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Direct to consumer

Note from the editor

Direct to consumer is more than just a buzzword in retail right now. Over the past several years, a slew of digitally native brands have cropped up in just about every sector in retail.

Some, like Casper, have distinguished themselves from a whole list of rival startups in what was an under-innovated category and what has now become a fiercely competitive one. Others, like Away, are operating as the principal direct-to-consumer brand in a space that is relatively untouched (for now) by startups of the same kind.

The direct-to-consumer revolution has led to the creation of oral healthcare startups, multiple personal hygiene brands — a trend perhaps first started by Dollar Shave Club, but now inclusive of female-focused companies like Billie as well — and a lot of private label responses from bigger players like Amazon and Target.

Walmart has also made a name for itself in the space by acquiring a growing portfolio of digital-first businesses, a path that could be in the future for many other direct-to-consumer brands.

All of which is to say: There's a lot happening in the direct-to-consumer space right now, and it's not going away anytime soon. This report covers several different aspects of the trend, including:

  • How individual direct-to-consumer brands are shaping their businesses
  • The impact of venture capital funding on which brands see the light of day
  • How traditional retailers are coping (or not) with the entrance of new brands
  • The relationship between brick and mortar and direct to consumer

These aren't the only things we're watching, but they are some of the main themes we've picked up on as retailers try to adapt to a new era. Without further ado, please read as much (or as little) as you like, and let us know if you're curious for more analysis and insight on this trend.

Cara Salpini Editor

VC money is pouring into e-commerce — but are women getting a fair share?

Last year, female-founded retail businesses raised only about half the funding male founders did. Investors are realizing they may be leaving money on the table.

After four grueling years of fundraising without seeing a dime of venture capital money, Sarah LaFleur was about to give up on hopes of securing the kind of capital that had quickly accelerated other e-commerce startups — like Warby Parker, Bonobos and Dollar Shave Club — into retail disruptors.

In meeting after meeting with VC firms, LaFleur said she encountered a subtle kind of sexism that made her doubt her business model — and herself.

"Whenever I couldn't raise, or whenever a VC turned me down, I'd think, well there's something wrong with me, there's something wrong with my business model," the co-founder and CEO of women's workwear brand MM.LaFleur told Retail Dive in an interview. "I would immediately turn it inward and I don't think I immediately attributed it to the fact that actually, maybe there is a blind spot in the world of venture capital and investing."

That blindspot could be part of why just 2% of the $85 billion invested by venture capital firms in 2017 went to female-founded businesses like LaFleur's, according to data provided to Retail Dive by Pitchbook. In the retail industry, the divide isn't quite as stark, yet last year female-founded retail businesses still raised only about half of the amount of VC funding given to male founders, or $254.6 million versus $439.9 million. 

Trends over time suggest VCs are increasingly investing in female-founded businesses. In 2008, the VC industry made just three investments in businesses led by female founders only, totaling $16.5 million. Firms that year made 48 investments in businesses led by male founders only, totaling $398 million. Through Aug. 30, 2018, 16 female-founded businesses had raked in investments totaling $232.4 million, while 28 male-founded businesses garnered $258.5 million, according to data provided to Retail Dive. 


"We felt like we were always being talked down to rather than felt like we were in partnership."

Sarah LaFleur

Co-founder and CEO of MM.LaFleur


In the end, LaFleur did manage to raise some VC funding, although the company declined to share exactly how much capital. Just as she began to reorganize her business plan so the company could grow on its own cash, she met a VC investor who for the first time was, despite not being her target clientele, generally interested in the problem her business was solving for — providing working women with quality, comfortable and professional attire.

"Were it not for that attitude we probably just would have walked away from VC funding because honestly we were just so turned off by it at that point," she said. "We felt like we were always being talked down to rather than felt like we were in partnership."

Female entrepreneurs and investors have called out the VC industry for a culture that harasses, dismisses or demands too much from female founders. And as more venture-backed, female-led businesses like Rent the Runway, Stitch Fix and Glossier increasingly disrupt traditional retail, more VC firms are realizing that not investing in women-led businesses leaves a lot of money on the table.

Top retail companies by total VC capital raised 2008-2018
Company name Total VC raised (millions)
Jet $570
TechStyle Fashion Group $410
Wayfair $358
Fab $340
Fanatics $320
Vroom $318
Moda Operandi $296
The RealReal $287
Gilt Groupe $276
Chegg $248

Source: Pitchbook

VCs need to gut check their gut check

Fundraising is an activity dreaded by nearly all founders regardless of gender. It's also one that too often gets compared to dating — a metaphor that skirts around the very real problem of sexual harassment that female founders have spoken about publicly in recent years. Certainly, not all founders have experienced such extreme situations; however, many female founders describe a subtle sexism that is hard to combat.

"I think I was a little naive honestly, about the level of sexism that I encountered and it was so subtle," LaFleur said. "It's the subtle kind that's really scary because it's not overt sexism. It's that kind of sexism where you're not even sure what happened or how it actually played out and you could so easily blame yourself for what took place."

That's a sentiment other women founders have spoken about. Steph Korey, co-founder and CEO of luggage brand Away, recently recounted a story about a pitch with a potential VC investor who was more interested in setting up his Apple watch during a meeting than in viewing her slides.

"He could just be a general jerk and he would have done that with anyone, or maybe he did it because we were women, I don't know," she told Retail Dive in an interview.


"It's the subtle kind that's really scary because it's not overt sexism. It's that kind of sexism where you're not even sure what happened or how it actually played out and you could so easily blame yourself for what took place."

Sarah LaFleur

CEO and Co-Founder of MM.LaFleur


Korey co-founded Away with Jen Rubio, president and chief brand officer, whom she met while working at Warby Parker. Between launch and 2018 their business raised $81 million in VC funding and had already begun to disrupt traditional luggage retail.

Shan-Lyn Ma, co-founder and CEO of wedding registry startup Zola, said she once had a meeting with a VC investor who told her he wasn't her target market, so he'd have to ask his wife or his assistant what they thought of the business before investing. While that comment may have had good intentions, Ma says the problem is that VCs need to look outside of themselves and see how companies of all kinds fit into the larger consumer market.

Ma's business was seeded with $500,000 from serial entrepreneur Kevin Ryan, who also founded Gilt Groupe (where Ma held executive roles) and Business Insider, among other companies. In the first few years after the business was founded in 2013, Ma only raised $40 million in VC funding, a relatively low number in terms of where the business was at. But in 2018, she secured another $100 million in Series D funding from top firms like Goldman Sachs, Thrive Capital and Comcast Ventures.

Data for 2018 as of Aug. 30.
 

In an ideal business world, Ma's customer base would be split 50-50 men and women. In reality, though, a majority of the consumer buying power is controlled by women, particularly when it comes to wedding registries. On the flip side, only 9% of VC decision makers in 2018 were female, according to data from All Raise, an organization led by women in VC. That adds up to just 170 female investing partners at U.S. VC firms with a fund size over $25 million. Nearly 75% of VC firms do not have a female partner.

"VC investing as an activity particularly in the earliest phases is still ultimately a gut emotion. The VC investor has to feel a lot of personal conviction because it's a high-risk environment," Ma told Retail Dive in an interview. Because it's harder, it may take a few more meetings, more research on target investors or asking certain questions for VC firms to understand the concept of a particular startup enough to want to funnel thousands of dollars into it.

"In the first few years of the business, during the fundraising process, any 'No' felt very personal. It felt like — I took it hard," she said. "Now, I think what I realize with experience — and what I try to share with other founders — is it's never personal because VCs are essentially in the business of mostly saying no, most of the time and it's never just a one-way street."

Is VC biased against women?

Last year, Laura Huang set out to find out whether implicit bias against women was ingrained in VC culture.

During TechCrunch Disrupt, a startup incubating contest, the associate professor of business administration in the Organizational Behavior Unit at Harvard Business School observed Q&A interactions between 140 seasoned VCs and 189 entrepreneurs.

Using linguistic analysis and manual coding, she and her research assistants concluded that men were more likely to be probed with "promotion-focused" questions that allowed them to expand on business opportunity. Meanwhile, women were more often asked "prevention-focused" questions about the potential limitations of their business.

How women answered those questions came at a cost. Those who responded to prevention-focused questions with prevention-focused answers raised just $563,000 in funding. Those who shifted their responses to be promotion-focused raised an average of $7.9 million.

Most active VC retail investors from 2008 to 2018
Investor name Number of investments
Forerunner Ventures 33
First Round Capital 29
Accel 28
Kleiner Perkins 28
500 Startups 27
SV Angel 24
Lerer Hippeau Ventures 24
New Enterprise Associates 23
Andreessen Horowitz 23
Greycroft 21
General Catalyst 21

Source: Pitchbook

Research suggests bias extends beyond gender boundaries too; just 4% of startups are run by black women, who raise an average of $36,000, according to a report published in 2018 by Digital Undivided.

Of the 10 retail companies to receive the most VC funding over the last 10 years, only three businesses had at least one female co-founder: Moda Operandi, The RealReal and Gilt Groupe, according to data from Pitchbook. Jet.com, founded by now Walmart e-commerce chief Marc Lore, has received the most VC funding for the sector — a whopping $570 million.

"I think it's human nature to feel more comfortable with and identify with people who are similar to you. You do it, everyone does it," Korey said. "But you don't make the best investing decisions by just investing in who you feel comfortable with."

Women take funding into their own hands

Over the last several years, female founders and investors say a shift is starting to take hold.

Some of that is thanks to the rise of female-founded VCs and networking groups with the specific mission to increase the number of women both giving and receiving funding. Many herald women like Katrina Lake, CEO of Stitch Fix, as a role model proving that female-founded businesses can yield high returns in the stock market.

"As we see more examples of women-founded businesses achieving success for their investors, we'll see more examples of investors wanting to have people on their teams who can connect with those founders and open them up to that pool of opportunity," Korey said. "Women founders are a huge opportunity for venture capitalists that they are largely missing out on right now."

This supports the argument that it's up to female founders to learn the patterns of the VC process in order to rake in more funds. Eurie Kim is a co-partner at Forerunner Ventures — an all female-founded VC firm that has made more investments than any other firm in the retail space. The company is well known for investing in businesses such as Warby Parker, Bonobos and Jet, but also has invested heavily in female-founded businesses like Away, Glossier, Outdoor Voices and Zola.


"Women founders are a huge opportunity for venture capitalists that they are largely missing out on right now."

Steph Korey

CEO and Co-Founder of Away


Kim is also one of 34 senior female investors from institutionally backed VC firms who, through the organization All Raise, aim to get more women funded and more women into funding positions. Within five years, the organization aims to increase the percentage of female founders who receive funding to 25% and double the percentage of women in VC partner roles over the next 10 years.

"I think historically, there is an access question. If you don't know how to get to the right investor or how to pitch your idea in the right way, it is difficult to get funding," Kim told Retail Dive in an interview. "But there's also the open question of: what company are you pitching?" Venture capital money isn't the right answer for a lot of businesses, Kim added. And many have proven they can still succeed on their own dime.

"I think organizations like All Raise are directly getting out there to say, 'How can we teach women what all of the nuances are of this industry and how to build their businesses and teams in a way that a venture investor would want to invest?'" Kim asked. "It's building network and building education."

In 2013, Anu Duggal founded the Female Founders Fund with her co-partner Sutian Dong. The firm, which focuses on early-stage investing in female talent, has invested in businesses like Billie, Zola, Rent the Runway and Eloquii. When she started her fund, she saw female-founded businesses as "an undiscovered opportunity."

"When you think about what an entrepreneur looked like 10 to 20 years ago, he needed a specific skill set, whereas now I think with technology disrupting all different industries, you have founders that come just with different skill sets that are more relevant now," she said. Much of what the fund does is help women break into the VC network with the backing of a fund.

Historically, VCs haven't loved funding the retail industry generally because it often involves buying retail space and inventory. But now, Duggal said that's become a necessary evil.

VCs should fix their own culture problem

Not everyone agrees the onus should be on women to solve the problem.

LaFleur recalls the topic coming up once on an panel she sat on. Next to her was an institutional female investor who said women needed to know their numbers cold. But to LaFleur, there shouldn't be a higher standard for women founders than for their male counterparts.

"We demand too much of our female founders and expect them to know too much," LaFleur said. "I'm a female founder, and I take it with a grain of salt. But I think the people with money have to see money, they have to see their returns in people who are unlike themselves."

In some cases, LaFleur has found it more difficult to pitch to female investors. At one point an angel investor told LaFleur she was only investing in "serious" businesses grounded in hard sciences and tech, and that she'd seen too many fashion startups.

"I felt like especially with the women-focused angel networking groups, they put you through the ringer," she said. "They want to see your P&L and your balance sheet and your business plan and it better be 50 pages long and they have so many detailed questions for you — unnecessary levels of detail that made pitching to those networks really, really painful."

Diversity in VC leadership has become more top of mind for firms recently, Kim said, adding that a lack of this has caused homogeneity of funding in both the types of ideas and the people that are winning investments.

Within the last one to two years, though, Ma at least said she's noticed a huge shift, particularly as the media has highlighted issues in the industry and those who are driving solutions. "I am very optimistic because I do think for the first time we are starting to see behavior change in a very positive way," she said.

Article top image credit: Away

Walmart and VC firms see two paths for DTC brands

These days, brands either need to be a consumer phenomenon like Warby Parker, or they need to fit into a larger portfolio, like the one that Walmart is building.

NEW YORK — These days there's a direct-to-consumer brand for everything. Of course, there are the established examples, like Warby Parker and Bonobos. Then there are a younger set of venture capital-fueled darlings like Away, Allbirds and Casper. Look deeper and you'll find an onslaught of digitally native vertical brands in every niche category from vitamins to dentistry.

Roughly $4 billion in venture capital (VC) funding has been pumped into direct-to-consumer (DTC) brands, Randy Yang, senior director and head of corporate development of digital consumer brands at Walmart eCommerce, said during a panel at NRF's Big Show on Tuesday about how VC firms view the new next wave of DTC brands.

Yang, who helps develop Walmart's growing portfolio of direct-to-consumer brands, including Bonobos, Modcloth, Eloquii and Allswell, is a part of a changing narrative within the space.

Many of the brands that have had early success owe their rise largely to an authentic relationship with consumers that's built not just on a product, but on a social mission and an affordable price too. For some, that's enabled them to scale while remaining a standalone business — think Warby Parker. Others have looked for an exit that allows them to live among a set of similarly organized businesses — think Bonobos, which was acquired by Walmart in 2017.

The white space that Adam Valkin, managing director of General Catalyst, and other VCs first saw after the 2008 recession when investing in companies like Jet and The Honest Company is now crowded with color. So what separates today's winners and losers? Yang, moderator of the panel, asked Valkin, as well as Dayna Grayson, a partner at VC firm New Enterprise Associates.

"I think a lot of the DTC brands that haven't seen as much success may be pursuing industries where they can insert an opportunity, but it's not necessarily a sustained opportunity," Valkin said. "One of the things we are seeing with the brands that have emerged is even though they are doing a great job on their execution, they're just not getting that big." Instead, he's seeing many tap out between either the $20 million and $40 million range, or the $80 million and $100 million range.

"At the end of the day, as glorious as this sounds, underlying economics often come down to a simple equation, which is: 'What is the lifetime value and what does it cost to acquire?'" he said. "And if there is a story and there is a community and there is a movement, that has a significant impact on the lifetime value and the customer acquisition cost. And if there isn't, it's much more likely that it's like a one hit."

Grayson, whose $3 billion fund has backed brands like Jet.com, Diapers.com, Casper and Framebridge, said that these days the winners have to get everything right, not just the product.

"I think a lot of it is the service," she said. "A whole portion of it, or at least half of it is the service delivery — Does it come on time? Does it feel white glove? Do you feel like as a consumer that same initial relationship that you started on Instagram follows through to the delivery, the packaging, the following up, the personalization and the feeling that they really understand you as a consumer?"

What's more, DTC brands that have been able to go head to head with incumbents in their category are the ones that have been tech-first. "If you're a tech-first company versus an offline-first company, you've been able to get a real advantage over the last five years," she said.

Now, the question for these brands, according to Valkin, is: What are the real benefits of being a brand born online? In his eyes — and many others — the days of pureplay are long gone.

"There's probably a DNA difference between the kind of founder that would start an online business and start a retail business in terms of the kind of technical orientation maybe comfort with digital platforms, understanding of online marketing — that may give an advantage right now to the brand and may provide the DNA for a more scalable model," he said. "But that won't last either."

One of the biggest differentiations that DTC brands have, according to Yang, is culture. Technology aside, one of the biggest things that Marc Lore, Walmart's eCommerce chief and Jet.com founder, has done, is create a cultural change within the people at the retail giant, and make an opening to attract new talent.

"Marc likes to talk about this idea of embedded entrepreneurs within Walmart e-commerce, and a lot of the acquisitions we've pursued both in the DTC brand space and otherwise have been focused on who are the people we are really acquiring: Are they excited about being a part of Walmart and potentially helping to transform retail from within one of these incumbent brands?" Yang said.

How does that cultural change work in practice? Valkin asked Yang. "I think we've made a total of nine or 10 acquisitions in e-commerce alone in just under two years and each one of those had talent pieces behind it," he said. "If you individually ask each of those founders before the Jet acquisition if they ever would have gone to Walmart, if they ever would have imagined joining Walmart, I think the answer would have been no, myself included by the way."

But a few years ago was a different world, he said.

These days, DTC brands either have to be a consumer phenomenon, or they have to figure out a portfolio approach, where together alongside other brands they can together make up hundreds of millions in revenue — or it may be hard to exist as a standalone business, Valkin said.

Article top image credit: Corinne Ruff

Conversational Commerce: Inside the mindset of the next wave of digitally native brands

AYR CEO Maggie Winter learned retail basics from Mickey Drexler, and started a brand with the backing of Bonobos founder Andy Dunn. Here's how she channeled that knowledge into a modern DTC brand.

Welcome to Conversational Commerce, the podcast where we break down the biggest retail news and trends with executives, thought leaders and the Retail Dive team. You can check out all our episodes here and listen on iTunes or Stitcher.

About a decade ago, upstarts like Warby Parker, Bonobos and Birchbox started the first big wave of digitally native brands selling direct to consumer.

These companies each narrowed in on a niche segment, be it eyewear, menswear or beauty, and disrupted traditional players with a digitally minded model that focused on customer engagement, convenience and experience. Over time, these startups have grown into full-fledged companies that are building out stores and grabbing significant market share.

They're also the mentors to a younger wave of digitally native brands that think much differently about brand purpose, customer engagement and growth.

We wanted to learn more about how executives running these kinds of brands think about the industry and their place in it. So, reporter Corinne Ruff went up to New York to speak with Maggie Winter.

She's the co-founder of AYR — a women's apparel brand incubated by Bonobos founder Andy Dunn. Winter got her start working for merchant prince Mickey Drexler at J. Crew straight out of college. Now, four years into her own business, she said she still hears Mickey's voice in her head telling her to "go where the puck is going."

In her view, it's going toward a more inclusive and sustainable place.

You'll hear all this and more in this episode, so sit back, relax and listen. You can stream the episode below or subscribe on iTunes or Stitcher.

 

Article top image credit: Retail Dive

10 digitally native brands to watch

Direct-to-consumer businesses like Casper, Away and Glossier are banking on social media connections, nimble supply chains and cheaper prices to disrupt retail — and they're scaling quickly.

There's perhaps never been an easier time to launch a digitally native brand. Venture capital money is fueling e-commerce consumer brands in nearly every category, from beauty and apparel to footwear and mattresses. And social media is making it even easier for companies to cut through the noise and foster a direct relationship with consumers.

Vertical integration, nimble supply chains and promises of free and fast delivery are all also helping boost the reputations of lifestyle brands like Casper, Glossier and Away among shoppers seeking convenience and authenticity. Many traditional retailers are also looking to these types of young brands to inject new life into their businesses and reach young, urban customers. Walmart, for example, snapped up digitally native pioneer Bonobos, as well as Eloquii, Modcloth and others. Target reportedly tried to buy Casper for $1 billion but invested instead. And mattress stalwart Serta Simmons snatched up e-tailer Tuft & Needle in August.

While these brands started online, nearly all are expanding their physical presence in one way or another. Over the next five years, former online pure-players are anticipated to built out 850 brick-and-mortar stores, according to commercial real estate firm JLL.

There are many lessons — and some pitfalls — to be gleaned from these digitally native brands. Here are 10 to watch.

1. Away

In less than three years, Away Founders Jen Rubio and Steph Korey (who both started their careers at Warby Parker) built a lifestyle brand with lofty goals that push beyond product into tangential areas like hospitality for growth. In the future, think Away skincare, hotels and even airlines, Rubio told Retail Dive in an interview earlier this year.

Fueled by $81 million in VC funding, the luggage brand rapidly scaled its digital and physical presence. As the company moves beyond its Instagram-savvy millennial core customer, stores have been important marketing tools. Away, which has sold over 500,000 suitcases since launch, has five stores in major metro U.S. markets and one in London. This summer the company hit another milestone when it declared profitability. A collection with NBA star Dwayne Wade has also helped boost the brand's notoriety. The next step for Away is to move beyond its perception as a millennial favorite and prove itself as a true category disruptor.

2. Casper

Over the last several years, Casper has become a major force in the competitive mattress space. The company, born as a pure-play e-tailer, last year partnered with Target to bring its products in stores while experimenting with pop-up stores of its own. Anonymous sources claim Target thought about acquiring the startup for $1 billion, Recode reported last year. With the backing of $240 million in total VC funding, the company has doubled down on physical locations. In February, Casper built its first permanent store. Shortly after, the company unveiled plans to build out a store fleet of 200 by 2021.

These highly experiential stores are far from the mattress store of the past. A concept store in New York, for example, charges $25 for a 45-minute nap. Casper's bed-in-a-box model — also deployed by startups like Tuft & Needle, Purple and Leesa — offers a 100-night guarantee and the convenience of online shopping. The company's focus has stayed primarily in the U.S., but it has also been making moves into Canada, partnering with Hudson's Bay and Indigo Books and Music. The brand is facing a bright future, but constant innovation is what its executives say will ensure its category leadership.

3. Universal Standard

Women's apparel brand Universal Standard has challenged the fashion industry to move beyond its traditionally small size scale with one of the largest size ranges any brand has ever offered, between 00 and 40. The company, founded by fashion journalist Alex Waldman and private equity veteran Polina Veksler, hit a pivotal milestone this summer when it rolled out a collaboration with J. Crew and heralded the moment the apparel icon expanded all of its sizes up to 24 across all merchandise. Universal Standard has also partnered with department store Nordstrom on several collections, and most recently with Gwyneth Paltrow's Goop lifestyle brand on a five-piece collection.

As of March, the digitally native brand has raked in $9.93 million in VC and angel funding from investors like Paltrow to support efforts to expand merchandise and open its first longer-term pop-up store in New York's SoHo neighborhood. The store, which debuted with an 11-month lease, operates as a retail store and a fitshop, where women can receive one-on-one expertise from a stylist. While the company enjoys a healthy and engaged social media following, a physical presence will become increasingly important to scaling the brand, the founders told Retail Dive.

4. M.Gemi

Italian luxury footwear brand M.Gemi is the brainchild of serial entrepreneur Ben Fischman, e-commerce veteran Cheryl Kaplan and footwear expert (and brand namesake) Maria Gangemi. The brand, founded in 2015, has built its success on a few unique characteristics: an emotional brand story, small batch Italian manufacturing adjusted according to data and a direct relationship with customers.

With roughly $50 million in venture capital funding, the company has, among other investments, built three permanent fitshops for customers to browse, try on and place orders to be delivered. The startup has notably stirred brand loyalty and customer engagement with limited Monday drops featuring new shoes. It's also challenging the luxury space with more accessible price points and the convenience of free and fast shipping and returns.

5. Allbirds

Trendy, Instagrammable footwear brand Allbirds has quickly become a millennial favorite with a core product that aims to be the "comfiest" shoes, which are made of natural materials like merino wool, eucalyptus tree fiber and sugar cane. The San Francisco-based brand was co-founded by Tim Brown and Joey Zwillinger.

Allbirds has raised a total of $77.45 million in VC funding to date, including a recent $50 million in a Series C round. That now crosses it into unicorn territory, according to The Wall Street Journal, which reported the company is now valued at $1.4 billion, according to sources familiar with the matter. The footwear brand has invested heavily in digital and physical growth. Pop-up shops aside, the company now has two permanent stores — one in SoHo and the other in San Francisco. Its latest round of funding is slated to fuel plans to debut new stores in the U.S., U.K. and Asia. 

6. Glossier

Glossier has swiftly shaken up the beauty market with a model that hinges on fostering community and interaction among its social media savvy shoppers. Last year, LinkedIn named it the fastest growing startup of 2017 among a list of private companies 10 years or younger with at least 100 employees. (It recorded an annual employee growth rate for the company of 257%.) In the age of Amazon, CEO and founder Emily Weiss said at an industry conference earlier this year that the brand is insulated by its focus on customer connection.

For the most part, the brand has remained largely digital. In 2016, Glossier opened its first permanent showroom in SoHo. A second physical location was added in Los Angeles's Melrose neighborhood in April. Earlier this year, the brand also raked in $52 million in a series c funding round. By some estimates, that brings its total funding to $86 million. Pitchbook, however, pegs that number at $92.4 million. Most of that new money will be funneled into improving the customer experience, the company has said.

7. Everlane

Founded in 2011 by Michael Preysman and Jesse Farmer, apparel brand Everlane cropped up around the same time that the first wave of digitally native disruptors like Warby Parker and Bonobos began to build up steam with direct-to-consumer models built on convenience. At the brand's core has always been a commitment to a transparent supply chain.

Just two years after launch, the company's executives told The New York Times they would never consider opening a brick-and-mortar store. Yet, after several experiments with pop-up shops the company plotted two permanent 3,000 square foot stores in SoHo and San Francisco's Mission District last year. The company has raised money several times, starting with $100,000 of angel investment in 2013. Since then, Everlane has also raised $33.5 million, according to Pitchbook.

8. Outdoor Voices

Athleisure brand Outdoor Voices was founded in 2013 by CEO Tyler Haney to compete with Lululemon and attract shoppers who want to be active without necessarily identifying as serious athletes. The company has built a healthy following on Instagram even as it expands into the physical world.

Backed by nearly $57 million in venture capital funding, Outdoor Voices has quickly expanded to eight locations and is slated to open three more by the end of the year. In March, the company announced a fresh $34 million in Series C funding, including $9 million from a previous convertible investment to bring former J. Crew CEO Mickey Drexler onto the athleisure start-up's board of directors as chairman.

9. Adore Me

As category stalwart Victoria's Secret sputters, it's making way for disruption from online intimates brands like Adore Me. Founded in 2011 by founder and CEO Morgan Hermand-Waiche, Adore Me rose in popularity with a direct-to-consumer model that focused on more comfortable styles for younger women. While the company offers one-time purchases, it also operates a monthly subscription service.

As it scales, Adore Me will make a massive push into the brick-and-mortar space with 200 to 300 stores slated to open in the next five years. The company's first stores debuted in New York and New Jersey in 2018. By the end of 2019, Adore Me aims to have between 10 and 15 stores. The brand also made a push into Canada with TV spots and targeted social media ads aiming to arouse consumer interest. The brand is just one of several — including ThirdLove and Harper Wilde — disrupting the intimates market. The company is backed by a total of $53.5 million in VC funding, according to Pitchbook.

10. AYR

Women's apparel startup AYR (which stands for All Year Round) has grown dramatically since its incubation days with Bonobos founder Andy Dunn. Led by co-founder and CEO Maggie Winter, the brand is now several years into its mission to provide seasonless and comfortable professional apparel.

As the brand looks to scale, it's doing so in a way that's pushing the boundaries on inclusivity and sustainability, Winter told Retail Dive in an interview, adding that the company decided to take a financial hit in order to produce jeans in a way that only uses a cup of water. In 2018, the company had two locations, one in New York City's SoHo neighborhood and the other in Venice just outside of Los Angeles. Looking ahead, the brand aims to expand to more stores in an effort to tap into a larger market. The company is backed by $5.5 million in angel investments, according to 2018 data from Pitchbook.

Article top image credit: Allbirds

Has Casper put traditional mattress sellers to sleep?

The 2010s ushered in an influx of bed-in-a-box mattress players that changed the way we think about the sector. But how much really changed, and where are the mattress startups headed?

All good things must end — and all old things must take a little longer to end. So might run the story of the mattress category, a retail sector that was dominated for decades by a few select companies, and only recently disrupted by a host of newcomers. Now those upstarts' own reckoning may be on the horizon.

The e-commerce slumber party arguably began with Casper, which launched in 2014 and holds the majority of the market share among the e-commerce newcomers, according to data from Edison Trends. The company's Chief Marketing Officer Jeff Brooks doesn't see that interest fading anytime soon, despite the many entrants into the sector.

"Is it dynamic? Is it getting increasingly competitive? Sure, but that's because we've turned a corner now and I think sleep is becoming culturally more resonant," Brooks said in an interview with Retail Dive. "It's less cool to come into work each day and brag about how little you slept."

But before mattresses became cool, the category rested on the backs of a small number of retailers and manufacturers — with vastly different rules and marketing strategies than the startups of the 2010s.

A sector ripe for change

Until recently, "mattress store" was pretty much synonymous with expectations of a large warehouse-style location, often filled with similar-looking products and colorful signs out front boasting of sales — holdovers of a category that was built on a few early entrants and persisted in its original form through a long period of hardly any challengers.

Long-standing mattress retailer Sleepy's was founded in 1931, with Mattress Firm coming around in 1986 and Tempur-Pedic in 1992. For many of the more traditional mattress retailers, sales strategies consisted of inflated prices and little innovation, according to Hart Posen, associate professor of management and human resources at the University of Wisconsin.


"At store number one, they sold you 'posturepedic best sleep' and then the next store, so they wouldn't have to compete, they had 'posturepedic good sleep.'"

Hart Posen

Associate Professor of Management and Human Resources at the University of Wisconsin


"At store number one, they sold you 'posturepedic best sleep' and then the next store, so they wouldn't have to compete, they had 'posturepedic good sleep' — the same mattresses with slightly different colored threads or what have you and a different name to make price comparison more difficult," Posen told Retail Dive.

Despite being seemingly ripe for disruption, the industry posed many hurdles for newcomers — among them, the difficulty of shipping mattresses, which made it much easier for local players to enter the industry, but hard for them to expand without opening more brick-and-mortar locations. It was primarily those obstacles that prevented the mattress stalwarts from facing much national competition, according to Posen.

The tide changed rapidly as consumers became used to the idea of buying products direct from the manufacturers — and online. Mattress Firm acquired Sleepy's in 2015 and then was itself acquired by Steinhoff International Holdings in 2016, consolidation that created the largest store-based mattress retailer in the United States, but also lost the company the Tempur Sealy brand, which in 2017 held 8.1% market share in the mattress category when it stopped selling at Mattress Firm due to conflicts over the contract.

According to Michelle Grant, head of retail at Euromonitor International, that power struggle created an interesting climate for both physical mattress retailers and the up-and-coming e-commerce players who had jumped on the scene by then.

"You have the store-based retailers consolidating in order to use their leverage over the manufacturers and then that backfiring as consumers get more accustomed to buying mattresses direct from the manufacturer itself," Grant noted, "whether that's in-store or online."

Mattress Firm is still a big player in the space.
 

Still, traditional mattress players are by no means out of the picture. Mattress Firm has increased its market share in the Homewares and Home Furnishing segment (which also includes non-mattress specific players like Ikea, Bed Bath & Beyond and Macy's) all but one year from 2012 to 2017, according to data from Euromonitor, going from 1.4% market share in 2012 to 3.1% in 2017 after the Sleepy's and Steinhoff acquisitions.

Sleep Number has either held steady or increased its year-to-year market share in that same time frame (that company holds 9.3% market share in the mattress category and 1.3% in Homewares and Home Furnishing).

The future of those players, though — the business decisions that they will make and are already making — find their roots in the popularity of Casper and the e-commerce mattress boom.

The bed-in-a-box revolution

The traditional manufacturers (Serta, Simmons and Sealy, the latter of which merged with Tempur-Pedic in 2012) sold primarily at department stores, mattress-specific retailers such as Mattress Firm and Sleepy's, and local or regional furniture stores, like Raymour & Flanigan and Art Van. Selling online wasn't a part of the playbook, due mainly to high shipping costs, but all of that changed with the creation of the "bed-in-a-box" technology in 2007, according to Posen.

"When the technology was invented to put foam mattresses in a box, so that one little UPS guy in little brown shorts could carry it to your door and you could carry it upstairs to your bedroom yourself, then you no longer needed brick-and-mortar in every city," Posen said.

No longer penned in by the necessity of local logistics, the e-commerce tidal wave was able to usher in the era of Casper and Purple, companies built on selling mattresses direct to consumer (DTC) for lower prices. But they didn't just solve the convenience problem, although the ability to ship just about anywhere with manageable-sized boxes was a major improvement; they also changed the pricing game.


"It took a lot of the opaqueness that came in with mattress retail prices out of the system."

Michelle Grant

Head of Retail at Euromonitor International


Being able to operate through e-commerce took away many of the costs that physical mattress retailers had to bear, and the traditionally sky-high prices in the mattress sector also made it possible for the e-commerce newcomers to lower prices and still make a profit.

"Because of the extremely large margins — in some cases 900% — in the mattress category, it was very easy for others to launch similar products," Grant said, "and the mattress in the box became somewhat of a commodity in certain extents with all of these other competitors launching very similar products in that space."

Grant noted that some of the smaller online brands are profitable purely because of the high margins — allowing them to pay for marketing, shipping and the mattress itself without losing money. Indeed, the number of mattress sellers founded blossomed post-2010, with the likes of: Tuft & Needle (2012); Casper and Leesa (2014); GhostBed, Helix Sleep and Purple (2015) all entering the market within that time frame.

Many large players came about by the 80s, with a decades-long gap before the massive influx of e-commerce companies. (Note: Dates based on brand founding.)
Natalie Forman for Retail Dive
 

For online players entering the mattress space, it wasn't just about lowering prices, though — the disruption was a large-scale attempt to solve decades-old industry pain points. They implemented flat prices rather than the fluctuating sales prices of old, made mattresses easy to order and deliver, and gave customers extra long trial periods, addressing three aspects Grant calls "the worst parts of buying a mattress in a store."

"It took a lot of the opaqueness that came in with mattress retail prices out of the system and because of this consumer-centricity and all of these aspects, it really began to put pressure on the more traditional mattress retailers, as well as the mattress manufacturers themselves," Grant said.

The pressured salesman-like environment was also thrown to the sideline, and Brooks credits much of Casper's success to the company's decision to make the brand "populist, democratic, self-aware, playful, whimsical" — in short, everything that traditional mattress retailers were not. Holding onto that brand character has grown more difficult over time as the company scales and attempts to broaden its appeal, but Brooks doesn't see the brand's core marketing shifting under his tenure.

Indeed, just this month Casper launched an experiential concept in New York focused around napping, relaxation and wellness, where consumers can actually pay to take naps — an idea strikingly different from heading into the traditional local mattress warehouse.

That differentiation in marketing and customer interaction, though, might be the most important point of these moves, according to Posen.

"This business has been oligopolistic for a long time with, putting aside Tempur-Pedic, very little innovation," Posen said. "They've existed basically on having tremendous market power and power over their retailers. This is sort of a signal that, 'we're going to do it completely differently.'"

Edison Trends' estimated data share for these players between August 2017 and May 2018
 

And they certainly have. Purple, which entered the space shortly after Casper, is well-known for quirky video marketing campaigns that the company targets on social media, bringing in millions of views and, according to the company, $75 million in online sales in 2016.

Despite the number of competitors in the online mattress space, Casper, as one of the larger direct-to-consumer players in the category (and holding 1.9% of the market share in the mattress sector, per Euromonitor), is more concerned about brick-and-mortar competition, which Brooks notes is "where 85 to 90% of the industry volume is."

"That's not to say we don't track or care about DTC competition, of course we do, but we're really thinking about addressing that larger issue of consumer behavior change and market penetration," Brooks said, noting that a lot of mattress customers are still used to making their purchases in stores. "We have to keep our eyes on the larger prize, which is something that I think we've done a pretty good job of."

The shakeout

The e-commerce-led disruption has been painted in a rosy hue, despite the relatively small portion of the market controlled by the newcomers. But while they've got large competitors, the Purples and Caspers of the mattress space are a loud minority. Not only have many traditional mattress sellers expanded their own offerings to add bed-in-a-box style products, but the success of small online players has also led to collaborations like Purple and Mattress Firm.

More partnerships are likely — Casper just started popping up in Nordstrom stores and already has some of its own free-standing stores — and consolidation among the e-commerce players, as well as acquisitions by large mattress sellers and department stores, are probably on the horizon, Grant notes. 

"For Mattress Firm, they get access to a brand that knows how to market digitally, that probably appeals to younger consumers, that really has an innovative product and an accessible price point for the next generation of mattress buyers," Grant said, pointing out the benefits of an acquisition for one of the more traditional players.


"This is a cheap and inexpensive and fast way to allow trial. Doing it yourself is a different game."

Hart Posen

Associate Professor of Management and Human Resources at the University of Wisconsin


Mattress startups wouldn't necessarily be losing out either. Aside from acquisition, a longstanding partnership provides these stores with physical space to showcase beds, tell their story and hopefully reach a larger demographic of shoppers. Perhaps most importantly, partnerships don't come with the cost of brick-and-mortar expansion.

"This is a cheap and inexpensive and fast way to allow trial," Posen said. "Doing it yourself is a different game. If you're all of a sudden Casper, really a pretty small firm, to set off a nationwide set of retail trial centers — that's both a big capital investment and a set of skills that they initially hadn't built."

Whether it was part of Casper's original game plan or not, it certainly is now. Brooks said the company is "aggressively" moving into the physical space, and plans to continue partnering with other retailers as well as opening its own stores. That being said, the company remains focused on choosing brand partners carefully: Ones that elicit the same level of brand love in their customers are usually high on the company's list, according to Brooks.


"[N]o matter how imaginative or effective our marketing is, there will be a population of mattress shoppers who are just not comfortable buying online, even with the 100 night, risk-free guarantee, even with everything else."

Jeff Brooks

CMO of Casper


"Part of it is reaching just more consumers in more places that may not be as familiar with Casper," Brooks said of their brick-and-mortar plans, "but another big part of it is that no matter how imaginative or effective our marketing is, there will be a population of mattress shoppers who are just not comfortable buying online, even with the 100-night, risk-free guarantee, even with everything else, and so the ability to try a bed or several different kinds of beds before buying is going to be important to that group."

One thing is certain: No matter how many startups make it through the mattress shakeout, there's no returning to the early days. The online invasion has changed not only where consumers shop for mattresses, but also how traditional mattress retailers and manufacturers operate in the space — and for the consumer, that's probably for the better.

"It's not that different from the used car dealer telling you how good that old Chrysler is, right?" Posen said of the old way of mattress selling. "You know damn well that deep down it's a s---ty old Chrysler."

Article top image credit: Casper

30 minutes with Casper's head of marketing

The mattress startup isn't hitting the snooze button any time soon, with plans for 200 brick-and-mortar stores by 2021. CMO Jeff Brooks talks through growth plans, Mattress Firm's bankruptcy and more.

The following article is part of the "30 minutes" series, where Retail Dive talks to top executives about some of retail's hottest topics. For more, check out our landing page.

Jeff Brooks Chief Marketing Officer at Casper

Tenure

Jan. 2018-Present

Experience

Prior to taking on the role as Casper's CMO, Brooks was the Global President and Chief Marketing Officer of digital marketing agency Huge, where he first worked with Casper as a client. He also has experience as the Chief Commercial Officer at Assembly and as the CEO at both M&C Saatchi and Euro RSCG.

In just four years, Casper has become a major force in the mattress space, going from an e-commerce only retailer to one that has partnered with Target, experimented with pop-ups and now plans a store fleet of 200 by 2021. But as anyone at Casper would tell you, it's not a mattress company — it's a sleep company.

That designation has informed a lot of the choices Casper has made, from how the retailer designs its stores to why it opened a pilot store in New York that sells naps ($25 for a 45-minute snooze). If you ask Chief Marketing Officer Jeff Brooks, that different approach to mattress selling is why the company has been so successful.

"Let's juxtapose that with the old way of buying mattresses in brick and mortar," Brooks said in an interview with Retail Dive. "The times are changing — and we saw a big sign of that with [the] news."

The news, in case you snoozed through it, was Mattress Firm's bankruptcy filing. Not that Mattress Firm mentioned Casper when it filed for bankruptcy Oct. 5, 2018, but the company noted an insufficient presence in the high-end market and ineffective brand marketing as two of the reasons for its Chapter 11 filing — problems that Casper does not appear to suffer from.

Not losing sleep over the competition

Mattress Firm's announcement that it was filing for bankruptcy, and closing 700 stores in the process, didn't sound all that different from the overarching plot that's been playing out in retail for the past few years. Equally familiar is the presence of an online company credited with turning the traditional retail model on its head, a designation that has been given to many online players in the past several years, including Warby Parker in the eyewear space and Away in the luggage sector.

Enter: Casper. The startup is largely heralded as the company to popularize the bed-in-a-box trend and do away with the worst of traditional mattress selling practices. And so, a major retailer in the mattress space may have just filed for bankruptcy, but it wasn't all that surprising and it doesn't change much for Casper, according to Brooks. He noted that if anything it serves to "validate our conviction that we have the right strategy," though he said the company does not take pleasure from Mattress Firm's trip through Chapter 11.


"For over a hundred years a few players controlled virtually all the supply and distribution in this category and chose not to innovate or really think about the customer experience."

Jeff Brooks

CMO at Casper


"At the same time, for over a hundred years a few players controlled virtually all the supply and distribution in this category and chose not to innovate or really think about the customer experience," Brooks said. "You can do that in categories where consumers don't have choice, but once their eyes are opened to access and transparency and real product innovation and consumer-centricity, it's inevitable. And it would have been inevitable whether it was Casper or somebody else."

It's hard to find a competitor that gives Brooks pause. Mattress Firm obviously missed some customer cues over the years, but even e-commerce retailers ushered into the mattress category in the same wave of massive disruption as Casper — Tuft & Needle, Purple and Leesa, among others — exist in a realm that Casper is thinking about, but not overly concerned with, he said.

That stance is despite active efforts by all three to partner with prominent retailers and otherwise strengthen their market positioning. Of note, Leesa has paired up with West Elm and Pottery Barn over the past couple of years, Purple with Mattress Firm and, perhaps the biggest news, Tuft & Needle is set to merge with Serta Simmons Bedding. Even this last doesn't overly concern Brooks, who said Casper expects more consolidation in the market going forward.


"The overall impact to our business of [Amazon] now being in the category in that regard is not something that keeps us up at night."

Jeff Brooks

CMO at Casper


"We think it comes out of a defensive position, not an offensive position," Brooks said of the Tuft & Needle acquisition, "and that for us, if we continue to execute against our strategy, we'll have the luxury of making a whole bunch of different decisions on our terms."

That attitude holds true even as Amazon, retail's perennial disruptor, has made moves into the space, adding a memory foam mattress to its AmazonBasics private label line. Despite the success of Amazon's private label strategy in other categories, Brooks doesn't see the product they've put out as directly competitive. He says it caters to the "very, very low end of the market" rather than where Casper itself plays.

"Casper truly brings a premium product to the market that's highly engineered, highly designed at a higher price point and I don't think that level of fidelity can be replicated by Amazon or any other private label player in the space, for that matter," Brooks said. "Again, while we're not surprised to see them in there — we'll keep our eyes on it — the overall impact to our business of them now being in the category in that regard is not something that keeps us up at night."

Brick-and-mortar as a boxspring for growth

If competitors aren't keeping Casper up at night, its ambitious plans for the future probably are. The startup took significant steps in 2018 toward becoming a brick-and-mortar player. While it's been part of the plan for a while now and Casper has tested out many physical locations by opening pop-ups, February marked the retailer's first permanent store.

For most e-commerce startups, that in and of itself would be newsworthy, but just months later Casper announced plans to open 200 stores across North America within three years — a big investment in brick-and-mortar retail for a company that burst onto the scene as an e-commerce darling. That being said, physical retail has become increasingly popular with digitally native brands and, according to a recent study by JLL, companies in the space plan to open 850 stores in the next five years, a number which includes Casper's 200, along with brick-and-mortar moves from Away and Allbirds.

For the most part, that's to cater to the segment of the population that wants to try out a product before purchasing it, and give customers the option to buy wherever they want. But for Casper, it's also because their first forays into physical retail have gone really well.


"To see the demand for our products, services in the physical world when you're a digitally native brand is really humbling and it's not a story that a lot of companies are able to see through."

Jeff Brooks

CMO at Casper


"To see the demand for our products, services in the physical world when you're a digitally native brand is really humbling and it's not a story that a lot of companies are able to see through," Brooks said. "To see the stores as productive as they are and to see … the demand for trialing the beds such that in some cases people have to reserve those little bedrooms in advance just because of the traffic that we have in the stores. It's humbling."

Those little bedrooms Brooks mentioned — where customers can enter a room, close the curtain and try out a bed — were originally just part of the company's pop-up strategy, but they performed so well that the company's adopted them for all of its permanent locations, a light-hearted replacement for the warehouse-like setups of previous years.

While the design has been successful with customers, Brooks also notes that part of keeping the miniature houses in stores is about staying true to the "approachability and playfulness" of the brand. Customers have "come to expect" experiential elements from Casper, which have come to life in the Dreamery and the company's Nap Tours. Yet Brooks makes a point of saying that the store concepts are not just to push product, but also to encourage sleep as part of a trend toward wellness.

"For the Dreamery, part of the mission of bringing better sleep to more people is also thinking about airports, corporate environments, campuses," Brooks said, mentioning that the company is "actively talking" about expanding the concept. "The notion of the Dreamery is powerful, not really as a standalone retail destination, but more to say that there are opportunities for all people, whether you're a consumer, an employer, to think about how you enable yourself or your staff to rest when they need to."

Customers can step in and pull a privacy curtain over the door to test out mattresses.
Casper
 

As with many startups, key aspects of the company's purpose are reflected in the corporate culture. For Casper, that means nap pods at all corporate offices. They're available for any employees looking for a bit of shut-eye between meetings, and Brooks comments that it's not unusual to see someone catching a cat nap and giving a big presentation later in the day. Just like their wellness message would imply, Casper encourages employees to take short naps when they're tired to improve work quality. 

Hence: the Dreamery — an extension in some ways of what Casper tries to give its own employees. And though the retailer may be shifting more into brick-and-mortar locations in the future, it's still leaving room for more whimsical concepts, whether directly tied to the Dreamery or otherwise.

"There's certainly going to be a focus on moving into more permanent owned and operated retail and we have enough confidence in the fleet to be able to double down on that," Brooks said. "But we also want to be agile and opportunistic, so if we see pop-up or seasonal opportunities that make sense for the brand or the business, we'll certainly consider them."

Never sleep alone

For a startup that has grand plans for its own locations, Casper partners with a lot of retailers. Chief among them is Target, a partnership which has expanded since its beginnings in 2017 to include the Casper Essential mattress and an exclusive sheet line, among other things. Rumors even circulated at one point that Target planned to acquire the startup for $1 billion, but for now at least the partnership remains just that — though undoubtedly a useful one for Casper considering Target's position as one of the premier mass merchant's in retail. 

Outside of the Casper-Target relationship, though, the startup has also partnered with department stores Nordstrom and Hudson's Bay. All-in-all, those relationships have been a success, with wholesale environments creating high demand for Casper products, according to Brooks. As a result, the company's own plans won't get in the way of future partnerships — and they haven't stopped the retailer from joining up with the behemoth that Amazon has become either.

"We want to be where consumers are and so we've been selling on Amazon for a long time and will continue to sell on Amazon for a long time," Brooks said. "We view them as a valued, strategic distribution channel and partner, and if anything we're actually giving them access to more products from Casper than we had in the past. Just given their sheer presence in the market, I think not being there would limit our ability to reach a good population of consumers."

Casper is adamant that it is not just a mattress company, but a sleep company.
Casper
 

While the company's focus has stayed primarily in the U.S., Casper's been making moves into Canada as well, partnering with Hudson's Bay, EQ3 and Indigo, as well as opening its first flagship in the country. Brooks noted there were more locations and partnerships to come and said their flagship in Canada is "surpassing even the highest expectations that we had for it." Other international expansion is on the horizon as well, but North America is a focus area for the startup right now in terms of expanding reach and penetration.

When looking at Casper from a bird's-eye view, the company has everything to indicate a healthy and growing company — successful stores, plans to expand and a strong brand message, among other things — but although the company is facing a future that seems bright (and full of naps), it's not about to sleep on innovation either.

"It's always kind of balancing, how are we going to continue to grab market share and grow, but how are we thinking three years ahead?" Brooks said. "How are we going to disrupt ourselves and continue to disrupt ourselves so that we make sure we remain the leader in the category?"

That doesn't sound like a startup asleep at the wheel. It sounds more like the faint ring of an alarm waking the rest of retail up.

Article top image credit: Kendall Davis for Retail Dive

Up, up and Away: Inside the rise of a direct-to-consumer darling

The nearly three-year-old travel brand has momentum and money to scale, but how high can it fly before hitting its ceiling?

Steph Korey and Jen Rubio met on their first day as employees of Warby Parker, back in 2011 when the eyewear company was still a team of just 15. The formerly online-only e-commerce business — which by 2018 had rolled out over 85 brick-and-mortar stores — was then a pioneer for digitally native brands. And since, it's opened the door for an influx of disruptive direct-to-consumer brands in every category, from eyewear and beauty to apparel and luggage.

After spending two years building up expertise in supply chain (Korey) and social media (Rubio), the pair left around the same time to pursue separate opportunities: Columbia Business School for Korey and a fashion job with AllSaints in London for Rubio.

Then in 2015, Korey got a call from Rubio. She was traveling and needed to vent about a broken suitcase.

Over the phone, Korey said, they both wondered, "Why isn't there a great high-quality option that isn't going to break, that functions the way you need it to travel seamlessly, that's affordable — all the things we had created in the Warby experience around quality and affordability and convenience and excitement?" At the time, both were traveling frequently, but that was about the extent of their knowledge of the luggage market.

The inception of Away — the nearly three-year-old lifestyle brand co-founded by Korey and Rubio — was nothing like a lightbulb going off. At the time, Korey was consulting for another disruptive digitally native brand, Casper, and Rubio was delving into innovation in the luxury space.

"I think sometimes you hear the story of the person who started with 'I want to start a business' or 'I have an idea for a business' and take it from there, but that really was not our story," Korey told Retail Dive in an interview. "What happened with us is that we had a pain point, we looked into it and one thing led to another. All of a sudden we were like 'I guess we're already doing this.'"


"I think for Away, they found a good white space in the luggage market. There were no major players in that price range and there were no luggage brands positioned as a lifestyle brand."

Ayako Homma

Consultant at Euromonitor International


It's not that luggage was particularly exciting, Rubio told Retail Dive in an interview, but both saw the white space in a growing market. To them it begged to be painted with a vibrant brand story about travel, not just suitcases, despite a story that started with one faulty piece of luggage. The $225 minimalist, hard-shell carry on suitcase with a place to charge a phone was the first — and for a time only — Away product. Now, the founders have their sights set on much more than carry on, checked or even garment bags. Think Away hotels or even Away airlines, Rubio said.

The luggage market — dominated by players like LVMH's Rimowa on the higher end and Samsonite on the lower — is also ripe for the kind of innovation that direct-to-consumer brands are known to drive. By 2020, it's estimated that the global luggage market will hit $43.4 billion, according to a report released in August by Persistence Market Research.

In less than three years, Rubio (who is chief brand officer) and Korey (who is CEO) built Away into a business with over 200 employees, six stores and $81 million in venture capital financing. The brand has sold over 500,000 suitcases. Rapid growth has pleased investors and earned the company a reputation as a young disruptor to watch, but as Away moves beyond its cornerstone product and a handful of stores, it's reached a critical moment. Only a few years in, the brand has the momentum and money to scale, but how high can it fly before hitting its ceiling?

Why Away built itself on brand

Luggage has long been a neglected category in retail. Options are generally boring, yet practical — or the exact opposite.

"I think for Away, they found a good white space in the luggage market. There were no major players in that price range and there were no luggage brands positioned as a lifestyle brand," Ayako Homma, a consultant at Euromonitor International, told Retail Dive in an interview. She wouldn't go as far as to call Away a disruptor, but the company is increasing its recognition in the market.

For now, luxury brands like Rimowa, Delsey and Tumi aren't in direct competition with Away, since their price points are higher, Homma said. But, these brands are likely keeping an eye out for Away in the case it makes any upscale moves. That's not out of the question. Away's more recent "Aluminum Edition" line prices between $475 and $595.

In the social media age where evidence of global travel is a coveted status symbol, Away has injected excitement into the act of buying a suitcase, Lauren Price, director of client strategy for luxury and specialty retail at Gartner L2, told Retail Dive in an interview.

"I think it fits into a number of broader trends and interests, like travel, experiences and documenting them on social media. In that sense, it opened up consumers' eyes that when they're posting pictures on holiday, they should have a beautiful bag."


"Creating a brand people love is easier to do now than ever, but it also means there is a lot more noise because more brands are being born that are not really that authentic or genuine."

Jen Rubio

Away Co-Founder and Chief Brand Officer


Because so much of Away focuses on brand, as opposed to product, the company can think more outside of the box — a key advantage, Price noted.

From the very beginning, Rubio envisioned a brand that focused around people, experiences and storytelling — in essence, a lifestyle brand. "I think that's the difference between a brand and just like a company that sells things," she said. "Creating a brand people love is easier to do now than ever, but it also means there is a lot more noise because more brands are being born that are not really that authentic or genuine."

Away, much like trendy direct-to-consumer brands Glossier, Outdoor Voices and others, benefits from a tight consumer feedback loop that is made possible thanks to social media and other non-traditional retail channels like its podcast, Airplane Mode, and a travel magazine, Here.

Scrolling through Away's Instagram reveals a careful curation of on-trend user-generated content — including, in some cases, adorable dogs and babies in suitcases — and advertising campaigns touting the brand's collaboration with NBA star Dwyane Wade. Nearly every photo is tagged at a different location around the world.

Away and Dwyane Wade collaborated on a collection that rolled out in September.
Away
 

All of this may lead shoppers to believe that the demographic target is urban millennials, but Rubio argues the company has customers aged 18 to 98.

"I think it's kind of like a self-fulfilling prophecy," Rubio said. "We love our customers and we love our customers on social media, but the ones who are most active on social media aren't necessarily representative of our entire customer base, which is why we think social media is just a collection of channels for us to communicate with one type of customer." Stores, customer service phone lines, email, live chat and even billboards are other ways to reach different types of customers, she said.

"That's not a new playbook," Sucharita Kodali, an analyst at Forrester, told Retail Dive in an interview regarding the company's lifestyle appeal of being a brand, not a product. "Great. Fantastic, they've learned the great elements of an excellent marketing playbook. It ultimately comes down to execution, cash and do they have capital to invest in these additional places?"

Kodali is right to be skeptical of the rapid growth touted by some startups, considering that one in 10 fail. But Away, which is quickly moving out of that stage of development, is more insulated than many, thanks to a consistent stream of venture capital money. Exactly where those dollars are invested will be critical as the company moves into its next growth phase.

Funding rapid growth

Away started out with a piece of luggage, but the founders were never pitching a luggage company, says Eurie Kim, a partner at Forerunner Ventures, one of Away's first investors.

"They were pitching us a travel brand that was going to connect with their consumers in a different way, given their consumers are thinking about travel in a completely different mindset than they did ever before," she told Retail Dive in an interview. "That really resonated with what we thought was the big idea and the opportunity and why we ultimately invested before it launched."


"We want you to be boarding a plane with your Away suitcase and all the stuff in it be Away branded also."

Jen Rubio

Away Co-Founder and Chief Brand Officer


Early on, Korey and Rubio said they knew the company needed venture capital funding to achieve the potential it saw. But VC isn't the right path for every business. Along with capital come high expectations from impatient investors, eagerly awaiting early success metrics. "Jen and I realized if we wanted to put ourselves in a strong position and we needed capital in the future, setting ambitious goals and hitting them was really the most surefire way to make that happen," Korey said. "So that's what we prioritized."

Away is a privately held company that does not disclose sales figures, but according to Kim, who has continued to invest in the business, the team has consistently "exceeded expectations."

She attributes that to the combination of Korey's expertise in logistics and supply chain, and Rubio's branding and social media marketing prowess. "When you have both of those things covered, it's a formidable team," she said. "They've been probably one of the fastest growing brands that we've seen certainly to date."

Away has stores in the U.S. and London. 

 


This summer, the company declared it had reached profitability and also raised a fresh $50 million through investors like Forerunner Ventures, Global Founders Capital and Comcast Ventures. When asked if the company was planning to go public anytime soon, Korey said the team is focused on "building the biggest travel brand in the world."

"We think we've barely scratched the surface in terms of the opportunity of what we can be creating here, so we don't really think much about what an exit looks like," she said. "At the end of the day, an IPO is really just a fundraising event, and we just did some fundraising so we're all good for now."

Reaching new heights

The next step for Away is both simple and immensely complex if you ask Rubio. "Our goal is to make the perfect, most thoughtfully designed version of everything you need for travel," she said. If that sounds vague, that's because it's meant to. Rubio isn't ruling out anything, from apparel and skincare to airlines and hotels.

"We want you to be boarding a plane with your Away suitcase and all the stuff in it be Away branded also," she said, adding that the company would consider private label and partnership options.

Last year, the company tried its hand at a pop-up hotel in Paris. As a year-and-a-half-old brand at the time, Rubio said there was a lot to learn. "We were able to create this really amazing experience, but we took over an existing hotel that was beautiful, that was already built out. And it really made us take a step back and say, 'If there are Away hotels, is what we can bring to the table different in the real estate and the design?' Probably not. What people are really looking to us to change is the services and the experience."

Hotels are an increasingly popular retail concept, and it's a way for brands to expand beyond their core assortment of products. Luggage, unlike categories like handbags, isn't something people own a lot of, Homma said. "So for Away, which started as a luggage maker, how do they keep shoppers coming?" Product expansion is one answer — services and experiences are another.

For many industry onlookers, the explosion of young digitally native brands is reinvigorating the industry at a time when many stalwarts are closing stores and even filing for bankruptcy. Others, warn the honeymoon phase for brands like Away may be sunsetting.


"This growth that people think is going to be replicated indefinitely into the future is actually all of the growth of the brand over time compressed into three years."

Sucharita Kodali

Analyst at Forrester


"In the past, marketing was a slower build and it would take 15 years to build a brand," Kodali said. "What's different now, is that everybody who would possibly be interested in your brand has access to it all at once and the only limit is whether or not they know about it. And in the age of social, everybody knows about it all at once. This growth that people think is going to be replicated indefinitely into the future is actually all of the growth of the brand over time compressed into three years."

When a great brand grows, Kodali added, there's always an imbalance of supply and demand. "The problem with a lot of these startups is they are so desperate for the topline number that they push out as much demand as they can possibly get and then there's nowhere else to go," she said.

Others view Away's future through more optimistic eyes. Price, for example, sees a brand that is beginning to mature on several fronts, including in digital marketing. According to Gartner L2 data shared with Retail Dive, Away appeared in 350 keywords for shopping ads in April 2018. That number jumped to around 3,000 in May, June and July, and then it fell back down to around 650 in August and September.

"While Away has always been strong at PR and social, this shows that they're starting to broaden their digital marketing strategies to look like a more mature brand's, and also aiming to reach consumers from the bottom up (unbranded product search) to compliment their strong upper-funnel branding efforts," Price said in an email to Retail Dive.

The next step for Away is to move beyond its perception as a millennial favorite. "You can't wait too long and keep thinking that halo around you of being the new cool kid will last forever," she said.

Article top image credit: Masha Maltsava

30 minutes with Rent the Runway's CEO

Jennifer Hyman is leading retail into the sharing economy with well-oiled logistics and a truly disruptive model — one where customers are encouraged not to buy anything.

The following article is part of the "30 minutes" series, where Retail Dive talks to top executives about some of retail's hottest topics. For more, check out our landing page.

Jennifer HymanCo-Founder and CEO of Rent the Runway

Tenure

2009-Present

Experience

Hyman launched apparel rental startup Rent the Runway with Jennifer Fleiss in 2009 after graduating from Harvard Business School. She has been on the board of Estée Lauder since April 2018.

Jennifer Hyman rents nearly every article of clothing in her closet, with the exception of pajamas. Her closet, as she frequently says, is in the cloud.

Hyman co-founded a company built on the idea that women would rather spend less to rent a designer dress for an event than shell out top dollar for something that would only be worn once. And her bet has paid off handsomely. In the years since, the sharing economy has taken off and companies like Uber, Spotify and Airbnb have rattled the business world by dramatically altering consumer expectations.

"The rental economy in 2018 runs the majority of our lives," the CEO told Retail Dive in an interview in January. "If you think about how we interact now with transportation, with travel, with entertainment, with music and now with clothing, we're so used to having an option to rent or an option to subscribe, and as a customer we can make the choice that's best for us. Sometimes I want to take an Uber and sometimes I want to drive my car that I own."

While Rent the Runway may operate in the retail space, Hyman wouldn't classify her business as a retailer. It's more like a mashup of world's largest dry cleaner, logistics operator, style consultancy, subscription service and tech company.

So when Hyman looks around, she doesn't see many direct competitors. "Most of the players in the retail space, whether they're startups or they're established players, they all have the same value proposition to the consumer, which is trying to get the consumer to buy more stuff," Hyman said. "And our value proposition is exactly the opposite of that. We're trying to get consumers to buy less stuff."

As Rent the Runway closes in on a decade in operation, scaling the business further will take a very different form than retail's traditional path of building out as many stores in as many markets as possible. In fact, physical stores are far from the priority. In a series of interviews, Hyman shared with Retail Dive her philosophy for leading the business thus far and into the future.

Scaling from two to 1,200

Growing up, Hyman said she never considered entrepreneurship as being a possible career, until she realized all it meant was having an idea and building it. She started Rent the Runway after graduating from Harvard Business School with classmate and co-founder Jennifer Fleiss (who left Rent the Runway last year to launch Code 8, an extension of Walmart's innovation arm Store No. 8).  

To date, Rent the Runway has raised $210 million from a variety of investors, including a recent $20 million from Alibaba founders Jack Ma and Joe Tsai's financial firm Blue Pool Capital. According to research firm Lagniappe Labs, which first spotted the filing, that funding round valued the company at a little under $800 million. Because the company is privately held, a company spokesperson could not share sales or revenue figures, including whether the company is profitable. However, Recode has reported the company is profitable on an EBITDA basis. The spokesperson also would not comment on whether the company is aiming for an initial public offering, although Hyman has previously publicly mentioned that it is a possibility.


"I have an expectation that everyone who works here is going to have big ideas, is going to push the needle, that we're going to be able to continuously disrupt ourselves. People are going to be opinionated and that's how we're going to grow."

Jennifer Hyman

CEO and Co-Founder of Rent the Runway


Hyman's philosophy on leadership has always been to hire smart people passionate about the Rent the Runway vision, but the tactics have evolved with the company's growth from a team of two to 1,200 employees today.

"I have an expectation that everyone who works here is going to have big ideas, is going to push the needle, that we're going to be able to continuously disrupt ourselves. People are going to be opinionated and that's how we're going to grow," she said.

Executives can talk forever about what culture is, she said, but employees need to experience it in their day-to-day jobs. "They need to see in a meeting that they can debate each other, but still have kindness and positivity toward each other," she said. "They need to see that diversity of opinion is valued by nature of who gets rewarded with opportunities within the company."

But like many startups, Rent the Runway has faced criticism in the past for a cutthroat culture, one that in 2015 shed top talent including its chief financial officer and chief marketing officer, among others. 

Company culture is something Hyman is sensitive about, chalking it up to growing pains. "I also think [employees] need to see who an organization hires and who an organization lets go of. You say more about your company by nature of who you enabled to stay and thrive at your company," she told Retail Dive, adding that the company has an "extremely strong leadership team that's been together for years."

Stores with the efficiency of a Starbucks

These days, retailers know that their business can only scale so far by focusing only online or solely in brick-and-mortar. Rent the Runway is a part of the family of once pure-play e-tailers that is slowly building out a store presence. Today the company has five stores in major metro markets, including one in a Neiman Marcus department store. The total footprint, even years from now, won't rise dramatically, Hyman said, adding that over time she could potentially see a total of 20 to 25 Rent the Runway physical locations in the U.S.


"The movement that online businesses like Rent the Runway or Warby Parker or Bonobos have taken to offline stores has been, I think, conflated to mean that it's a huge strategy for us, whereas the majority of our sales — over 90% of our sales — are happening on mobile and online."

Jennifer Hyman

CEO and Co-Founder of Rent the Runway


"The movement that online businesses like Rent the Runway or Warby Parker or Bonobos have taken to offline stores has been, I think, conflated to mean that it's a huge strategy for us, whereas the majority of our sales — over 90% of our sales — are happening on mobile and online. [They] will continue to happen on mobile and online and we continue to see retail stores as being supplemental to the customer experience," Hyman told Retail Dive in January.

Rent the Runway is also among a growing number of companies that have tossed out traditional store metrics like sales per square foot to measure the success of physical locations. Stores instead are seen as an extension of customer service and serve to raise brand awareness.

Inside a Rent the Runway store.
Rent the Runway
 

"We're seeing our subscribers are coming into our stores, some of them a few times a week. Many of them are getting dressed for work in our store or dressed for their dates or their nights out, so they're coming in between 6 and 8 p.m. — we wanted to make the experience fun and luxurious, but give it an efficiency like a Starbucks," she said in January.

Granted, Rent the Runway stores are a bit different from traditional brick-and-mortar shops. If customers have an unlimited subscription, priced at $159 a month, they can pick out anything in the store without looking at a price tag, scan the item at a kiosk and be on their way.

To Hyman, it's a no brainer as to why so many retailers are struggling to get customers through the doors: Buying online is more convenient, efficient and fast. But that doesn't mean stores are dead — they just need to be better than the online purchase experience.

"It's having a personal experience where you could talk about what you love to wear, brands you've never tried before. One of our stylists can actually recommend, [or] have you try on 30 different outfits and help style you. And all of that data that we collect on you in the store will make your online experience better forever after that, because it will make the personalization algorithm we use for you that much more powerful."

'Our whole business is logistics'

Nearly all of Rent the Runway's 1,200 employees work with the supply chain in some way. Logistics and delivery are at the very core of the company's business model. It's where Rent the Runway innovates — and makes money.

At Recode’s Code Commerce event in Las Vegas in March, Hyman announced that at some point this year, the company will launch a logistics arm to help brands through the process of offering their clothing for rental. Several "big" retailers and brands have already signed on, although Hyman couldn't disclose their names. Nor has a date been selected for the rollout of the new logistics service, but Hyman said it's happening, "ASAP."

Inside a Rent the Runway warehouse, an employee spot cleans a skirt.
Rent the Runway
 

"We are not only giving them the ability to monetize their inventory via rental, but we're also giving them access to customer data that is critical for them growing their business and inventory data," she said.

While many of the details of the new business-to-business service aren't yet public, Hyman said it's been something that brands have been asking about for years. It's easy to see why — retailers are being flooded by a "returns tsunami" of online orders, according to recent report from Brightpearl. Globally, 25% of retailers will initiate online try-before-you-buy programs by 2019, but most are not ready for the proliferation of returns that could quadruple return costs for U.S. retailers.


"We run the largest dry cleaning facility in the world, integrated out of our warehouse, and we know more about how to restore and take care of designer garments then any other company in the world."

Jennifer Hyman

CEO and Co-Founder of Rent the Runway


So how does Rent the Runway manage the cost of shipping millions of products to and from dry cleaning warehouses? "Our whole business is logistics," Hyman said, adding she doesn't view it as a cost center.

"We've had to become the world experts in inbound logistics of receiving inventory back, inspecting it, repairing it, dry cleaning it [and] restoring it to absolutely perfect conditions. And so because of that, we're vertically integrated. We run the largest dry cleaning facility in the world, integrated out of our warehouse, and we know more about how to restore and take care of designer garments then any other company in the world," Hyman said.

That expertise didn't come easily. Over the years, the company has built a number of proprietary technology solutions and iterated on them to earn the competitive advantage it has today.

Using subscription to power retail's future

When Hyman thinks about the future of retail, iconic names from the past don't come to mind.

"When I think of retail businesses, I don't gravitate toward thinking about department stores. I think about the retail businesses that actually drive this industry, which are businesses like Amazon or Walmart or Zara or H&M," she said. "Those are the four retail businesses that drive consumption. And what those businesses have proven over the last few decades globally, is that people value quantity over quality and they value low price."

While a Rent the Runway subscription isn't cheap for many Americans, it does offer value on designer products as well as constant newness, which checks those boxes at least for wealthier, professional women. 

While Hyman couldn't reveal specific numbers on how many active subscribers the company has, she said that roughly 9 million women are Rent the Runway members. The demographics vary widely — from high school students looking for a more cost effective way to go to homecoming to pregnant women who may not want to be stuck with maternity clothing they may never wear again.


"Entrepreneurship is about failing quickly and the humility to learn."

Jennifer Hyman

CEO and Co-Founder of Rent the Runway


In the beginning, the assortment was mostly professional and formalwear, but Hyman said that today everyday clothing — which is included in its unlimited subscription plan that launched two years ago — makes up the majority of the merchandise mix and accounts for most of the revenue. And it even includes items less frequently used like beach bags and ski jackets.

"[Unlimited] customers are using [Rent the Runway] 150 days a year. So if you think about what other brands you transact with 150 days a year, the list is very, very small," she said. "It could be brands like Starbucks or Spotify or Netflix or Amazon Prime, but that's really it. So it's completely game changing in terms of how they're using this, they're using this as a true substitution for shopping."

As Rent the Runway continues to scale into retail's future, Hyman said testing and quickly learning is the key for any startup to remain a disruptor.

"The way you build an entrepreneurial culture is you give a team the power to innovate. And a lot of the choices that the team needs are not necessarily going to be the right choices initially, but if they're given the room to learn and grow and iterate those choices, you eventually lead to very, very successful ideas," she said. "So really, entrepreneurship is about failing quickly and the humility to learn."

UPDATE: The story has been updated to include additional information from the company to clarify current business operations and company history.

Article top image credit: Kendall Davis

Conversational Commerce: How one apparel startup aims to spark a size revolution

Universal Standard is fed up with the fashion industry's extensive sizing problem. Partnerships with J. Crew and Nordstrom are allowing it to reshape how retailers approach plus-sizes.

Welcome to Conversational Commerce, the podcast where we break down the biggest retail news and trends with executives, thought leaders and the Retail Dive team. You can check out all our episodes here and listen on iTunes or Stitcher.

The plus-size apparel market has come a long way since its humble beginnings rooted in Lane Bryant's maternity sectionWith the rise of e-commerce, digitally native brands in the space have begun to crop up in recent years to offer more — and more stylish — options.

Modcloth and Eloquii are two of those brands. Over the last year, both have been acquired by big-box giant Walmart, which is keying in on the $21 billion market opportunity. That's how much American shoppers spent on plus-size clothing in 2016, according to market research firm The NPD Group. The segment is growing at twice the rate of the overall apparel market, with anticipated growth of 4% annually to hit $24 billion by 2020.

Despite the fact that many brands don't offer above a size 12 unless through a special plus-size collection, the average American woman wears a size 16 or 18, according to a 2016 study published in the International Journal of Fashion Design, Technology, and Education.

"It doesn't make any sense to miss out on 70% of female consumers in the United States alone," Universal Standard Co-Founder and Creative Director Alexandra Waldman told Retail Dive on the podcast.

Waldman and her co-founder Polina Veksler (who is also the CEO) launched their digitally native brand with two main hopes. The first, to create a digital-first lifestyle brand that offers the largest size selection of any apparel brand. In October, they took a major step toward that dream with the launch of apparel in every size between 00 and 40. They also opened their first brick-and-mortar store, a long-term pop-up in New York City's SoHo neighborhood.

The company's loftier goal is to challenge the way in which all retailers and brands think about sizing, so that it's easier for women of all sizes to shop together. Universal Standard has set out to do that in part by working with retailers like J. Crew, Nordstrom and most recently Gwyneth Paltrow's Goop lifestyle brand to help launch expanded sizing collections.

"I think there is a tendency to default back to the old ways, the way things have always been done and I think that the more progressive brands are already seeing the writing on the wall and already making plans. The less progressive ones are going to have to catch up," Waldman said, adding that she hopes Universal Standard will set an example for how brands can approach plus-sizes in a way that benefits everyone from the consumer to the manufacturer.

You'll hear all this and more in this episode, so sit back, relax and listen. You can stream the episode below or subscribe on iTunes or Stitcher.

Article top image credit: Retail Dive