If the buzzword of the direct-to-consumer boom was “disrupt,” the buzzword of the bust is “next.”
When Allbirds announced it was cutting 8 percent of its corporate staff last week, it did so to “set up the next phase of growth.” RealReal founder and CEO Julie Wainwright said she would step down at “the right time for the next generation of leadership to guide the company through its next chapter.” Glossier CEO Kyle Leahy didn’t use the word, but he was in spirits with his fellow start-ups when he cited “unlocking Glossier’s long-term potential” as the impetus for a corporate reorganization.
There’s a reason so many fashion and beauty startups focus on the future: There’s not much to celebrate about the present. This week, four of these companies will report second-quarter results: direct-to-consumer brands Allbirds and Warby Parker, reselling platforms The RealReal and Poshmark.
All four have a similar story to tell. Its IPOs, from The RealReal in 2019 to Warby Parker in September 2021, have capitalized on years of success attracting new clients, thanks to genuinely innovative business models, but also to varying degrees smart branding and lots and lots of digital advertising. Neither was consistently profitable, though its executives made the case (new stores, automation, slow headlines, optimistic projections for customer lifetime value) as to why it was only a matter of time before it went black.
It hasn’t worked, or at least not fast enough. These companies were all unicorns multiple times when they went public; only Warby Parker can claim that status today. Rising borrowing costs and recession fears mean they can’t count on cheap cash from investors and lenders to cover losses.
Now, as earnings season rolls around, these companies are trying to convince investors that they can operate like mainstream brands, rather than outsiders breaking the status quo. That means putting profitability first, even if it requires hitting the brakes on growth a bit. Store counts are the new customer lifetime value. Wholesale deals are a coup, not a capitulation.
There is a more recently public company reporting results this week, and it has a different story to tell. Olaplex, the prestigious hair care brand that went public the day after Warby Parker last September, built its business the old-fashioned way through salon endorsements and celebrity stylist sponsorships. Direct sales is the brand’s fastest-growing channel, but it came after it already had a following, and along with wholesale deals with Sephora and Ulta.
It’s no accident that Olaplex avoided the worst of the startup crisis this year, even though its shares fell more than 30 percent. It’s profitable, and it’s no coincidence that its market capitalization is more than double that of the other four public companies mentioned in this article combined.
The lesson here is that sales matter, but it also matters where those sales occur and how much it costs to generate them. Brands that operate like industry incumbents, but with better products and smarter marketing, are thriving. They also have the luxury of borrowing the best from the DTC playbook while avoiding the pitfalls that have ensnared so many startups. Whether the former unicorns can return behaving more like the rivals they tried to disrupt remains to be seen.
What to see this week
Allbirds reports results
MAGIC trade show opens in Las Vegas
Copenhagen Fashion Week kicks off; shows until August 12
The RealReal, Olaplex, Inter Parfums, Capri and Ralph Lauren report earnings
Fossil and Shiseido report results
Sneaker Week concludes in Portland
Warby Parker, Poshmark, Brilliant Earth and Canada Goose report results
Kylie Cosmetics opens a four-day pop-up ‘glam park’ in London’s Covent Garden
UK Second Quarter GDP Release; last week, the Bank of England warned that a recession is increasingly likely later this year
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