 percent of that revenue will come from subscribers, who pay $39.95 per month in exchange for buying one of the suggested shoes, handbags, jewelry, denim, athletic gear or other items that JustFab designs and manufactures. Subscribers get discounts on the items, or can skip a month and have the monthly fee credited to the customer’s account. Customers can also buy products without being subscribers, but JustFab doesn’t make non-subscription sales simple, and pushes subscriptions hard on visitors to its sites.

Goldenberg said that JustFab doesn’t have “any immediate plans to go public” and doesn’t expect to do so in 2015 either. But he told the Wall Street Journal that the company’s management approach has always been to think and act like a public company. It’s a logical outcome for us.”