If the buzzword of the direct-to-consumer boom was “disrupt,” the bust word is “next.”
When Allbirds announced last week that it was cutting 8% of its staff, it did so to “set in place the next phase of growth”. RealReal founder and chief executive Julie Wainwright said she is stepping down “at the right time for the next generation of leaders to guide the company into its next chapter.” Glossier CEO Kyle Leahy didn’t use the word, but was with fellow start-ups in mind when she cited “unleashing Glossier’s long-term potential” as the impetus for a revamp. of business.
There’s a reason so many fashion and beauty startups are focused on the future – there’s not much to celebrate about the present. This week, four of those companies will report their second-quarter results: direct-to-consumer brands Allbirds and Warby Parker, resale platforms The RealReal and Poshmark.
All four have a similar story to tell. Their IPOs, from The RealReal in 2019 to Warby Parker in September 2021, have capitalized on years of success to attract new customers, thanks to genuinely innovative business models, but also to varying degrees of clever branding. and many digital advertisements. None were consistently profitable, though their executives laid out the case – new stores, automation, slow incumbents, pink projections for customer lifetime value – to explain why it was only a matter of time before they don’t switch in the dark.
It didn’t work, or at least not fast enough. These companies were all multiple times unicorns when they went public; only Warby Parker can claim this status today. Rising borrowing costs and recession fears mean they cannot rely on getting cheap cash from investors and lenders to cover losses.
Now, as earnings season approaches, these companies are trying to convince investors that they can operate as conventional brands, rather than outsiders shattering the status quo. That is to say, focus on profitability, even if this requires pressing a little on the brakes on growth. The number of stores corresponds to the new customer lifetime value. Wholesale deals are a coup, not a sellout.
There’s another newly listed company reporting earnings this week, and it has a different story to tell. Olaplex, the high-profile hair-care brand that went public the day after Warby Parker last September, built its business the old-fashioned way through salons and celebrity hairstylist endorsements. Direct sales are the brand’s fastest growing channel, but they came after it already had an audience, and alongside wholesale deals with Sephora and Ulta.
It’s no coincidence that Olaplex avoided the worst of the startup crash this year, despite its shares falling more than 30%. It’s profitable, and it’s no coincidence that its market capitalization is more than double the other four public companies mentioned in this article combined.
The lesson here is that sales are important, but where those sales happen and how much it costs to generate them is also important. Brands that operate like the industry incumbents, but with better products and smarter marketing, are on the rise. They also have the luxury of borrowing the best from the DTC playbook while avoiding the pitfalls that have trapped so many start-ups. Whether the old unicorns can make a comeback, behaving more like the rivals they tried to disrupt, remains to be seen.
What to watch this week
Allbirds reports the results
Opening of the MAGIC lounge in Las Vegas
Copenhagen Fashion Week begins; shows until August 12
RealReal, Olaplex, Inter Parfums, Capri and Ralph Lauren publish their results
Fossil and Shiseido announce their results
Sneaker Week ends in Portland
Warby Parker, Poshmark, Brilliant Earth and Canada Goose report results
Kylie Cosmetics opens four-day pop-up ‘glam park’ in London’s Covent Garden
Publication of British GDP for the second quarter; last week the Bank of England warned that a recession is increasingly likely later this year
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