DEATH OF PUREPLAY RETAIL

INTELLIGENCE REPORT DEATH OF PUREPLAY RETAIL INTRODUCTION

Category vs. Channel While the latest crop of retail “winners”—digital darlings like Warby Parker and Casper—may have originated online, success is not a channel effect. These disruptors saw the Internet as a way to establish proof of concept and access cheap capital before making a capital outlay to build stores, in niche categories with broken supply chains and inferior consumer experiences. The rapid growth of subscription-service Dollar Shave Club is not attributable to the online- only model, but to Gillette’s inflated margins in a consolidated industry 4 with desirable ship-to-weight ratios. Opening store locations has further reinforced the viability of these new business models, for retailers who have made the leap. The New Path to Growth Among the thirteen VC-backed “evolved pureplay” retailers tracked in the study (e-tailers who have experimented with brick-and-mortar retail), two-thirds raised capital with the explicit purpose of building stores. In addition to four-wall profitability, these investments are a marketing expense—generating always-on brand awareness that can (theoretically) self-fund. The ripple effect permeates digital channels: e-tailers with a terrestrial presence enjoy greater organic site traffic and lower customer acquisition costs via paid search and email. Since opening “guideshops” in major cities including New York, San Francisco and Boston, men’s retailer Bonobos cut digital marketing spend from 25 to 4 percent of net sales—while leading the industry in organic site traffic, and maintaining online conversion rates of 5 percent. 5 4. “Is P&G’s Gillette scared of Dollar Shave Club?” The Motley Fool, June 27, 2015. 5. “ After 8 years and $128 million raised, the clock is ticking for men’s retailer

Death of Pureplay Retail: Companies With Fastest E-Commerce Sales Growth Select Pureplay Retailers 2015

E-Commerce Sales (2014)

E-Commerce Sales Growth (2014)

Profitability

“It’s not clear if the company is profitable.” Re/code, May 2015

$65,020,000

550.2%

“...Dollar Shave Club is not yet profitable.” The Wall Street Journal, June 2015

$65,000,000

242.1%

“At this time, the e-retailer is running about break even.” Internet Retailer, October 2015

$30,030,000

200.3%

“Honest has dipped in and out of profitability; it is not yet consistently profitable.” Re/code, March 2015 “The company, which launched three years ago had been profitable since its third month.” Fortune, October 2014

$149,200,000

198.4%

$27,000,000

170.0%

Source: Internet Retailer | L2 Intelligence Report: Death of Pureplay Retail, January 2016.

Death of Pureplay Retail: Stated Purpose for Most Recent Funding Round For Venture Capital-Backed Evolved Pureplay Retailers 2015, n=13

31% Used

69% Used for Store Expansion

for Other Expenses

Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.

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January 12, 2016