Merchant Innovation

The Ups And Downs Of Fab

The not-with-a-bang-but-a-whimper demise of former flash-sale design site Fab.com represents either the collapse of a billion-dollar startup — currently for sale for $15 million — or the successful pivot of that startup from online flash sales to an omnichannel home-decor retailer.

Depending on how you look at it, the not-with-a-bang-but-a-whimper demise of former flash-sale design site Fab.com represents either the collapse of a billion-dollar startup, or the successful pivot of that startup from online flash sales to an omnichannel home-decor retailer.

The billion-dollar collapse version: Sources said last week that Fab is trying to sell itself to PCH International for between $15 million and $50 million, according to TechCrunch. That's a a 95-to-98-percent drop in value from the $1 billion valuation the company had in mid-2013, when it raised $150 million in a Series D funding round.

But what PCH will get if the deal goes through isn't much more than a name, a website and a cast-off business model (and possibly a $250,000-a-month lease for New York office space). The 150-plus employees? Gone, except for a skeleton crew of about 20. The high-value acquisitions, which included German custom-furniture store Massivkonzept and Finnish home-decor manufacturer One Nordic? Gone, to form the core of Fab co-founder Jason Goldberg's new Berlin-based custom decor company Hem.

That's where the successful-pivot version comes in. While Hem started as a Fab subsidiary, if Fab is sold Hem will keep the investors, the capital and the billion-dollar valuation. Fab's estimated 12 million customers may be unhappy, but they'll be PCH's problem.

And even a $15 million price for what remains of Fab isn't as paltry as it sounds. The flash-sale design site was born in February 2011 out of a failing social network for the gay community called Fabulis that had $2 million in the bank and no viable future. Goldberg and co-founder Bradford Shane Shellhammer were about to shut it down.

Instead, they took the money (and investors) and ran with the idea for a online home-decor flash sales. Less than a year later, the renamed Fab had 2 million customers and $1.5 million in sales per week, and was worth $200 million. A year after that, in late 2012, there were 9 million customers and the $1 billion valuation.

But by late 2013 Fab was struggling, after a planned $300 million funding round brought in only half that amount. Like most other flash-sale startups, Fab never found the right formula for the right range of products, fast enough delivery, reasonable margins and the ability to scale.

With rivals ranging from Amazon and eBay to Rocket Internet's startups -- and Fab burning through $14 million a month -- in June 2014 CEO Goldberg laid off all but two dozen employees of the flash-sale operation, reorganized the European operations as Hem, and moved to Berlin to focus on the omnichannel custom-design business.

Fab has now stopped losing money and is improving its cash flow. But if PCH closes the deal to buy Fab, it still won't get anything like the venture-capital darling of late 2012 -- the days when Fab (and Fabulis) co-founder Shellhammer told TechCrunch, "Thirty years from now, I see everyone in the world having something from Fab in their home. When you think of design, you come to Fab." Whichever way you see the fall (or reinvention) of Fab, that at least no longer seems likely.

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