Retail apocalypse? How about a disruptor meltdown?
A version of this article originally appeared at Forbes.com, where Steve Dennis is a senior retail contributor.
Dozens of digitally-native vertical brands continue to attract vast amounts of venture capital with a growing number reaching unicorn status. They also garner significant consumer interest and generally wreak havoc with the sales and margins of industry incumbents.
As such, it’s hard to argue that they haven’t been disruptive.
Well, there’s one problem. As time goes on, a significant number of these businesses are looking likely to be the Pets.com of the approaching decade.
Already evident from the crashes of flash-sales and meal kits, the difficulties inherent in scaling just about any pure-play online retail business have only recently started to gain attention and are pushing virtually all of these brands to open the physical stores they once decried.
I’m not suggesting that none of these disruptor brands will turn out to be significant sustainable businesses over time. Yet, it seems eminently reasonable to ask whether part of the reason consumers love many of these brands is because their prices are artificially low and/or the service and product benefits built into their business models are over-engineered relative to the prospect of ever earning a decent return at the scale at which these brands need to grow.
The few recent retail disruptors that have gone public such as Chewy and TheRealReal are gobbling up market share, but their losses are significant and growing. Wayfair, founded in 2002, just posted a staggering quarterly loss of $272 million, up more than 80 percent.
Recent comments by Everlane’s CEO on the sparse profitability of pure-play online, news that Walmart’s digital businesses are losing $1 billion annually and Nordstrom’s nearly $200 million write-down of Trunk Club are also hammering home the profitability hurdles facing digital-first startups.
The disaster that is WeWork along with the less than stellar Uber IPO will likely cause investors to take a closer look at the underlying economic reality of fast-growing, cash-devouring businesses. Whether the digital natives can scale the steps into physical retail will also likely face heavy scrutiny.
It’s convenient to say that “these are still early days” and sizable investments are always needed to “build the brand” and put in the necessary infrastructure. Well, sometimes.
- Retail Apocalypse? Maybe It’s Time To Worry About A Disruptor Meltdown? – Forbes
- Glossier, Casper, Rent the Runway, and Away are 2019’s retail unicorns — here’s how the products they created earned each of them the coveted title – Business Insider
- E-commerce’s pesky little profitability problem – Steve Dennis’ Blog
- Squeeze Play: The Luxury Off-Price Market Hits the Wall – Steve Dennis’ Blog
- Wayfair, StitchFix And Pure-Play E-commerce’s Scaling Problem – Steve Dennis’ Blog
- Despite A Booming Stock Price, Wayfair Is No Amazon – Forbes
- Everlane needed to open stores, CEO Michael Preysman explains why – CNBC
- Inside the conflict at Walmart that’s threatening its high-stakes race with Amazon – Recode
- Emory University professor: Customer behavior should play a bigger role in the value of a company – Atlanta Business Chronicle
- Recipe for disaster: The meteoric rise and ongoing demise of Blue Apron – Pitchbook
- The Uber IPO changed everything for the market – CNBC
DISCUSSION QUESTIONS: Do you see signs that many of retail’s digital-first start-ups are heading for a shakeout? How convinced are you that the investment community is losing patience with the path to profitability for many of these companies?