LOS ANGELES, CA - APRIL 30: Brandless Co-Founder and CEO Tina Sharkey (center), Maggie Grace (2nd ... [+]
Brandless is no more. The company that burst onto the scene in July 2017 and then was named Disruptor of the Year by Retail Dive just a scant five months later has just closed up shop.
All that remains now of the once darling company is a short, three paragraph note on the company’s website that thanks its customers and also proffers one odd bit of rationale for why the company folded — namely, that “the fiercely competitive direct-to-consumer market has proven unsustainable for our current business model.”
Hold the phone. Say what?
Competition is a fact of life in business. To use competition as a rationale for coming and leaving the market like Crystal Pepsi misses the mark. Brandless didn’t fail because of competition. Brandless failed because it was an idea that never knew what it wanted to be when it grew up.
What Brandless zealots, its celebrity investors, and SoftBank especially (SoftBank was rumored to have invested nearly $100 million in Brandless) missed is that every new direct-to-consumer “brand” always ends up, if successful, as one of three distinctly different ideas.
They either become:
- A consumer packaged goods company (aka a CPG)
- A retailer
- A flash in the pan, infomercial-style fad
Sometimes, successful companies can become both CPGs and retailers but that most often happens in apparel, other specialty retail categories, or occasionally in instances where a company sells its own line of branded products alongside others. But, usually, the latter starts as a retail idea first versus the other way around. Rarely do you see an owned-branded CPG product company become a retailer and start selling other companies’ products, too.
Myriads of direct-to-consumer companies have found success across all three of these buckets despite a “fiercely competitive” market. Harry’s and Quip, for example, succeeded in the razor and toothbrush categories, and, while they have each experimented with pop-up retail in various shapes and sizes, at the end of the day, they are both consumer packaged goods companies who have benefited from large national distribution on the shelves of companies like Target and Walmart.
On the retailing side, there’s companies like Indochino or the much more well thought out and competitive rival to Brandless, Thrive Market. Both companies started out “direct-to-consumer” but neither one ever made any illusions to the marketplace about who they were from the beginning. They were both “brands,” yes, but, more importantly, they were always retailers from the get-go. Indochino now has its own stores, where it sells its own line of custom men’s suiting, while Thrive Market is still maturing and sells many different types of natural and organic products and brands to its customers online, just like a grocery retailer often does.
While companies always start with the same media moniker — aka “DTC brands” — the word “brand” is almost useless in understanding who or what any of these companies actually are.
The more important question is: What is the ultimate outlet or path to profitability, “brand” aside?
The answer should always be clear.
For product companies, the answer is likely additional points of distribution within retailers. For retailers, the answer likely has something to do with moving beyond the digital world and into physical retailing as well, for one doesn’t need more than ten fingers to count the number of e-commerce pure plays that have become successful going concerns over the past few decades.
Brandless had none of these options on the horizon from its conception. Brandless started out with roughly 100 items, all at a $3 price point. The packaging was smart, even the name was a wink and a smile. But, it had no end game.
Scenario plan for a moment.
What was the end road? $3 products on the shelves of a Walmart or Target, like a Harry’s razor or even a Casper mattress?
Absolutely not.
First, Target and Walmart already have their own private label products (likely from some of the same manufacturers, too), and, second, merchandising $3 items across an entire grocery store or supercenter waters down the effect of what Brandless was trying to create online. For example, a $3 bag of beef jerky ten or 20 feet away from facial wipes in another aisle, both all to their lonesome on their respective shelves next to other products, has no power and impact.
But, what about making it as a retailer? Couldn’t Brandless have become a retailer?
Again, no way.
A Brandless store of just Brandless products would have just made consumers’ lives more difficult. People want choice. Amazon has made a living off this universal truth for decades.
Consumers may want to feel good about the sustainability of their hand lotion, but sometimes they also just want a bag of Oreos or Doritos. A physical Brandless store, therefore, would have forced a second trip, a second trip to find the very same products that consumers can already find at their neighboring grocery stores for similar or better prices.
Investors and the leadership should have seen the lack of bite in these scenarios, but instead the bark of captivating marketing held sway.
The writing was on the wall that the consumer fad approach was all that was really ever in play from the beginning. There was talk of “brand taxes” and “scaling kindness,” ideas that sounded good on the surface, but, at the end of the day, were just charisma masquerading as value the very same way Ron Popeil used to look people dead in the eye and ask them to buy spray-on hair.
After the dot-com crash of the late 1990s, one would have thought the venture capitalists would have seen through all the brand tax hokum, but clearly they did not. At best, all Brandless could have ever become was a flash-in-the-pan, something that captured the zeitgeist of consumers like a modern day “As Seen on TV” ad campaign, but even that never had a chance given the economics of selling a $3 price point online.
Something though captured people’s imaginations. Something with Brandless played on people’s emotions, which asks the question: Are there more of them out there? Is there another Brandless to come?
Social media makes it easier than ever for the next generation of hucksters to hit the market, but the laws and dynamics of business still matter. Every new direct-to-consumer brand will all become one thing or the other when it grows up — a product, a retailer, or a pet rock, i.e. a hot idea on which you can make money but one in which it is as important to know when to get in as it is to know when to get out.
It is not rocket science, but thinking through the scenarios matters. Thinking through the scenarios likely tempers unnecessary high valuations and, more importantly, limits the errors in judgement that come from placing too much excitement on business charisma, sexy Instagram ads, and the allure of rubbing elbows with celebrities.
After all, a razor is just a razor, a mattress is just a mattress, and neither one is the greatest thing since sliced bread.
Note: This article should not be construed as investment advice, it is solely the opinion of the author.
