DEATH OF PUREPLAY RETAIL

INTELLIGENCE REPORT DEATH OF PUREPLAY RETAIL RETURN ON INVESTMENT

The New Path to Growth In sum, the two-for-one benefits of stores (retail profitability coupled with the marketing boost to the online channel) helps evolved retailers to grow faster and/or with less capital outlay than their online-only peers. A comparison of two retailers with similar levels of venture capital funding, ModCloth and Birchbox, underscores this effect. Founded in 2002, apparel e-tailer ModCloth grew slowly until its first funding round in 2008, when revenues began to increase more quickly. Over the next four years, ModCloth raised a total of $63.7 million in funding and finally achieved $100 million in annual sales in 2012, 10 years after its founding. Birchbox grew more quickly with less capital, achieving $125 million in sales 60 with $11.9 million in total funding 61 by the start of 2014, only four years after its founding. During its first four years, Birchbox also began experimenting with brick-and-mortar. The retailer opened a popup shop in New York City’s Chelsea Market in September 2013, and in the months that followed, saw branded Google search volume rise. In April 2014, Birchbox announced a $60 million round to help fund its first permanent store, 62 which opened in July 2014. Large spikes in branded Google search volume and organic search traffic also followed this store opening, and have not diminished to pre-store levels.

Death of Pureplay Retail: Average Monthly Searches for Keyword “Birchbox” September 2013—August 2015

600k

First Popup Shop Opened

400k

200k

Birchbox Store Opened

Average Monthly Searches

0k

Sep. 2013

Dec. 2013

Mar. 2014

Jun. 2014

Sep. 2014

Dec. 2014

Mar. 2015

Jun. 2015

Sep. 2015

Source: Crunchbase; Internet Retailer 2015.

60. “ Exclusive: Birchbox banks $60 million ,” Fortune, April 21, 2014. 61. Crunchbase. 62. “ Exclusive: Birchbox banks $60 million ,” Fortune, April 21, 2014.

Death of Pureplay Retail: Annual Sales & Venture Capital Funding Millions of Dollars ■ Birchbox Funding Birchbox Sales ■ ModCloth Funding ModCloth Sales

$80

Capital Funding

$160

$60

$120

$100M Revenue

Annual Sales

$100M Revenue

$40

$80

Opens Flagship

$20

$40

Opens Popup

$0

$0

Jan. 2002

Jan. 2004

Jan. 2006

Jan. 2008

Jan. 2010

Jan. 2012

Jan. 2014

Source: Crunchbase; Internet Retailer; “ Exclusive: Birchbox banks $60 million ,” Fortune, April 21, 2014.

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January 12, 2016