The problem with the next big thing and the next big fad is that they are almost impossible to tell apart in real-time. Sure, in retrospect the iPhone was obviously a world changer and the pet rock was obviously something people would later refer to with shame in their voice, but at the time both seemed to be equally indispensable items to the people who bought them. It’s just that people kept buying iPhones, whereas everyone sobered up on the pet rock thing.
And the difference between fads and world changers is not always quite so obvious.
Pets.com, which unsurprisingly was an early eCommerce site for pet supplies, is everyone’s favorite go-to example of a web 1.0 company that went bust immediately. Amazon.com, which got its start as an eCommerce site for selling books, displaced Walmart as the biggest retailer on earth a year ago.
Myspace and Friendster are historical footnotes. Facebook, on the other hand, inspired the editor-in-chief of the Onion’s award-winning AVClub site to note: “I’ll be frank: Facebook runs the web to a degree that’s probably hard to fathom if you’re not in the web-media business.”
The only sure way to tell the difference between a fad and a game changer is time, as longevity implies that consumers’ affections are more deeply felt that a flight of passing fancy.
And if recent signals are being read correctly by the marketplace, JustFab is gearing up to try to stand the test of time by heading out into the public markets with an IPO.
“You typically take the company public at some point,” noted JustFab co-founder and co-CEO Adam Goldenberg in a recent interview with the LA Times when speaking on his startup’s impressive track record of fundraising and their unicorn valuation of $1 billion about two years ago.
And though Goldenberg would not say when exactly that point would be, all indications point to it being sooner rather than later. JustFab’s days as JustFab are numbered. A new name will be rolled out in August (and will no longer include the word “fab,” according to Goldenberg) and the firm recently recruited Todd Tappin as CFO. Tappin previously led the successful IPO of the Rubicon Project in 2014 and is widely considered to be an expert in helping startup firms successfully navigate the murkier waters of an initial public offering.
The move is somewhat surprising given the specific line of eCommerce JustFab is in — it’s a monthly subscription service operating in a time when monthly subscription services aren’t doing too well. But Goldenberg maintains that his firm isn’t quite like all the other players rushing into the subscription fad.
Subscription Services: The Second Coming Of Flash Sales?
Flash sales have for some time been the gold standard of recent eCommerce fads to point to when an area went from red hot to mostly tepid in what seemed like a very short span.
Subscription services seem to be making a run on that crown at the moment. After peaking in Q3 2015 at over $300 million, VC funding for subscription retail services has plummeted, falling to a little less than $50 million in Q4 2015 and to $35 million in Q1 2016. Birchbox, one of the pioneers in the space, has spent much of the year dialing back its efforts, slimming down expansion plans and cutting staff. The firm opened 2016 by cutting 50 positions. The latest round saw cuts across departments and severance packages. All in, there are 220 Birchboxers left.
“We thought we did it in January, but the cuts were not deep enough to get us where we need to go in the time frame we want,” founder and CEO Katie Beauchamp said in a statement. “I wish I had been less conservative.”
With VCs handing out funds for a variety of ideas — without being overly picky about a path to profitability at that point — the flush funding environment drew many, many variations on the model. Razors, candy, workout clothes, pet supplies, you name it — there was almost certainly a subscription service that would happily send you a box of it to your door for $20-$50 a month. All in, beween 2011 and 2016 investors poured $1.6 billion into these firms.
But unfortunately not all that many dollars came back out. Trunk Club has been the only notable exit with a $350 million sale to Nordstrom in 2014.
“It’s cooling down,” said Sucharita Mulpuru, a retail analyst at Forrester Research. “There were hundreds of these sites a couple of years ago, and a lot are no longer around.”
Capturing users at first, especially in the free offer phase, is doable. But consumers only have so many recurring expenditures they can take on at $20-$50 a shot. As consumers move on, those recurring revenue lines investors were so fond of start to look less like something that is going to become profitable in the future.
“After the first couple of years, subsequent growth became really difficult,” Mulpuru said. “When money flows rapidly into a sector, it could be an indicator that something has staying power, or it could be a bubble.”
A bubble that seems to be popping for many these days, but JustFab is determined to be different.
What Separates JustFab?
JustFab and its associated brands, ShoeDazzle and Fabletics, are different in one key regard to their fellows in subscription commerce land: the firm is actually profitable, though only as of Q1 2016. However, it seems to be on the path to remain in the black as its executive team is forecasting JustFab will pull in revenue of $650 million, up from $505 million last year.
JustFab also has a slightly different take on subscription services than is the norm. JustFab doesn’t send its users a mystery box in the hopes of drawing them into the general eCommece site to buy more items. Instead, subscribers (VIPs) are charged $39.95 per month and during the first five days of the month they can choose to do one of two things: opt out or shop the brand’s offerings and pick one item for “free.”
If customers do neither of those, they are billed and can spend their credit anywhere on the site.
“We are never sending a product the customer didn’t pick themselves,” Goldenberg said. “That’s a very, very key point to having super long relationships with customers.”
Goldenberg notes that the secrets behind their savings is how much control they have over their product. JustFab designs its own products and works with dozens of factories to manufacture them.
The brand has run into controversy. Users complained that its model is confusing, the automatic payment rules were not well explained and that the advertised 50 percent saving over regular retail sites are somewhat overstated. JustFab recently agreed to a $1.8 million settlement with customers over some of these issues in Santa Clara.
But according to their founder, those issues have been since sorted out by clarifying the subscription model through the checkout process, including adding videos.
“Unless the customer is happy, there is no way to win,” he said. “There is no way we’ll be a public company by tricking people.”
And so far, JustFab seems to be making the bulk of those 4 million or so customers happy with their shoes, accessories, apparel and other assorted items.
Happy enough to survive an IPO in a world that seems a bit hostile to its business model? That remains to be seen.